For those struggling with debt in Canada, it is good to know that there is more than one option to consider.
In fact, there are four Canada- specific options.
The variety of choices regarding bankruptcy is a good thing because it means you can pick the one that best suits your circumstances.
Something that means you are likely to come out of the process better off.
Luckily, you can find a detailed guide on just this subject below.
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Personal bankruptcy for individuals and small businesses
To qualify for personal bankruptcy, you need to either be an individual or running a small business.
This includes people that are self-employed and sole proprietors.
However, you must also be insolvent (unable to repay your debts) to go through the process.
Not to mention that it would be inadvisable to file for bankruptcy with such a small debt.
In fact, many people owe a great deal more than this and do not go through the personal bankruptcy process because there are more suitable options.
To summarize, you must have qualifying debt (see below) of over $1000 with no possibility of paying it back on your own.
Also, your debts need to be unsecured for them to be covered by personal bankruptcy.
That means consumer debts, payday loans, and credit cards.
However, secured loans such as vehicle loans and mortgages where you have made a deposit will not be included.
Therefore, if you have these types of debts and file for personal bankruptcy, they will not be discharged, meaning you will still have to keep up the payments on them.
The process of personal bankruptcy is a relatively simple one.
Although you will need to work with a qualified trustee to go ahead.
You will all need to give up eligible and non-secured assets as these are used as capital to pay back some of what you owe to your debtors.
Once the process is over, you will be discharged from your unsecured debts, meaning you will no longer owe any money, and debtors and credit collectors can no longer chase you for money.
If you are experiencing personal bankruptcy for the first time, you can expect the process to last around 9 months.
However, there are exceptions to this rule, including people that earn above the threshold set by the Canadian government, as well as those that need to make additional income payments.
Unfortunately, the downside of declaring personal bankruptcy is that you will have to surrender some of your assets.
Additionally, you can end up being levied with higher payments if you have surplus income.
Bankruptcy ruling can also affect your credit rating over the medium to long term and prevent you from securing loans in the future.
Individual consumer proposal: debts less than $250,000
Another option to consider if you are struggling with debt is an individual consumer proposal.
To qualify for this, you must have debts of less than $250,000, not including your mortgage, and more than $1,000.
If your debts are over this amount, you will need to choose a division 1 proposal instead.
The main advantages of a consumer proposal are similar to those of personal bankruptcy.
That is, unsecured debt is discharged, and creditors can no longer take legal action against you.
However, a consumer proposal differs from personal bankruptcy because there is no requirement to surrender your assets.
Instead, you will be asked to take part in a repayment plan over 5 years for a portion of the total you owe.
Therefore for many people, a consumer proposal can be a much better option than personal bankruptcy.
Additionally, if you opt for a consumer proposal, you can still hold positions of trust, such as the director of a company.
Something you will not be able to do if you declare bankruptcy.
Division I proposal: businesses & and individuals (debts over $250,000.)
If you find yourself in a position where you owe over $250,000, you may wish to consider a division 1 proposal.
This is like a consumer proposal, as it is a settlement that is arranged between you and your creditor.
You can apply for this form of debt management as either a business or an individual.
However, a division one proposal and a consumer proposal are not entirely alike.
This is because if you apply for the former and are not accepted, you will automatically be declared bankrupt, and therefore have to deal with all the issues and complications that this involves.
Therefore you must consider this option carefully and get advice from an independent source before going ahead.
Business bankruptcy: incorporated companies only!
Business bankruptcy is not the same as a personal bankruptcy.
Even though you can file for personal bankruptcy for your business!
Confusing, isn’t it?
The critical thing is that in Canada, only incorporated companies can file for business bankruptcy.
That means if you’re a self-employed contractor, a sole proprietor, and even a partner in an unlimited partnership, you will not qualify.
However, as an incorporated company, there are two ways that you can enter business bankruptcy.
The first is if you file for it, while the second is that a creditor can petition you into it.
Business bankruptcy also often includes the services of a bankruptcy lawyer, as well as a licensed trustee.
Usually, because they are more complicated and have more substantial sums of money owed involved.
Are you considering filing for Bankruptcy in Canada?
Still, confused as to which Bankruptcy Options in Canada is best for you?
You are not alone because this truly is a complicated yet essential subject for anyone struggling with debt.
Fortunately, you can get your questions answered and receive independent and objective advice by contacting our nonjudgmental and supportive advisors.
Just call 1-877-879-4770.
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?