The decision to file for bankruptcy is a difficult one and depends on the types of debt you have, the amounts owed, your assets and valuables, your income and debt to income ratio, housing situation, and other factors.
What is Bankruptcy
Bankruptcy is the process whereby a corporate entity, business, or individual is unable to make payments on their outstanding balances and files a petition. His assets are used to pay off the outstanding balance in full or cover a portion of the debt.
How Do I File for Bankruptcy
The process depends on the type of bankruptcy but generally, there are certain steps to follow, the first being to contact a licensed insolvency trustee. Trustees are tasked with administering bankruptcies and consumer proposals. They also help debtors to review and discuss different options, including alternatives such as debt consolidation, negotiation with creditors, credit counseling, and others. In case bankruptcy is the most viable and practical solution, filing is the next logical step. The debtor is asked to provide information such as a comprehensive list of assets, list of all creditors, and personal information.
What Happens if You File for Bankruptcy
Your creditors may request a meeting and require additional information. You will be discharged eventually but have to attend two counseling sessions. The timing of discharge depends on whether this is the first or second time you declare bankruptcy. It also depends on whether you have surplus income and are making surplus payments. If it is non-automatic discharge, then the trustee will develop a report with details such as type of bankruptcy, causes, financial situation, etc.
What Happens to My House in Bankruptcy
This depends on the type of bankruptcy (chapter 7, 13 etc.) but generally debtors are allowed to keep their property as long as they continue making mortgage payments. In some cases, the debtor’s equity will be used to pay unsecured creditors.
Does My bankruptcy Affect My Spouse
Generally speaking, your spouse will not be brought into bankruptcy should you decide to file. If you have joint debts, however, you will still have to make payments to cover the outstanding balance. The only other exception to the rule is if your spouse is a guarantor or cosigner. It is legally their credit card or loan in this case. Keep in mind that your spouse or partner will be affected indirectly because financial institutions are often unwilling to extend loans to borrowers in bankruptcy or offer very high interest rates.
How Long Will I Be Bankrupt in Canada
Length depends on different factors such as completion of duties, whether this is your first, second, or subsequent bankruptcy, whether you have surplus income that exceeds the limits set by the authorities, and so on. Length varies from 9 to 36 months and depends on your province or territory, whether the debtor is eligible for automatic discharge, etc. Discuss this with your trustee, especially if you have surplus income. In this case, you may want to look into alternatives such as consumer proposal, consolidation, etc.
What Happens to My Debts when I’m in Bankruptcy
This depends on the amounts and types of debts held, i.e. unsecured and secured loans, credit card balances, etc. Not all of your debts will be eliminated or canceled, and this is especially true for balances secured by assets and property. Bankruptcy is one solution for unsecured debts such as balances that result from foreclosure and repossessions, medical debt, credit card balances, etc. Keep in mind that you will not be allowed to discharge debts such as tax, some student loans, spousal and child support, and others.
What Can I Keep when I Go Bankrupt
This depends on your province of residence, assets, and other factors. Property exemptions may include jewelry, household appliances, pensions, motor vehicles, tools of profession or trade, etc. Examples of non-exempt property are vacation and second homes, bonds and stocks, valuables and collections, musical instruments, and others.
Canadian Bankruptcy Legislation
Canadian legislation regulates chapter 13, 11, and 7, the procedures to file, exempt and non-exempt property, and other specifics. Insolvency and bankruptcy fall under the Bankruptcy and Insolvency Act which regulates receiverships, commercial proposals, consumer proposals, personal bankruptcies, etc. The act focuses on key factors such as receivers, inspectors, licensed insolvency trustees, the Office of the Superintendent, bankruptcy courts, and interim receivers. The whole process is also covered, including effects of discharge, financial institutions and other interested parties, suspension of attachments, and others.
Licensed Insolvency Trustees
Licensed insolvency trustees offer a free initial consultation to help debtors choose from different debt management solutions and prepare documents to start the bankruptcy or insolvency proceeding. They are also tasked with notifying all creditors, recording votes, accepting claims, and other tasks. Licensed insolvency trustees work together with debtors to apply and obtain a completion or discharge certificate as a result of the insolvency process they choose to go with.
What Is Credit Counseling
Credit counseling is one alternative to consider when dealing with excessive debt. Borrowers learn about key concepts such as debt settlement and budgeting and attend counseling sessions to this end. They are asked to provide financial information such as outstanding balances, living expenses, income, additional income, etc., which information helps financial counselors to develop and propose a workable budget and action plan. Credit counseling is usually available free of charge.
What Is Consumer Proposal
Consumer proposal is yet another alternative, along with individual voluntary arrangement, negotiation with financial establishments, and formal proposal. There are a number of benefits for heavily indebted borrowers, the main ones being that interest charges stop accumulating and wage garnishments cease. Unlike other options such as bankruptcy, borrowers do not risk losing valuable property such as their vehicle, home, or other assets. Another benefit for debtors is that they are allowed to cover only a portion of their outstanding debts. The repayment period is up to 5 years.
What is Debt Consolidation
Consolidation also helps borrowers deal away with debt and takes two forms. One option is to apply for a low or no interest credit card to combine high interest balances. Many major banks, including TD, RBC, and others offer balance transfer cards to increase their consumer base. Another option is to apply for a debt consolidation loan to repay multiple balances. The main benefit for debtors is a single, affordable monthly payment. Borrowers are free to choose from different options such as secured lines of credit and loans and unsecured loans. Obviously, borrowers who apply for a secured loan or line benefit from a lower interest rate.
Discharging from Bankruptcy
Discharge in bankruptcy results in a legal document which confirms that outstanding balances are permanently erased. This means that the debtor cannot be held liable for any balance included in the application. Keep in mind that creditors may choose to oppose on different grounds. Failing to attend counseling sessions is a valid reason to do so. If you commit an offense or are unable to make payments, these are also valid reasons and so are unusual, fraudulent, and excessive transactions. There are four possible outcomes – refusal of discharge, suspended discharge, and conditional and absolute discharge.
How to Avoid Bankruptcy
Prudent budgeting and sound financial management are the key to avoiding bankruptcy and major financial troubles. It is important to prioritize debts, pay outstanding balances and bills on time, and think of your long- and short-term financial goals. If you are already knee-deep in debt, one option is to sell some of your assets and pay off a portion of what you owe to creditors. Meet with debt collectors and creditors to discuss your options as well.