What Does It Mean To File For Bankruptcy?
File For Bankruptcy in Canada
The term “bankruptcy” is in common usage across Canada, but what does it actually mean?
Fundamentally, bankruptcy is a legal mechanism that prevents creditors from continuing to pursue you for money directly.
It is, therefore, a tool that you can use to escape unsustainable monthly repayments and regain control of your life.
Filing For Bankruptcy In Canada
The definition of bankruptcy can be a little tricky because it has multiple uses.
People, especially professionals involved in the process, will use the term to describe both a legal status and a process.
Under Canadian bankruptcy law, you must go through two stages to complete bankruptcy.
The first is when you are “in bankruptcy.”
This phase can be as short as nine months if you perform all your duties correctly.
The second is when you’re declared “bankrupt.”
At this stage, creditors can no longer attempt to recoup any of the money you owe, and it managing your debts becomes the responsibility of your trustee.
During the bankruptcy process, your trustee will create something called your “bankruptcy estate.”
You can think of this financial object as a box containing all of your unsecured debt, such as credit card debt, personal loan debt and unpaid income taxes.
When you complete the process, you no longer have to repay your creditors.
You hand this box over to your trustee, and they take over all further correspondence with your creditors.
You’re then free to take back control of your life.
What Happens When You File For Bankruptcy In Canada?
There are several financial benefits of filing for bankruptcy in Canada.
The first has to do with wage garnishing.
Creditors may sometimes use legal mechanisms that allow them to garnish wages from your paycheck directly.
Here, payroll at your employer siphons off an agreed-upon sum of money to the garnishee, even if you do not give them permission.
When you file for bankruptcy, though, wage garnishing stops.
The second involves how creditors communicate with you.
Creditors will typically pursue you for money with phone calls and letters.
When you file for bankruptcy, this correspondence will stop too.
Finally, if you are struggling to pay for food or rent because of loan repayments, that will stop too.
Personal bankruptcy frees up your finances for the basics you need to survive.
Only Licensed Trustees Can Help You File For Bankruptcy
In Canada, only a licensed trustee can help you file for bankruptcy, not a lawyer or an accountant.
Trustees are people with specific training to deal with bankruptcy applications.
Their job is to assess your current financial status and then explore options with you.
Sometimes, you’ll discover that you have the means to repay your debts and get on the path to financial freedom.
Other times, the trustee will look at your accounts and decide that bankruptcy is the best option.
During their consultations with the trustee, many people discover that they have options besides bankruptcy.
The best way to find out where you stand is to speak with an expert.
They can explain the process that you must follow and show you alternatives that might work out better for you.