What Will it Cost to Go Bankrupt?

Understanding the Costs of Going Bankrupt in Canada

Many Canadians, struggling with overwhelming debt, often ponder over the question, “What will it cost to go bankrupt?” The answer is not straightforward as the total cost hinges on multiple factors. In this article, we’ll delve into the nuances of bankruptcy costs in Canada, shedding light on the relevant aspects such as monthly payments, dealing with assets and credit rating implications.

1. Monthly Payments

1.1 Government Standards

The Canadian government releases annual standards indicating the necessary income for families of diverse sizes in the country. If a family’s income surpasses the stipulated amount, the bankrupt individual is required to pay 50% of the excess income. If your monthly income, for instance, is $400 more than the necessary amount, you’d need to pay half of that ($200) each month.

1.2 Minimum Fee for Bankruptcy Administration

In scenarios where individuals don’t earn more than the government standard, a minimum fee is assessed by the Licensed Insolvency Trustee to cover administrative costs. This fee is payable throughout the bankruptcy duration, which typically lasts 9 months for first-time bankruptcies and 24 months for second-time bankruptcies. This fee varies among trustees.

1.3 Government Filing Fee

The Canadian government charges a filing fee for bankruptcies and consumer proposals which is paid at the bankruptcy commencement.

2. Dealing with Assets

2.1 Giving Up Non-Exempt Assets

Bankruptcy involves relinquishing non-exempt assets to creditors in exchange for complete debt forgiveness. This implies that if you possess any non-exempt assets, you might need to surrender them for sale for creditors’ benefit or negotiate with the trustee to “buy them back” from the creditors.

2.2 Exempt Assets

Most of your assets are likely to be exempt, meaning you can retain them. In Manitoba, for example, personal effects, household furnishings, registered pensions, tools of trade, a vehicle for commuting to work, and some equity in your primary residence are all exempt.

2.3 Role of a Licensed Insolvency Trustee

Determining how exemptions apply to your situation and dealing with assets are complex aspects of bankruptcy. Meeting with a Licensed Insolvency Trustee is the only way to fully understand how your assets will be impacted.

3. Credit Rating Implications

3.1 Impact on Credit Rating

Bankruptcy is reported to major credit reporting agencies and remains on your credit for six years following your discharge from bankruptcy.

3.2 Bankruptcy Provides a Clean Slate

However, if you’ve been late with payments, missed payments, or had debt go into collections, your credit rating is already damaged. Bankruptcy provides you a fresh start. For instance, a bank is more likely to provide a car loan after the bankruptcy than before when you had unmanageable debt.

3.3 Cost Comparison

While there are costs associated with bankruptcy, struggling with unmanageable debt can lead to even higher costs – impacting your finances, health, family, and relationships. Bankruptcy costs may seem insignificant in comparison.

4. The Role of a Licensed Insolvency Trustee

Bankruptcy is a complicated process and having a dedicated professional like a Licensed Insolvency Trustee on your side can significantly ease the process. A trustee can provide complete information, helping you decide whether bankruptcy is the right solution for you and your family.

5. Conclusion

Understanding what it will cost to go bankrupt is crucial in making an informed decision about your financial future. While bankruptcy does come with its costs, it can provide a fresh start for individuals struggling with unmanageable debt. Always ensure to consult with a Licensed Insolvency Trustee to thoroughly understand the implications of bankruptcy on your financial situation.

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