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By: Adriana Noton
The first thought many of us have when we hear the word bankruptcy is something like the equivalent of losing in the game of monopoly. As such, we make the mistake of thinking bankruptcy is a synonym for defeat and something to avoid at all costs. Actually, there are times when it is imperative to declare bankruptcy. Life isn't a game where you lose by saying "bankrupt".

Bankruptcy is a legal process that honest debtors use to give themselves a breath of fresh air when they're going through extreme economic difficulty. There are times when businessmen count on certain conditions and make extremely good judgements and everything seems to be going well, until they run into some bad luck and things go sour. The point is, bankruptcy isn't something that only irresponsible or reckless people succumb to. Declaring bankruptcy enables you to gain time to reorganize your finances by keeping your creditors at bay.

In bankruptcy there is an involved process where you assign your assets to a trustee in bankruptcy. This may imply that you lose everything you own but that is simply not true! There are some assets that are exempt from seizure like your household goods, personal affects, tools of trade and in some cases vehicles, life insurance, pensions, and RRSP's. You will be on the hook for large-scale, secure investments like a car or your home if you want to keep them but unsecured creditors can't garnish your wages or collect from you in any way.

Any non-exempt assets can either be "purchased back" from your bankrupt estate or will be sold by the trustee who is responsible for ensuring that the bankruptcy process is handled honestly and thoroughly. Bankruptcy is about going from impecunious to economically stable, and any non-exempt assets must be contributed towards paying your debts.

Naturally there is a cost to this, as when you emerge from bankruptcy there are different implications depending on the nature of the initial declaration and the unique way you have emerged from it. This article is not meant to be an all-encompassing look at every variation, but an overview of how the process works. The fact that a bankruptcy has been filed is carried with you the next time you want to borrow money. It won't forbid you from borrowing, and people come out of bankruptcy and borrow money all the time, but there is certainly an awareness that you've been bankrupt before and companies and banks are mindful of this. It would be irresponsible of them not to be.

Not all debts are released are released by bankruptcy. Some debts, such as alimony, student loans if you graduated less than seven years ago, a fine levied by the court or a debt incurred by fraud or misrepresentation will survive the process and you will have to pay them back. Otherwise, you are released from your previous debts.

So unlike Monopoly, bankruptcy is not the end of the game, more of a fresh start!


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