What Happens To My Debt When I Claim Bankruptcy in Canada?
Consumers file for bankruptcy for a number of reasons, allowing them to clear their unsecured debts.
Canadians from every walk of life may consider bankruptcy to help them out of a difficult financial situation, but it’s important to first understand what happens to the person’s debts when they claim bankruptcy in Canada.
What Is Bankruptcy?
Bankruptcy is the process of giving your non-exempt assets to a Licensed Insolvency Trustee in exchange for the elimination of your debts.
You are allowed to keep some necessities, which vary by province.
To file for personal bankruptcy, you must have lived or done business in Canada in the last year and be insolvent, which means owing at least $1,000 and not being able to pay your debts.
When you file for bankruptcy, it eliminates any unsecured debts that you hold, and you give up some of your assets in return.
However, it does not remove secured debts, such as car loans or mortgages.
These debts are dealt with, in a way, through the surrender of your assets.
The asset is reclaimed by the lender, so you will no longer pay your mortgage, for example, but you will also no longer own it.
Bankruptcy also does not clear legal fines and judgements.
Which Debts Can Bankruptcy Solve?
All unsecured debts are discharged when you file for bankruptcy, with a few exceptions.
The debts that are removed when you file for bankruptcy include:
- Personal credit card debt;
- Personal loans;
- Payday loans and other unsecured loans/lines of credit;
- Medical bills, insurance premiums and utility bills that are past due;
- Student loans (in some cases).
Which Debts Are Not Discharged in Bankruptcy?
There are also some debts that are not forgiven when you file for bankruptcy.
These include secured debts, such as car loans or mortgages.
Secured debts allow the lender to recover the amount you owe by reclaiming the asset, meaning that your home or vehicle could be repossessed.
There are also some types of unsecured loans that are not included in a bankruptcy, such as student loans less than seven years after you finished your education, and child support or alimony.
Any legal fines or judgements will still be payable if you claim bankruptcy in Canada.
If any judgements were imposed on you before you filed for bankruptcy, you will still be required to make the payments.
In addition to child support and alimony, this might include payments relating to a fraud conviction, restitution fines, and government overpayments on your income taxes.
Exemptions to the Surrender of Assets
There are some minimum necessities that you will be able to keep after filing for bankruptcy.
These are the things that you need to survive and include assets such as personal items and furnishings.
The exact specifics of what you are allowed to keep varies by province or territory and varies by the value of your possessions.
You may be able to keep your car if its value is under a certain amount, a certain amount of equity in your home, or personal items worth up to a specified amount.
Length of Bankruptcy
The length of bankruptcy varies.
The minimum time is nine months before you can be entitled to an automatic discharge from bankruptcy.
This is available if you have never declared bankruptcy before and you complete the duties and responsibilities that are required.
However, it may be 24 months, 36 months, or perhaps even longer before you are entitled to a discharge from personal bankruptcy.
Your bankruptcy will last for nine months unless you fail to perform your bankruptcy duties, you have been bankrupt before, you have surplus income (more than your household needs to survive), or an objection to your discharge is filed.
These factors affect how long your bankruptcy might last, making it possible for the length to vary depending on your circumstances.
If you require assistance from debt relief services, call us 24/7 or fill in our form to get a free, confidential consultation with a Licensed Trustee.
A consultation can help you to determine if bankruptcy is the right choice for you.
By speaking to a Trustee, you can receive the advice that you need to make a decision and navigate the process of filing for bankruptcy if it’s the choice that you want to make.