Understanding the Duration of the Bankruptcy Process
The last few years have been financially challenging for most Canadians due to multiple factors, from job losses during the COVID-19 pandemic to the current inflation and high interest rates. If you’re feeling the weight of financial stress, you may be contemplating Bankruptcy as a possible solution. A common question that arises is, “How long does the Bankruptcy process last?” and how it affects your credit score.
It’s important to remember that Bankruptcy isn’t the only available option for a debt-free future. A Consumer Proposal could be a more suitable solution depending on your specific needs.
In this article, we will outline the timeline for both a Bankruptcy and a Consumer Proposal, and how a Licensed Insolvency Trustee (LIT) can assist you in exploring these options to find the best solution for your needs.
Bankruptcy Timeline: Generally Nine to 21 months
The journey towards declaring Bankruptcy begins with a Free Confidential Consultation with an LIT. They will assist in understanding your financial situation and help evaluate all available options to identify the one that aligns best with your circumstances.
If Bankruptcy appears to be the most suitable solution, the next step involves preparing and filing the necessary paperwork with the government. With the assistance of an LIT, once the paperwork is submitted, a Stay of Proceedings comes into effect. This provision protects you from your creditors, stopping them from either calling you or filing a lawsuit. It also puts a stop to wage garnishments and any legal action linked to your Bankruptcy.
Typically, the Bankruptcy process lasts between nine to 21 months, especially if you are required to make surplus income payments. During this period, some of the steps you’ll need to take include:
- Filing monthly income and expense reports with an LIT
- Attending two counselling sessions
- Providing the LIT with all the information they need to complete your tax returns for the year
- Making any required payments to the LIT
Upon successful completion of these steps, you’ll be eligible for a discharge from Bankruptcy, freeing you from most of your debt obligations.
It’s important to note that a first Bankruptcy will affect your credit score for seven years post-completion. However, you can start improving your credit immediately after your discharge.
Consumer Proposal Timeline: Three months to five years
Just like Bankruptcy, the process of filing a Consumer Proposal also starts with a Free Confidential Consultation with an LIT. A Consumer Proposal also stops collection actions, interest, and wage garnishments. However, it does have several significant differences from Bankruptcy.
A Consumer Proposal provides more flexibility than Bankruptcy. It allows you to make an affordable monthly payment to fully satisfy your debt. You’ll only be required to pay back a portion of the total amount you owe. You also get to keep all your assets and tax refunds. It also has a lesser impact on your credit report and you won’t have to file monthly income and expense reports.
Depending on your circumstances, a Consumer Proposal may not last as long as a Bankruptcy. However, the majority of your creditors must agree to your Proposal before the process can begin.
After discussing your options with an LIT, if you choose a Consumer Proposal, the next step is to prepare your Proposal for your creditors. The LIT will file all necessary documents, including a Statement of Affairs and the Proposal. The LIT will also prepare a report and make a recommendation to your creditors.
Next, your creditors will review your Consumer Proposal. The LIT will review all claims submitted by your creditors and their voting letters after 45 days. If the majority (by the dollar value owed) vote in favor of your Proposal, it is considered accepted. If not, a meeting will be called to see if you can amend the Proposal to suit both your creditors’ demands and your budget.
Once your Consumer Proposal is accepted, you will begin the process of fulfilling the duties outlined in the Proposal. This period can last anywhere between three months to five years. During this process, you will:
- Make all payments agreed upon within the Proposal.
- Complete the mandatory counselling sessions.
Upon fulfilling your duties, you’ll receive a Certificate of Completion and be released from most of your debts. A Consumer Proposal will affect your credit score for three or more years post-completion. However, you can start rebuilding your credit score almost immediately after filing your Consumer Proposal.
Embrace a Debt-Free Future
Both Bankruptcy and Consumer Proposals are viable solutions that could help you regain control over your financial future. If you are struggling with debt, an MNP LIT can guide you through your options and answer your questions, including the critical question of “How long does the Bankruptcy process last?” when considering a Bankruptcy or a Consumer Proposal.
Taking the first step towards financial freedom is vital. A free confidential consultation can help you find the solution that best suits your unique situation, empowering you to embark on your journey towards a debt-free future.
