Navigating the world of debt can be overwhelming, especially when faced with misinformation and myths that cloud your judgment. To help you make informed decisions, let’s debunk some of the most common debt myths and set the record straight.
Myth 1: You Will Go to Jail If You Don’t Pay Your Debts
Reality: This is a common fear, but it’s almost impossible to go to jail for unpaid debts in Canada. Debtors’ prisons were abolished in the 1800s, and failing to pay debts is a civil matter, not a criminal one. The only exception is extreme cases of tax evasion, but even then, jail time is incredibly rare. While creditors can sue you or garnish your wages, you won’t face jail time for unpaid debts.
Myth 2: A Wage Garnishment Can’t Be Stopped
Reality: Wage garnishment—where a portion of your income is sent to a creditor to repay a debt—can be stopped. Filing for bankruptcy or a consumer proposal issues a stay of proceedings, halting all legal actions, including wage garnishment. This protection is governed by the Bankruptcy and Insolvency Act. Only a Licensed Insolvency Trustee (LIT) can file these debt relief options on your behalf, so reach out to one if you’re facing garnishment.
Myth 3: Everyone Will Know You Filed for Bankruptcy or a Consumer Proposal
Reality: Filing for bankruptcy or a consumer proposal is a matter of public record, but accessing this information requires significant effort. Someone would need to search the Office of the Superintendent of Bankruptcy (OSB) website, pay a fee, and know your exact name and date of birth. The likelihood of anyone in your personal life finding out without you telling them is extremely low. Your employer will only be informed if your wages are being garnished, and even then, they’ll only know that the garnishment has stopped.
Myth 4: You Will Lose Everything If You Declare Bankruptcy
Reality: Bankruptcy doesn’t mean losing everything. Each province has a list of exempt assets you can keep, such as:
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Tools of the Trade: Equipment needed for your job.
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Household Goods: Furniture and essential items.
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Personal Belongings: Clothing and jewelry (up to a certain value).
Additionally, consumer proposals are a more common and flexible option. They allow you to reduce your debt by up to 80%, lower your monthly payments, and keep all your assets, including your car and home. Only an LIT can file a consumer proposal for you.
Myth 5: Co-Signing a Loan Means You’re Only Responsible for Half the Debt
Reality: Co-signing a loan makes you fully responsible for the entire debt if the primary borrower defaults. This includes the principal, interest, penalties, and fees. If the primary borrower passes away or stops making payments, the lender can pursue you for the full amount. Before co-signing, fully understand the risks and ensure you’re prepared to take on the debt if necessary.
What to Do If You’re Struggling with Debt
If you’re feeling overwhelmed by debt, a Licensed Insolvency Trustee (LIT) can help. They offer free, confidential consultations to assess your situation and recommend the best debt relief options for you. Whether it’s a consumer proposal, bankruptcy, or another solution, an LIT will guide you through the process and help you regain financial stability.
Final Thoughts
Debt myths can create unnecessary fear and confusion, but understanding the facts empowers you to make informed decisions. Whether you’re facing wage garnishment, considering bankruptcy, or co-signing a loan, knowing your rights and options is key. If you’re struggling with debt, don’t hesitate to reach out to an LIT for professional, judgment-free support. Taking the first step toward debt relief can set you on the path to a brighter financial future.
