The Truth About Bankruptcy and Your Career
Filing for bankruptcy brings along many concerns, one common concern being the impact it may have on your career. This article will explain the main downsides of filing an assignment in bankruptcy, whether or not it can affect your employment, and what may be a better and safer option to settle your debt without hurting your career.
What Is Bankruptcy?
The bankruptcy process is a legal process. It is described in a federal statute called the Bankruptcy and Insolvency Act (the BIA). Its purpose is to give Canadians in significant financial distress a legal, affordable and timely way to get out of debt and to have a fresh financial start. The only professionals authorized to assist you are Licensed Insolvency Trustees (LIT).
What Are the Downsides of Bankruptcy?
Loss of Assets
Upon declaring bankruptcy, the bankrupt is assigning their assets to the LIT. The LIT is then required to take possession of the bankrupt’s assets (except those assets that are exempt from seizure by law), sell them, and distribute the funds to the creditors.
Impact on Credit
Credit ratings are established and maintained by the credit bureaus and credit grantors. Declaring bankruptcy will typically leave you with the lowest possible credit rating. In Ontario, this is referred to as an R9. As a first time bankrupt in Ontario, it will stay on your credit record for six to seven years following the date of discharge, depending on the credit bureau (six years for Equifax and seven years for TransUnion). A second, third, or additional bankruptcy will remain on your credit rating for fourteen years following your discharge. Over time, you can work towards rebuilding a good credit rating.
It Can Affect Your Spouse
If your spouse has guaranteed or co-signed your debts, their liability for the debt will not be discharged as part of your bankruptcy. They will be held responsible for them, despite your bankruptcy. If you are both unable to pay your respective debts, it may be best for you to consider filing a joint bankruptcy.
How Does Bankruptcy Affect Employment?
It’s intimidating to think that your current or future employer may discover a bankruptcy file in your records, especially when your follow-up thought is whether or not that impacts your ability to obtain work or keep your job.
The BIA states that an employer is not permitted to dismiss, suspend, or otherwise discipline an employee due to bankruptcy.
In many situations, your current employer does not need to know that you declared bankruptcy. Although, if your wages are being garnished, the LIT will need to contact your payroll department to advise of the bankruptcy in order to stop the garnishment.
In certain circumstances, you may be required to disclose this information to your employer. This would be the case if you have a professional designation and/or license and your association requires disclosure of a bankruptcy. As a result, bankruptcy may affect professional designations and licenses such as accountants, lawyers, mutual fund licenses, and real estate brokers.
Bankruptcy may also affect your application for new employment opportunities. Many new employers will run a credit check as part of the hiring process. In addition, employment that requires security clearance, in most cases, will include a credit check. Although, they will need your permission to do so. In the event of being asked to authorize a credit check in your search for employment, be upfront about what the employer will find in your credit report.
What Is a Consumer Proposal and Why Should You Choose This Instead?
A Consumer Proposal is a legal process in negotiating an agreement between the debtor and their creditors where the creditors will agree to forgive a portion of the debt, while the debtor agrees to make an affordable monthly payment towards the balance over a fixed period.
Benefits of a Consumer Proposal
Less Effect on Your Career
Consumer Proposals are less invasive than bankruptcies and typically do not impact your career. A Consumer Proposal shows that you are managing your situation by paying off your debt in affordable monthly installments.
Unless your employer is one of your creditors, your wages are being garnished, or your employment requires security clearance, it is unlikely for them to find out you have entered into a Consumer Proposal. If you have a professional designation or license, similar to bankruptcy, you may be required to notify your professional association.
Typically, Assets are Retained
Unlike bankruptcy, the debtor’s assets do not vest with the LIT. In most cases, Consumer Proposal terms are made up of monthly payments over a number of years and the debtor is permitted to retain all or most of their assets.
Less Impact on Your Credit
In Ontario, upon filing a Consumer Proposal, your credit rating will be affected. The filing of a Consumer Proposal will remain on your record for three years from the date of completion of the Consumer Proposal. In many cases, this notation on your credit report will be for less amount of time, compared to a bankruptcy.
Whether you’re choosing to proceed with bankruptcy or you are leaning towards a Consumer Proposal, you will be required to work with an LIT who can advise you accordingly.
Baker Tilly Ottawa Ltd. is a Licensed Insolvency Trustee based in Ottawa. We service Ottawa and most of eastern Ontario. We have helped thousands of individuals and couples successfully resolve their debt challenges since 2002. Its passion – its mission – is your health and well-being!
Visit our Consumer Proposal page for answers to other frequently asked questions.