Myth: All My Debts Are Discharged In Bankruptcy
Are all Debts Discharged in Bankruptcy? Unfortunately, No.
During times of economic hardship, many look to bankruptcy as a way to escape all of their struggles.
The important thing to know and understand is that bankruptcy doesn’t give you a fresh start from scratch.
There are very real ramifications to committing to a bankruptcy filing.
In actual fact, that even with a bankruptcy proceeding, you don’t get rid of all your debts.
The truth of the matter is that bankruptcy is only suitable as a method of last resort.
It is suited to those with a crushing amount of debt and no reasonable way to repay it.
In situations of bankruptcy, you forgo rights to all of your assets in return for getting rid of your debts.
However, it only works for some of your amounts owing.
Bankruptcy in Canada is really nuanced and it helps to know the specifics before proceeding.
Types of Debt: Secured
Ordinarily, when you get your bankruptcy discharged, it will only apply to unsecured accounts.
That means that you can get help with bills, loans, lines of credit, or credit cards.
Things like your mortgage and car loan don’t apply here.
The creditor in those cases (usually a bank) retains the rights to your debt.
This means that if you wish to retain the rights to your collateral such as the equity in your home or vehicle, it may be more wise to file a consumer proposal.
With mortgages, a secured creditor cannot revoke your mortgage due to bankruptcy.
They can, however, pursue foreclosure in the event that you default on the terms of the loan.
Types of Debt: Unsecured
Even in terms of unsecured debts, not all are eligible for discharge.
There are some that hang on even after you’re through with your bankruptcy.
Some of these include your student loans.
If you haven’t been out of school for seven years, it stays on your file and remains owing.
Also, if you owe anything like child support or payments for alimony, the arrears and current payments remain your responsibility.
This is also true of other court ordered payments such as fines.
Finally, consider the fact that any debt gained unlawfully, such as through fraudulent means, will not be subject to discharge during bankruptcy.
Essentially, what bankruptcy does address is any debt from an unsecured line of credit, unsecured loans, tax matters, bills for medical or utility expenses, and payday loans.
In most cases, people will have a combination of types of debt.
It’s important to realize that what is and is not eligible for discharge is nuanced.
To get a full understanding, it is always best to consult with a financial professional with experience in the areas of insolvency and bankruptcy.
If you have these types of debt and are struggling, speak to a Licensed Insolvency Trustee.
They can offer you trustworthy, objective information specific to your individual situation.
The sooner you act, the more options remain available to you – so reach out for assistance today.