Understanding the Debt Threshold for Bankruptcy
A Glimpse into Bankruptcy Legislation and Related Statistics
The federal legislation that administers the process of bankruptcy in Canada, the Bankruptcy & Insolvency Act, states that the minimum debt required to file for bankruptcy is $1,000.
Interestingly, the number of individuals with a debt of $1,000 resorting to bankruptcy is remarkably low. According to the data shared by the Office of the Superintendent of Bankruptcy Canada, the average debt of a Canadian consumer who declared bankruptcy was $108,971.
A Diverse Spectrum of Personal Financial Circumstances
Bankruptcy is occasionally termed as an “insolvency solution”. Insolvency is a state where one is unable to pay the bills on time due to insufficient funds. There are multiple insolvency solutions available in Canada, such as bankruptcy, consumer proposals, and credit counselling.
Consider two distinct scenarios. In the first one, an individual with a large income can comfortably manage a debt of $100,000. Even though the debt payments are substantial, their income saves them from insolvency.
Contrastingly, another individual with a lower income and higher expenses, maybe because of a big family, might struggle to pay off a debt of just $10,000. The unpaid bills accumulate, and the creditors start knocking at the door.
In this case, the individual with a smaller debt might need to file for bankruptcy for protection, whereas the person with a larger debt might be able to handle it independently.
Thus, the eligibility for bankruptcy relies on numerous factors, not just the quantum of debt.
Not All High Debts Necessitate Bankruptcy
If you owe an amount equal to or more than the minimum debt ($1,000) required by the law for filing bankruptcy in Canada and facing difficulty in paying off your bills, it does not automatically imply that you are heading towards bankruptcy.
Overwhelmed by Debt? It’s Time to Act
The question “How Much Debt Do I Need To File Bankruptcy?” has a straightforward answer:
If your debts exceed what you can repay within a reasonable timeframe, you should consider options like a consumer proposal or filing for personal bankruptcy in Canada.
Additionally, if your debts are causing you enormous stress, or if you have started receiving collection calls at home or work, it’s time to take action.
To understand the best options for your specific case, we recommend contacting a Licensed Insolvency Trustee today. A Licensed Insolvency Trustee can guide you on the most suitable options and can file a consumer proposal or bankruptcy on your behalf. Your discussion will be confidential, and the first consultation is free.
