Debts That Stay After Filing Bankruptcy

What happens to my debt when I go bankrupt in Canada?

Declaring bankruptcy essentially implies that you are legally informing the authorities that you are no longer in a position to repay your existing loans.

However, this does not always mean that your debt will be discharged.

Discharging of debt involves relieving you of your debt because you can no longer afford to pay back that amount.

However, not all kinds of debts can be discharged.

Depending on whether your debt is secured or unsecured, declaring bankruptcy will affect your financial situation in different ways.

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What are secured and unsecured debts?

A secured debt is a debt where the creditor has a say on the asset that was purchased using the financial sum obtained from the creditor.

An example of this is a bank loan taken out in order to buy a home.

In such loans, such as home loans or car loans, there is a specific asset associated with the loan amount.

You cannot take out a loan to buy a car but then choose to spend it on something else since that loan is a car loan.

The amount given to you is secured in this situation as should you not pay back the amount you owe the lender, they can claim the asset purchased through the loan.

A house that was bought using a mortgage, should the payments fall behind, can be claimed by the lender should you declare bankruptcy.

These are called secured debts as the creditor can rest assured on returns from their investment in you, either in the form of regular instruments, or through claiming and reselling the asset that was purchased.

Unsecured debts, however, present a different situation.

While some unsecured debts can be discharged after you declare bankruptcy, there are certain kinds of debts that are not discharged even after you declare your financial situation.

Unpaid amounts when it comes to your credit card bills, utility bills, medical bills, insurance premiums and more can be discharged if you declare bankruptcy.

However, other kinds of unsecured debts, such as student loans or child support are not so easily discharged.

What kind of unsecured debts are not discharged in Canada?

Even if you declare bankruptcy, if you have not paid off certain debts, then your declaration will have no effect on these being absolved.

The first of these are student/apprenticeship loans that were taken out within the past seven years from when you declare bankruptcy.

You also cannot forfeit paying child support or spousal support, even if you declare bankruptcy.

Similarly, other court mandated payments should be paid as normal even if you have officially declared bankruptcy.

Other kinds of unsecured payments that are not discharged after filing for bankruptcy include fines, any debt coming from embezzlement and fraud, and more.

If you are dealing with a situation involving bankruptcy, then you should approach either a Licensed Insolvency Trustee, who can point you in the right direction regarding the steps you need to take to secure your finances are come out of the red zone.

Gordon Sands

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