Filing for bankruptcy is often the last resort if you cannot pay your bills and dues.
However, this option is not always the easy way out for you.
Rather, there are various costs of bankruptcy, that can impact your life for years to come.
So, it is advisable to understand the obligations which come from bankruptcy.
Filing for bankruptcy itself does not cost you anything.
Your first consultation with the licensed insolvency trustee, who may advise you on the path ahead if you choose to file for bankruptcy, is free.
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Once you heed the advice of the trustee and file accordingly, you will begin to see costs rise.
The cost of bankruptcy in Canada usually begins with the administrative costs.
This cost is generally referred to as the base contribution cost.
If you are filing for bankruptcy for the first time, you incur a minimum cost of $1,800, which has to be paid in 9 monthly installments of $200.
Surplus Income Costs
Surplus income cost is the second cost of bankruptcy.
It means that if you earn $200 over a pre-determined surplus income threshold, you will be required to pay an additional surplus income cost.
The government of Canada is of the opinion that a person requires only a certain amount of income to sustain, if the person has filed for bankruptcy.
The surplus income cost also increases the time taken to file for bankruptcy, to 21 months from 9 months, if you are filing for the first time.
However, for second time filing, it shoots up to 36 months from 24 months.
The licensed insolvency trustee will ask you to give your tax documents and pay stubs to check your income when you file for bankruptcy.
The Office of the Superintendent of Bankruptcy decides the surplus income threshold every year.
An important factor that determines the surplus amount is the size of your family.
Bigger the size of the family, more the income you can retain.
One of the biggest cost of bankruptcy in Canada that you cannot ignore is the asset cost.
If an asset you own is not exempted, it will be liquidated as part of your bankruptcy proceedings.
The assets would be sold off, and the money made from this would be used to pay back your creditors.
So the cost of bankruptcy doesn’t only involve the cash in hand or in the bank.
It also involved your priced assets that you have at home, which can be taken away.
So it is always important to reconsider filing for bankruptcy.
Not only cash and other assets
The cost of bankruptcy not only involves your bank balance and the assets that you own, it also is a very stressful period for you and your family that can impact your personal as well as your professional life.
Filing for your bankruptcy is also extremely time consuming.
During the process of filing, not only do you have to pay certain costs, but you also have to take the time out to perform certain tasks which means that you may have to take time out of your work schedule and your family time.
The trustee will also require a lot of paperwork ad documentation to be filed by you.
You must remember to take time out for such tasks, which can last for several months.
For six months from the date your debts get discharged, bankruptcy will be added to your Equifax credit report.
Additionally, it will be noted in your TransUnion report for about six to seven years, which will depend on the province or territory that you reside in.
During the process of going bankrupt, you will not be able to take new loans, or apply for any new line of credit.
Even after your debts get discharged, getting a traditional loan or applying for a credit card will be extremely difficult.
Even if a loan is approved, the interest rate that will be levied is going to be very high.
This would directly result in higher costs incurred to borrow money for you, making life very uncertain for you.
Your work life may also take a hit if you chose to file for bankruptcy.
If you are a company director or may be nominated to be one, you must remember that cannot serve as a company director while you are undergoing the bankruptcy process.
How alternatives stack up
There are many alternatives that you may want to consider before choosing to file for bankruptcy.
The options include getting a debt consolidation loan, credit counselling, debt settlement and consumer proposal.
The benefit of choosing any of these other options is that you will get complete protection for all your assets, meaning you won’t have to let go off any of your possessions.
However, the debt consolidation loan is the only option for you if don’t want any black marks on your credit report.
So choose wisely.
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