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Don’t avoid the bankruptcy discussion


Thankfully, there are alternatives to personal bankruptcy.  Say the word bankruptcy and people naturally recoil. I don’t know if there is more stigma attached to another word in the English language. In reality bankruptcy is not something to be ashamed of, it should not be avoided at all costs and it’s not a deep dark hole; it can be the light at the end of the tunnel. As with other alternatives to personal bankruptcy, it is an option. Let’s explore why avoiding bankruptcy can do more harm than good.

What is bankruptcy? 

Bankruptcy is incredibly misunderstood. According to the Office of the Superintendent of Bankruptcy Canada, bankruptcy is a legal process designed to relieve honest but unfortunate debtors of their debts. 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).

Why avoiding bankruptcy can do more harm than good

Although there are alternatives to personal bankruptcy which merit review, bankruptcy is often a good thing. A recent report by the Federal Reserve Bank of New York states:

  • People who filed bankruptcy had access to more new lines of credit than those who limped along in a poor financial state which clearly puts to rest the misconception that filing bankruptcy closes the door to new credit.
  • Those who didn’t file bankruptcy were described as insolvent.
  • The individuals who go bankrupt experience a sharp boost in their credit score after bankruptcy, whereas the recovery in credit score is much lower for individuals who do not go bankrupt
  • Insolvent individuals who do not go bankrupt exhibit more financial stress than those who do.

 


Mark Borkowski

Mark Borkowski

Mark Borkowski is president of Mercantile Mergers & Acquisitions – a mid-market M&A brokerage firm in Toronto specializing in the transportation industry.
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