What Bankruptcy Can and Cannot Do

What Bankruptcy Can and Cannot Do

Understanding Bankruptcy: What It Can And Cannot Do For You

Bankruptcy is a term that you may have heard frequently, especially in discussions about finance and debt. But what does bankruptcy actually entail? And more importantly, what can bankruptcy do and not do for you? In this in-depth guide, we will unravel the complexities of bankruptcy, demystifying its pros and cons, and examining the different types of bankruptcy available to Canadians.

A Snapshot of Bankruptcy in British Columbia

Declared by hundreds of thousands of Canadians every year, bankruptcy is essentially a legal status for people who cannot repay the debts they owe to creditors. In the Canadian context, it can be a potent tool for those submerged in debt. However, not all types of debt can be discharged through bankruptcy. Let’s dive deeper into the three primary types of bankruptcies in Canada: personal bankruptcy, small business bankruptcy, and corporate bankruptcy.

Personal Bankruptcy

Personal bankruptcy is the most prevalent type of bankruptcy in Canada. If you are unable to manage your debt despite regular payments, if your credit options are exhausted, or if you are relying on credit for everyday expenses, personal bankruptcy might be the right choice for you. Depending upon the value of your assets, you could file for summary administration bankruptcy (for assets not exceeding $15,000) or ordinary administration bankruptcy (for businesses with assets exceeding $15,000). Upon completion, you will receive one of four types of discharge.

Small Business Bankruptcy

For small businesses, the bankruptcy process is similar to personal bankruptcy. However, if the business is incorporated, the process becomes more intricate. Similar to personal bankruptcy, you will receive one of four discharge types and enjoy the same creditor protection benefits.

Corporate Bankruptcy

Corporate bankruptcy requires the expertise of a trustee specializing in corporate cases. In this scenario, the business’s assets are forfeited, but the owner’s personal assets are protected. Certain exceptions may apply, and it is recommended to seek professional assistance.

The Potential Benefits of Bankruptcy

Despite its negative connotation, bankruptcy can have several advantages. It can assist in eliminating certain financial obligations and provide a fresh start.

Halt Harassment and Collections

If you are constantly bothered by calls and letters from creditors, bankruptcy can put an end to this harassment. A court-issued automatic stay post-bankruptcy filing can stop most creditor calls, lawsuits, and wage garnishments.

Pause Foreclosures, Repossessions, & Evictions

The same automatic stay also temporarily halts foreclosures, repossessions, or evictions. However, if these proceedings have already been completed, bankruptcy can’t reverse them.

Eliminate Credit Card and Secured Debt

Bankruptcy can help wipe out unsecured credit card debt, overdue utility payments, medical bills, and other obligations. However, it generally does not absolve student loans. As for secured debt, bankruptcy can release you from it, but you might have to forfeit the purchased property.

The Limitations of Bankruptcy

While bankruptcy can provide relief in certain areas, it cannot solve all financial problems. Understanding these limitations is crucial.

Cannot Prevent All Foreclosures or Repossessions

Bankruptcy can eliminate debts but not liens. If your lender has a lien on your property, they can sell it to recover the loan balance. This lien remains until the debt is repaid.

Cannot Eliminate Child Support or Alimony Obligations

Bankruptcy does not absolve you from responsibilities like child support or alimony. These obligations will persist post-bankruptcy.

Cannot Eradicate Student Loans

In most cases, student loans are not discharged through bankruptcy. However, there may be exceptions for proving undue hardship.

Cannot Get Rid of Tax Debts

Generally, bankruptcy does not eliminate tax debt. However, older, unpaid tax debts may be discharged in certain instances.

Consumer Proposals as an Alternative

A consumer proposal is a valid alternative to bankruptcy. Unlike bankruptcy, which involves surrendering your assets to your creditors, a consumer proposal is a legally binding agreement that allows you to keep your assets. It is often a more affordable option with terms determined upfront.

Personal & Corporate Debt Solutions

Bankruptcy Canada provides multiple solutions for individuals, families, and corporations facing overwhelming debt. We offer corporate solutions and guide you through the process, helping you understand the aftermath of filing for bankruptcy or a consumer proposal in British Columbia.

Contact Your Bankruptcy Team in British Columbia

If you’re overwhelmed by personal or business finances, Bankruptcy Canada is here to help clarify what bankruptcy can and cannot do for you. Contact us today to schedule your first no-obligation appointment.

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