Consumer Proposal Pros and Cons / Bankruptcy Pros & Cons
What are the Bankruptcy Pros / Cons?
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What are the Bankruptcy Pros?
The biggest pro to bankruptcy is that, once you receive your bankruptcy discharge, which is automatic in most cases, you will be debt free (with some exceptions such as fines, support payments, student loan debt that is less than 7 years old and other possible exceptions) and will have a fresh start to begin rebuilding your credit and your stable financial future.
You will be able to start saving for retirement and the stress of having overwhelming debt will end;
You will know when your debts will be gone and will have an idea of when you will have a clean credit report.
Without having to pay minimum payments on your debt each month you will have a larger cash flow and that will allow you to save money for the future;
Collection calls and other harassing creditor calls will stop.
Bankruptcy gives you an “automatic stay” which is a legal order that your creditors must obey that prevents them from contacting you in any way.
Your creditors will not be able to contact you, write you a letter or attempt to sue you to collect on your debts. The stress of creditors calling constantly to demand money that you do not have can be very mentally taxing and declaring bankruptcy will give you the fresh start you need to end the stress and get back on a stable financial track;
Wage garnishments are stopped by bankruptcy and you can keep all of your hard earned money. When you declare bankruptcy your trustee will notify your employer, your creditors, and the court that you have filed bankruptcy and that any wage garnishments in place must stop, and if a wage garnishment order is being contemplated it must cease as well.
The only exception to this rule is garnishment of your wages by the Family Responsibility Office will not be stopped in bankruptcy.
What are the Cons to Filing Bankruptcy?
While bankruptcy has many positive impacts to your life and debt, there are certain cons to the bankruptcy process.
Bankruptcy will negatively affect your credit rating at first.
When you declare bankruptcy in Canada, your credit rating will be automatically given an R9 rating which is the lowest possible rating.
The record of your bankruptcy will stay on your credit report for 6 years after your bankruptcy discharge (or 14 years if it was a second bankruptcy).
However, most debtors filing bankruptcy already have such bad credit that going bankrupt will actually allow you to repair your credit over time;
Bankruptcy Pros Cons.
The cost of bankruptcy is set by the federal government.
All debtors who go bankrupt will be required to make monthly payments, which are a minimum of $200 a month for 9 months, which covers all administration and trustee fees.
In certain cases a bankruptcy pro will indicate that a consumer proposal might be a better choice than bankruptcy if you have a large salary;
Any non-exempt assets will be lost. When going bankrupt there are certain exemptions that list the property that a debtor is allowed to keep when going bankrupt.
Any assets you own that are not protected by the bankruptcy exemptions in your province must be surrendered to your trustee. Non-exempt assets will vary province to province because each province has their own set of exemptions, although you will generally lose your RESP’s, RRSP contributions made in the past year, tax refunds for the year of bankruptcy, HST cheques, and in some cases your car and home.
If you will lose significant assets in bankruptcy your trustee will probably recommend a consumer proposal;
Bankruptcy Pros vs Cons
Fortunately, for most debtors seeking debt relief, the bankruptcy pros far outweigh the cons of filing bankruptcy.
Bankruptcy will give you a fresh start and eliminate your unsecured debts and allow you to move forward with your life.
If you feel that there are too many cons to bankruptcy you will have the chance to file a consumer proposal under the Bankruptcy and Insolvency Act.
Are you stressed about your debt? Please give us a call at 1-877-879-4770 to talk about the benefits, drawbacks and costs of filing bankruptcy.