Will Bankruptcy Erase All Of My Debt?

Does Bankruptcy Wipe Out All Your Debts?

Bankruptcy, a legal status often considered as a last resort option for individuals overwhelmed with debts, is primarily aimed at providing them with a financial reset. However, a common misconception is that bankruptcy eliminates all types of debt. This isn’t entirely true.

In Canada’s context, The Bankruptcy and Insolvency Act lists certain categories of “non-dischargeable” debts that remain unaffected by a bankruptcy declaration. It’s crucial to understand these exceptions to plan your financial future accordingly and determine if bankruptcy is an appropriate solution for your specific circumstances.

If you’re wondering if bankruptcy will erase all of your debt, read on!

Court-Imposed Debts: Fines, Penalties, and Restitutions

Bankruptcy does not nullify any liability imposed by a court due to a criminal or civil transgression.

Regular instances include:

 

  • Traffic-related fines.
  • Bail obligations.
  • Criminal penalties.
  • Compensation awarded in personal injury or wrongful death suits.

 

Spousal and Child Support

Bankruptcy does not alter ongoing or past due payments for alimony and child support. The individual responsible for providing this support must continue to adhere to court-mandated maintenance payments throughout and after the bankruptcy procedure.

Moreover, the stay of proceedings, which halts ongoing and future collection actions, does not extend to spousal and child support payments. Therefore, the individual declaring bankruptcy must also strive to settle any outstanding arrears during the bankruptcy process.

Liabilities Due to Fraud or Misrepresentation

Bankruptcy does not shield individuals from debts arising from their fraudulent activities. This is applicable to a wide range of scenarios, including embezzlement, misappropriation of funds, breach of fiduciary duty, or acquisition and loss of property under false pretenses.

To illustrate, a trustee of a family fund who unauthorizedly utilized the fund’s money for personal investments cannot declare bankruptcy to evade or nullify their obligation for any losses incurred.

Education and Apprentice Loans

Government-backed student and apprentice loans enjoy a seven-year immunity period from bankruptcy protection. Meaning, if an individual files for bankruptcy within seven years of their final day of education or apprenticeship, those debts cannot be discharged through bankruptcy.

However, there are two significant exceptions:

    • Government loans – Individuals facing considerable financial hardship can request the courts to decrease the immunity period to five years instead of seven.
      For this to happen:
      The bankrupt individual must demonstrate their good faith efforts to repay these loans in the past.
      The individual must prove their inability to repay the debt even after they receive a discharge from their other debts through bankruptcy.
    • Loans from Banks – Student loans from non-government lenders do not qualify for the seven-year immunity period. If an individual secured student financing through a non-government lender, those debts are always eligible for bankruptcy protection.

Other Notable Exceptions

**Non-disclosure of assets: **Bankrupt individuals are required to declare all assets, income, and dividends they currently have or anticipate earning throughout their bankruptcy. They will be held accountable for anything not disclosed to their Licensed Insolvency Trustee.

**Accumulated interest on exempt debts: **Since the aforementioned debts are exempt from discharge through bankruptcy, any interest these debts accrue will also remain unaffected by bankruptcy proceedings and will continue to be the bankrupt individual’s responsibility.

Seeking Professional Advice

Bankruptcy is a powerful tool for many to achieve a financial reset. However, it’s not the only solution. It’s advised to have a Free Confidential Consultation with a Licensed Insolvency Trustee who will review your financial status and guide you towards the right Life-Changing Debt Solution. They’ll consider factors such as the type and amount of debt you have, your contribution capacity, and which path will lead you closest to defeating debt permanently. Whether it’s bankruptcy, a Consumer Proposal, or any other option, a Licensed Insolvency Trustee can provide the insights and perspective you need to make the best decision for your unique set of circumstances.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.