How to Deal With the Consequences of Bankruptcy
Tips from a Licensed Insolvency Trustee on How to Deal With the Consequences of Bankruptcy
The emotional consequences of declaring bankruptcy differ for everyone.
The truth is that most people experience an emotional toll before filing bankruptcy. After filing the overwhelming feeling is one of relief.
Benefits of Filing Bankruptcy
The stress, sleepless nights and arguments at home over money and the worry about receiving collection calls; even at work and the fear of a wage garnishee all disappear.
This is due, in large part because of the Stay of Proceedings that goes into effect as soon as the bankruptcy is filed.
The Stay of Proceedings stops unsecured creditors from taking steps to collect on their debt. Collection calls stop. Interest on debts stop.
Wage Garnishees in place or contemplated also are stopped.
Financial Cost of Claiming Bankruptcy
You have to make payments to the trustee of at least $200.00 a month for nine months. If you earn a higher income you may have to pay more.
You can see the exact cost of your bankruptcy and how long you will be in bankruptcy at this link.
In most cases the required payments are not a hardship because payments on your debts no longer have to be made.
Loss of Assets
You may lose some of your assets when you claim bankruptcy, such as Registered Education Savings Plans (RESPs).
If it’s important to keep these assets, you should consider a consumer proposal instead of the bankruptcy.
In a consumer proposal you keep all your assets.
Another strategy is for the bankrupt to “buy back” the assets from the trustee. Say you have $2,000.00 in RESPs.
You can pay this over the term of the bankruptcy. If your required payments (See the Bankruptcy Calculator) indicate you have to pay the minimum of $1,800.00, you will not have to pay this since the trustee fees will be taken from the $2,000.00 you are paying for the RESPs.
Most people going into bankruptcy keep all their assets.
Please refer to your province or territory’s exemptions for equity in assets you can keep.
Your main duties are completing your two counselling sessions and filing monthly budgets and making the required payments.
The form is retained by you so in subsequent months you resend it with required changes.
Impact on your credit score.
When bankruptcy is filed the Office of the Superintendent of bankruptcy notifies the credit bureaus. Your file will be marked R9, which is the worst score. This may not be as bad as it sounds because the vast majority of bankrupts already have a very bad credit rating.
When you file bankruptcy you are actually on the road to a better credit rating because when you are discharged (usually in nine months) you will have no debt. This makes you a better credit risk.
As soon as you are discharged you can immediately take steps to rebuild your credit rating so that in two years you can have a very good credit rating. These are the steps to building a good credit rating:
- Have a copy, at hand, of your discharge certificate;
- Check your credit report and correct all errors by pointing them out to the credit bureaus;
- Get a secured credit card such as from Peoples Trust. Peoples Trust will report the payments you make each month which helps rebuild your credit as you make regular payments over time;
- After a few months borrow for RRSPs or to purchase a car. Always, always pay your bills on time;
- In a few more months you will see your credit score rise;
- Don’t be concerned about your credit score being hurt by your checking your own credit report. Checking your own credit report does not lower your credit score.
If you have any questions about this or other aspects of bankruptcy or consumer proposals you can set up a FREE consultation with a local Bankruptcy Canada Insolvency Trustee.