In my last column, I presented some fairly staggering bankruptcy statistics and the implications of taking the financial steps towards declaring bankruptcy.
There are, however, additional factors to consider, which a reader named Sean gladly contributed:
•Student loans that are greater than 10 years old can be included in a bankruptcy settlement.
There is movement afoot to change that number to seven years and even possibly five in cases of severe hardship.
•Your bankruptcy does remain on your credit record for seven years, but it is easier to rebuild your credit rating than if you were under a credit payback proposal.
•Credit providers are still reluctant to extend credit to such individuals, but a discharged bankrupt who has a decent job, is earning a respectable salary and is, in fact, debt free will often lead to credit providers extending credit where they otherwise might not have.
One sees a lot of advertisements for debt consolidation, which is also a possibility for some who find that they are burdened with consumer debt.
The idea is to combine your debts under one umbrella instrument and at usually much lower interest rates than those of the individual credit facilities (i.e. cards), thereby making the consolidated monthly payback feasible.
A factor that many do not consider is that bankruptcy is a fresh start and alleviates a lot of stress and allows people to get on with their lives.
So, in the end, it may be a very feasible and reasonable way to move forward.
Of course, as a business lawyer, I see other effective methods of protecting one’s personal assets from business bankruptcy.
One very common method is to simply transfer all of your personal assets to that of your spouse.
Obviously, this cannot be done fraudulently within weeks of your business failure, but if a spouse is entering a risky venture, this is a perfectly acceptable way of reducing family asset exposure.
Also, incorporating your business limits the personal assets that creditors can seize.
The shareholder is only exposed to the amount of money they have invested, unless, of course, their actions which brought about the financial downfall of the company can be deemed to be “grossly negligent.”
Shareholding principals of incorporated companies should be wary of personal guarantees (a favourite of financial institutions) that principals sign to borrow money to grow their company.
This may still result in the sale of the family home or seizure of other assets and savings.
All of this is not to trick the creditor — the idea is to use credit prudently.
If you find you or your business are buckling under huge debts, weigh your options carefully and obtain as much good advice as possible before making any financial decisions which could have life-altering implications.
Jeffrey D. Cowan, B.A., B.Comm, LL.B., M.B.A., is the Principal of Cowan & Taylor, Barristers & Solicitors which practises in the areas of business and real estate law. Cowan appears in Your Money every other week. E-mail jeff@cowanandtaylor.comor call 416-363-5046 with questions for future columns. The information contained in this article should not be relied upon as legal advice.
