Before you decide if filing for bankruptcy or a consumer proposal it is important to have an understanding of what debts the process of going bankrupt or making a consumer proposal will eliminate.
Knowing what debts will be discharged when your bankruptcy or consumer proposal process is successfully finished is important to know.
While bankruptcy and a consumer proposal will eliminate all of your unsecured debts, with a few minor exceptions in some cases, we will focus on the top 5 debts that go away after a bankruptcy or Consumer Proposal.
These are the debts that most people are looking to deal with when going bankrupt or filing a consumer proposal.
ICBC is the Insurance Corporation of British Columbia, and many debtors from BC are dealing with debts owing to the insurance corporation.
Most ICBC debts arise from motorvehicle accidents where the driver (the debtor) was at fault for the accident and therefore not covered by their insurance.
Obviously these debts arise suddenly and unexpectedly due to the nature of the debt – a car accident.
Many car accidents can result in debt of thousands or tens of thousands of dollars.
In some cases (such as drunk driving) your Licensed Insolvency Trustee will explain how the ICBC debt cannot be discharged through bankruptcy or by making a consumer proposal, but usually these debts can be included in your bankruptcy or proposal filing.
If the ICBC debt is included in your bankruptcy / consumer proposal, it will be discharged at the end of your case.
Mortgage Shortfall Debts
Should you owe more on your home than it is worth you will have a mortgage shortfall.
If you wish to surrender your home you can include any shortfall debt in your insolvency (bankruptcy or consumer proposal) proceeding.
If your property has gone into foreclosure, the mortgage shortfall debt is payable immediately.
A hefty mortgage shortfall debt in this case can have a serious impact on your finances.
Fortunately, you can include any shortfall debt in your bankruptcy or consumer proposal.
Once you have successfully completed your insolvency case, the mortgage shortfall debt will be discharged, which means it is eliminated and you are legally released from any obligation to repay the debt.
Anyone you owe money is known as a creditor, and this includes your family or friends.
If you have a personal loan from your friends or family, you must include this debt in your bankruptcy or consumer debt proposal plan.
Some people believe these private loans are not real debts that can be eliminated, but you can include these debts.
In fact, you are legally required to include all of your debts, even those from your family or friends.
Payday loan debt can seem harmless, but the debt often spirals out of control.
Payday loans can quickly become the hardest debt for consumers to deal with, due to the high interest rate charged and the repayment terms.
Often, people need to take out a second and third payday loan to pay off the first loan, and this can spiral into a debt cycle that is impossible to escape.
Online payday loans and in person payday loan debt can be included.
Owing money to the CRA can be very stressful and harmful to your financial life.
The CRA has extraordinary powers to recover debt owed to them, and they are difficult to work out an affordable payment plan with.
Should you have trouble with CRA income tax debt, you should explore debt solutions such as a consumer proposal or bankruptcy.
Almost all of your tax debts – whether it is income tax debt, GST debt, PST debt or source deduction debt – can be discharged by going bankrupt or making a consumer proposal.
If you are dealing with tax debt, you should meet with a Licensed Insolvency Trustee to learn how bankruptcy or a consumer proposal can impact your personal situation.
Getting a Fresh Financial Start Through Bankruptcy / a Consumer Proposal
Bankruptcy and consumer proposals are part of Canadian law because they are intended to help honest but unfortunate people get a fresh financial start.
The first step to getting your fresh financial start is to know what debts can – and cannot – be dealt with in an insolvency proceeding.
If your debts have become to massive to manage on your own, we recommend you meet with a government Licensed Insolvency Trustee to have your personal situation reviewed.
You can ask your Trustee many questions, and learn how your debts will be impacted by a bankruptcy or consumer proposal.
Having a complete understanding of the process will help you make an informed decision.