Bankruptcy vs Credit Counselling: Pros and Cons

Posted on February 26, 2024 by Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee

Filing for bankruptcy can be a daunting process, filled with intricate details and legal procedures. It’s a decision often arrived at after much consideration and, typically, as a last resort to manage insurmountable debt. However, the complexity of bankruptcy filings means that it’s alarmingly easy to make mistakes that can affect the outcome, or even result in the dismissal of your case. Understanding these pitfalls can be the key to a smoother bankruptcy process. Here are some critical mistakes to avoid when filing a bankruptcy petition:

  1. Not Consulting a Professional
    One of the foremost errors is attempting to navigate bankruptcy without professional guidance. A Bankruptcy Trustee, or a seasoned bankruptcy lawyer, can offer invaluable advice tailored to your situation. They understand the nuances of bankruptcy law and can help avoid common errors that could jeopardize your case.
  2. Withholding Information
    Complete transparency is crucial in a bankruptcy case. Omitting or hiding assets, debts, income, or expenses can lead to allegations of fraud. Such omissions, whether intentional or accidental, can result in your bankruptcy discharge being denied. Always provide comprehensive and accurate information to your legal advisor.
  3. Misunderstanding the Types of Debts Discharged
    Not all debts can be discharged through bankruptcy. Obligations like student loans, certain taxes, alimony, and child support typically remain intact. Misunderstanding the scope of bankruptcy discharge can lead to unrealistic expectations about the relief bankruptcy offers. Be sure to discuss your types of debt with a professional for a clear understanding.
  4. Accumulating More Debt Just Before Filing
    Incurring substantial new debt or making significant purchases shortly before filing can be seen as fraudulent. Creditors may argue that these debts were incurred without any intention of repayment. It’s advisable to avoid any major financial changes just before filing.
  5. Selecting the Wrong Type of Bankruptcy
    Choosing between Chapter 7 (liquidation) and Chapter 13 (reorganization) bankruptcy can profoundly impact your assets and debt repayment plans. Each type has specific requirements and consequences. Choosing the right debt solutions professional can help decide which bankruptcy type suits your financial situation best.
  6. Failing to File Required Documents
    Bankruptcy proceedings require numerous documents, including tax returns, pay stubs, financial statements, and more. Failing to file the correct documents in a timely manner can delay or derail your bankruptcy filing.
  7. Ignoring Lawsuit Notices
    If you’ve received any lawsuit notices related to your debts, don’t ignore them. Bankruptcy can potentially stop most lawsuits, but you need to act quickly and consult your attorney for specific advice.
  8. Transferring Assets Before Filing
    Transferring assets to friends or family to protect them from bankruptcy can be considered fraudulent. Such actions can lead to severe penalties, including the dismissal of your bankruptcy case.
  9. Using Retirement Funds to Pay Off Debt
    Draining your retirement accounts to pay off debt before filing for bankruptcy is often unnecessary. Retirement accounts are typically protected in bankruptcy. Consult with a bankruptcy professional before making such significant financial decisions.
  10. Not Attending Required Meetings and Court Dates
    Failing to attend mandatory meetings, like the Meeting of Creditors, or missing court dates can result in the dismissal of your case. Stay engaged and adhere to all procedural requirements.
  11. Neglecting Post-Filing Education Requirements
    In many jurisdictions, debtors are required to attend credit counseling and debtor education courses after filing for bankruptcy. Not completing these can prevent the final discharge of your debts.
  12. Underestimating the Emotional Impact
    Bankruptcy isn’t just a financial decision; it’s an emotional journey. Underestimating the psychological impact can leave you unprepared for the process. Seek support from professionals who understand not just the legal, but also the emotional, aspects of bankruptcy.


Bankruptcy, though complex, can offer a fresh start for those drowning in debt. However, it’s a process that must be navigated with careful attention to detail and adherence to legal procedures. By avoiding these common mistakes and seeking guidance from experienced professionals, you can pave the way to a more secure financial future. Remember, each bankruptcy case is unique, so personalized advice from a trusted bankruptcy trustee or attorney is invaluable. Whether you are in Mississauga, Barrie, or any other region, taking the right steps towards finding an appropriate debt solution is critical. Remember, the path to financial recovery begins with a single, well-informed step.

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Mihir Chande
Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee Mike, a Chartered Accountant, began his insolvency career in the Corporate Insolvency and Restructuring group at one of Canada’s largest insolvency firms. After gaining extensive experience, he founded Chande Debt Solutions to offer personalized and empathetic debt relief services to clients seeking an alternative to traditional solutions.

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