Bankruptcy is often perceived as a clean slate – a way to alleviate one’s financial burdens and start anew. But it’s crucial to understand that not all debts can be wiped away through bankruptcy. This article explores the intricacies of bankruptcy and offers insights into what kind of debts can and cannot survive this process.
Understanding Bankruptcy
Bankruptcy offers a legal resolution for individuals and businesses struggling with insurmountable debt. It involves legal proceedings to help people who cannot pay their outstanding debts get a fresh start. However, contrary to popular belief, bankruptcy does not necessarily wipe out all your debts.
A Licensed Insolvency Trustee (LIT) is a professional licensed by the government to administer bankruptcy and proposal proceedings. They can guide you through the process, ensuring fairness for both you and your creditors.
The Impact of Bankruptcy on Most Debts
In most cases, bankruptcy or a consumer proposal can clear a significant portion, if not all, of your debts. This includes unsecured consumer debts like credit card debts, lines of credit, store cards, payday loans, tax debts, and most judgment debts from past lawsuits.
Unsecured debt refers to credit extended without any collateral – an asset provided to the lender as a guarantee of repayment. Credit card debt is the most common type of unsecured debt.
Identifying the Root Cause of Your Financial Difficulties
Understanding why you’re financially struggling is the first step towards finding an appropriate solution. Various factors such as job loss, critical health issues, rising cost of living, unmanageable debt, and family-related challenges can lead to financial instability.
For students, hefty student loans and limited cash flow pose significant challenges. The consequences of these financial difficulties can be far-reaching and may lead to insolvency.
What You Stand to Lose in a Bankruptcy
Filing for bankruptcy does not mean that you’ll lose everything. Different provinces have legislation that protects certain assets like a portion of your home’s value, personal belongings, and work tools. However, you should be prepared to surrender some possessions and potentially a portion of your income to your creditors.
Debts That Can Survive a Bankruptcy
Certain debts are not dischargeable through bankruptcy in Canada as it would be unfair to creditors and not in the public interest. These include secured debts, alimony or child support payments, court-imposed fines and parking tickets, student loans under seven years old, and some debts arising from fraud or gambling.
Secured Debts and Bankruptcy
Secured debts, such as mortgages and car loans, cannot be eliminated through bankruptcy. These are debts guaranteed by an asset or property pledged as security for repayment. You must continue making scheduled payments to retain possession of your property.
Alimony, Child Support, and Bankruptcy
Alimony and child support payments must continue even after declaring bankruptcy. The regulations for collecting these arrears depend on the province you live in, and your LIT can provide insights into how they should be handled.
Court-Imposed Fines, Penalties, and Bankruptcy
Court-imposed fines, penalties, and parking tickets cannot be discharged through bankruptcy. However, it’s crucial to differentiate between these court-related obligations and judgment debts from lawsuits, as the latter can often be eliminated in a bankruptcy.
Student Loans and Bankruptcy
Student loans that are more than seven years old can typically be cleared through bankruptcy. However, determining the age of a student loan can be complex and depends on factors such as your graduation year.
Fraudulent and Gambling Debts
If you’re dealing with fraudulent and gambling debts, then you should seek professional advice from your LIT. Discuss the specifics of your situation with them as their role is to guide you towards the best path while being fair to your creditors and adhering to bankruptcy and insolvency regulations in Canada.
Conclusion
If you find yourself overwhelmed by financial stress, it’s time to seek relief and explore the debt solutions available to you. LITs offer a wide range of debt relief options, including bankruptcies and consumer proposals. Schedule a free and confidential appointment with a LIT to discuss your situation so you can look forward to a bright financial future.
Remember, the question isn’t just “Can your debt survive a Bankruptcy?” but also “What is the best course of action for my unique financial situation?”
