Debts Covered by Bankruptcy

What Debts Are Covered by Bankruptcy?

Bankruptcy in Canada is a legal process that provides a fresh start to individuals who struggle with unmanageable financial liabilities. This article aims to enlighten readers about the types of debts covered by bankruptcy in this country.

1. Overview of Bankruptcy

Bankruptcy is often regarded as a means to clear debts that have spiraled out of control. It allows debtors to shrug off the financial burden and start afresh. Bankruptcy typically eliminates all unsecured debts at the time of filing, with some exceptions.


2. Debts Typically Covered by Bankruptcy

Most unsecured debts are covered by bankruptcy in Canada. The following are some of the common types of debts included:


  • Credit card debts;
  • Store credit accounts;
  • Unsecured lines of credit;
  • Payday loans;
  • Personal loans;
  • Unsecured bank loans;
  • Loans from individuals;
  • Outstanding bill payments;
  • Installment loans;
  • Tax debts;
  • Judgement debts from lawsuits;
  • Student loans (if you’ve been out of school for at least seven years).


3. Debts Exempted from Bankruptcy

Certain debts are not covered by bankruptcy in Canada. These typically include:


  • Secured loans such as mortgages and car loans;
  • Spousal and child support payments;
  • Fraudulent debts;
  • Court fines and penalties;
  • Restitution orders;
  • Alimony;
  • Secured liens on property;
  • Some gambling debts.


4. Bankruptcy’s Effect on Debts

Filing for bankruptcy sets in motion the process of discharging any eligible unsecured debts. Once these debts are discharged, they are permanently cleared, and creditors can no longer contact you for their payment. This offers an enormous relief to the debtor and an opportunity for a fresh financial start.


5. Credit Cards and Bankruptcy

Once you file for bankruptcy, you must surrender your credit cards to your Licensed Insolvency Trustee (LIT). Any unusual purchases made on a credit card without the intention of repaying them could be deemed fraudulent, which is not discharged by bankruptcy.


6. Student Loans and Bankruptcy

Student loans are treated differently from other unsecured debts in Canada. If you’ve been out of school for seven years or more, your student loans can be discharged by filing bankruptcy. However, proof of efforts made to repay the student loans is necessary to have them cleared.


7. Tax Debts and Bankruptcy

Both bankruptcy and consumer proposal can provide relief from tax debt. Dealing with the Canada Revenue Agency can be daunting when you have outstanding tax debts, so it’s advisable to consult a Licensed Insolvency Trustee.


8. Secured Loans and Bankruptcy

Secured loans, which include mortgages and car loans, are not automatically cleared through bankruptcy. However, as long as you’re able to make your monthly payments, you can keep the associated assets.


9. Seeking Professional Advice

It’s important to seek advice from a licensed professional when dealing with bankruptcy. They can guide you through the process and help you make informed decisions that best suit your financial situation.


10. Success Stories

Bankruptcy can be a daunting prospect, but many individuals have found it to be a crucial step towards financial freedom. Here are a few success stories from individuals who have navigated the bankruptcy process and emerged with a fresh financial start.


In conclusion, understanding the debts covered by bankruptcy can help you make an informed decision about your financial future. However, professional advice is recommended for a comprehensive understanding of your unique financial situation.

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