Considering Personal Bankruptcy? Here's What You Need To Know
Facts to Consider Before Going Bankrupt
Many Canadians find themselves in debt from time to time.
In fact, the average Canadian household has over $20,000 outstanding in non-mortgage debt.
Yet, while debts are simply a part of life for many, they can easily spiral out of control.
As interest rates rise and the principal gets harder to pay down, households can feel as though more and more of their income gets subsumed by debt repayments.
This can make budgeting extremely difficult and saving nigh-on impossible.
Filing for Bankruptcy can help you get closure on your debt and ensure that all or most of your debts are forgiven.
However, Bankruptcy is a serious process and declaring Bankruptcy is not a decision to be made lightly.
As with any debt relief solution, it’s vital that you make an informed choice that’s right for all in your household.
Here’s what you need to know when considering personal bankruptcy…
Bankruptcy should be considered a last resort
If you have exhausted all of your other options and are still struggling to make good on your debts, Bankruptcy may be a viable option for you.
However, it’s important to remember that Bankruptcy is a last resort which should be considered only if you are truly insolvent and unable to realistically pay down your debts.
A Licensed Insolvency Trustee can help you to explore alternative options which may be better suited to you than filing for Bankruptcy.
These might include:
- A Debt Consolidation Loan;
- A Debt Management Plan;
- A Consumer Proposal;
- Liquidating non-essential assets like art, collectibles, wine etc. to repay your debts.
Any of these options might be preferable to Bankruptcy and help you to maintain a better relationship with your creditors.
If you have exhausted all of the above options and are still struggling to make minimum payments and experience stress and emotional strain as a result of your debts, Bankruptcy may be your last chance of getting a financial fresh start and getting closure on your debts.
Bankruptcy carries obligations
When you file for Personal Bankruptcy you will be expected to meet certain obligations within the first 9 months of filing.
This will keep the Bankruptcy from going to court and give you every chance of an “Automatic Discharge”.
Your obligations include:
- Submitting your monthly income and expense reports to your Trustee;
- Providing all information needed to file your pre-bankruptcy and post-bankruptcy tax returns;
- Making that you make all necessary payments to the state;
- Attending two mandatory Credit Counselling sessions- More on these later;
- Reporting all of your assets to your Trustee;
- Staying in contact with your Trustee and keeping your contact information up to date.
You won’t lose everything, and you may not lose anything
There are many who are worried that they will lose their homes or other personal assets if they file for Bankruptcy.
However, there are many assets which are legally protected in Canada.
These “Exempt Assets” vary slightly between provinces.
However, when you can be reasonably sure that the following will be protected:
- Your home (if you have less equity than a level set by your province);
- Your pension;
- Registered Retirement Savings Plan (RRSP);
- Your clothing;
- Personal vehicles (up to a set value depending on your province);
- Your household furnishings and appliances (up to a set value depending on your province);
- Trade tools (up to a set value depending on your province).
Bankruptcy can put a stop to wage garnishment
If you have been unable to keep up with your repayments, your creditors may try to enforce wage garnishment- taking your employer (or other debtors if you’re self-employed) before it gets to you.
How much creditors can take from your wages depends on your province.
Nonetheless, it’s safe to say that wage garnishment can put a stranglehold on your cash flow.
Declaring Bankruptcy puts an instant stop to wage garnishment and other punitive measures.
Bankruptcy doesn’t necessarily wipe out all your debt
It’s important to remember that when you declare Bankruptcy, some of your debts may nor be forgiven.
These include Student Loans (if it has been 7 years since you stopped attending school) as well as court imposed fines, outstanding spousal or child support and debts arising from criminal activity such as fraud.
Credit Counselling is mandatory when filing for Bankruptcy
It’s also important to note that you will need to surrender your credit cards when filing for Bankruptcy.
A big part of life after Bankruptcy is learning to live without credit.
Fortunately, part of the process includes the attendance of 2 mandatory counselling sessions.
These will help you to improve your relationship with credit so you don’t repeat the same mistakes.
Bankruptcy will leave a lasting impression on your credit rating
Like all debt relief measures, Bankruptcy will have a significant impact on your credit rating.
Your first Bankruptcy will stay on your credit report for 6 years while subsequent Bankruptcies will stay on your record for as much as 15 years.
That’s not to say that you’ll never be able to get credit again.
But you’ll need to build your credit record back up slowly by taking on smaller debts and paying them off quickly.
Still not sure if Bankruptcy is right for you? Get in touch with us today!
If you are considering filing for Bankruptcy in Canada, get in touch with us today.
We can out you in touch with a Trustee who will take a close look at your personal circumstances and let you know which options are available.
We’ve helped over 200,000 Canadians just like you to take control of their finances and live their lives free of debt.
To find out more about what we can do for you, call us today on (877)879-4770 for a risk-free, zero-obligation and 100% confidential callback.