Will Bankruptcy Ruin My Credit?
People often try to avoid bankruptcy at all costs because they are worried about ruining their credit rating. They pride themselves on paying their bills on time, have always maintained a strong credit score and they thought of doing anything to jeopardize that is unthinkable.
What’s important to remember is that your credit rating is not a reflection on you as a person; it’s a reflection on how you pay your debts. If your ability to repay your debts has been impacted by the loss of employment, sickness, marital breakdown or something beyond your control, then you have to make some tough short-term choices to protect the overall long-term well-being of you and your family.
Federal bankruptcy legislation, known as the Bankruptcy and Insolvency Act, provides for the legal process designed to do just that. It’s meant to provide relief from unsecured debts for the honest but unfortunate debtor. At the end of the process, the bankrupt is released from the obligation to repay the debts they had when the bankruptcy was filed (with some exceptions).
Here is a list of some of the debt assistance options available to consumers and the credit impact of each of their programs:
Debt Settlement Companies - They negotiate settlements with your unsecured creditors to accept less than what is owed. These programs report as an R-9 on your credit file and will remain there for 6-7 years from the date the debts are paid in full.
Credit Counselling Companies - They offer Debt Management or Debt Repayment Programs whereby they negotiate reduced payments and interest with your unsecured creditors but, the debts are typically paid in-full. Their program terms typically run for 4-5 years. Their program will eventually get reported as an R-7 on your credit report and the information will remain there for 2-3 years after the program is successfully completed.
1) Bankruptcy - offered to individuals and businesses and can only be provided by a Licensed Insolvency Trustee (formerly Trustee in Bankruptcy). The debts included in bankruptcy will reflect as R-9s on your credit report and will remain there for 6-7 years (14 years for multiple bankruptcies) after your discharge date.
2) Consumer Proposal - allows you to settle your debts at less than 100 cents on the dollar through an affordable monthly payment plan. Unlike credit counselling or debt settlement company programs, a consumer proposal, once accepted, is legally binding on all of your unsecured creditors. All interest and late fees will cease and you only pay the principle. A successfully completed proposal will stay on your credit report for 3 years after the proposal is completed.
Powell Associates Ltd. is a Licensed Insolvency Trustee (LIT) focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses. We offer free consultations to review your personal financial situation and practical debt resolution options. Contact us to discuss your situation over the phone or book an appointment to meet us face-to-face in Saint John, Moncton, Fredericton, Charlottetown or Dartmouth - it's your choice.