Avoiding bankruptcy

From my CBC radio national column, August 13th:

Fed up with creditors calling? Before you turn to a bankruptcy trustee, you'll want to read some words of advice.

You've probably seen them on TV, the ads from firms specializing in bankruptcy using soothing tones to tell you THEY are the solution to your debt problems. However,there are plenty of things you should know before you pick up the phone to call for help.

New numbers out earlier this week showed that personal bankruptcies rose 54.3% compared to June of last year, which is not surprising in a recession like the one we're living through. But bankruptcy is an issue even in good years. On average, about 100,000 people a year file for bankruptcy.

Why? We tend to increase our level of debt as life improves, but then when we have a life altering event such as a job loss, divorce or disability, we rely on credit to replace income. Or, simple overspending. Unless income can be replaced or expenses slashed - which many people aren't willing to do - bankruptcy may seem like the only option.

But what about those bankruptcy ads? Many of them present bankruptcy as simply a chance to start over, with no mention of consequences.

Bankruptcy should be a LAST RESORT - not the first call when financial troubles hit. My message is this: if you or loved ones have debt problems, you're not alone. But, many times, you can and should look to yourself, not bankruptcy, as the starting point.

Also, one should keep in mind that by filing for bankruptcy, even though it drops off your credit bureau after 7 years, it may limit one's career potential for life especially in the financial industry for example.

And not every debt obligation such as student loans or child support payments would be discharged for example.

You should know that there are many costs associated with declaring bankruptcy that depend on your income, assets and other factors. The trustee fee varies from province to province. But all fees are paid by the person filing for bankruptcy. If not through their liquidated assets, then over time to the trustee. In addition to the provincially set bankruptcy fee, there is the money you have to pay back to creditors. That amount will depend on your income and assets. . Bankruptcy doesn't just mean walking away from debts free...unless one has absolutely no assets and is very low income.

What about credit counselling agencies. How do they differ from bankruptcy trustees? Or do they?

It's all very confusing. There are non-profit credit counselling agencies. But some of these agencies are in fact bankruptcy trustees who brand themselves as "credit counsellors" in their advertising. The problem again is that the rules vary so much from province to province.

So to help you along, here's a website where you can find a government listing of all the counsellors nationwide. Go to www.creditcounsellingcanada.ca to find a credit counsellor in your area.

Once you've got some names in hand, check with your Better Business Bureau to ensure they're a reputable counsellor. Then when you're making the call , at that point find out if they're for profit or not-for-profit.

And a couple of final resources:

1. www.bankruptcy-canada.ca. They have a fantastic free ebook explaining all the options from lowering your interest rate with your creditors, consolidation, consumer proposals and of course, if there's no other option, the process of bankruptcy.

2. www.nomoredebts.org. Although a western Canadian resource, anyone in Canada can call them any time with a credit question free of charge.