Are you carrying a lot of debt? Struggling to make your debt payments? Unable to cover all or some of your monthly bills? These are all warning signs that it’s time to review your debt relief options.
If you’re wondering if bankruptcy is the right debt solution for you, this list of facts can help you understand more about the bankruptcy process.
There are two legal options for debt forgiveness under the Bankruptcy and Insolvency Act: consumer proposal and bankruptcy. If you can no longer make your debt payments or your debt load exceeds your income, bankruptcy provides immediate relief from most, if not all, of your unsecured debts, such as tax debt, credit card debt, lines of credit and payday loans. Filing for bankruptcy in Canada also provides you with immediate legal protection: creditors and debt collectors can no longer contact you and you are protected from any legal action such as wage garnishments.
A Licensed Insolvency Trustee (LIT) is the only financial professional who can legally file a bankruptcy (or a consumer proposal) on your behalf. LITs are licensed by the Office of the Superintendent of Bankruptcy Canada (OSB) and their fees are regulated by the federal government. LITs must adhere to a strict Code of Ethics and work transparently to support you and your creditors fairly. An LIT must be honest and open with you about your debt relief options.
Depending on where you live, each province has a list of what assets are exempt from seizure when you declare bankruptcy. Examples of exemptions include food and fuel, clothing, furnishings, appliances, medical aids, a car, your home, and tools of the trade that you need for work. Sometimes the exemptions include a dollar limit and sometimes they don’t.
Many people fear that they’ll lose their home if they file for bankruptcy. The provincial exemptions impact your situation, as does the amount of equity you have in your home. This is determined by doing a valuation on your home and figuring how much you still owe (including any outstanding property taxes). Sometimes, you’ll need to use the equity in your home to pay your debts, which allows you to keep your house. An LIT will know what is possible or required in your situation.
There are administrative costs to have an LIT manage your process, and if you must make surplus income payments, you’ll also make a monthly payment which goes towards repaying some of your debts. All these costs, along with the process of making monthly payments, will be explained by your LIT. The costs you’ll have will be significantly less than your payments before you declared bankruptcy and had to pay your debts in full.
If you file for bankruptcy, it only impacts your partner if your bankruptcy filing includes debts you’ve both co-signed on (like a car payment, or a credit card). In that case, your partner is responsible for those debts, even if you have filed for bankruptcy. If co-signed loans are too much for your partner to manage alone, speak with an LIT to discuss debt relief options, like a consumer proposal, debt consolidation, or, in extreme situations, bankruptcy.
In order to be released from your debts, you have obligations and duties which you must complete before you can be discharged. Once you’ve filed for bankruptcy, you must surrender non-exempt assets to help pay your creditors some of what you owe them. Your LIT will review your assets and help you understand what is exempt in your province, and what is not.
Based on your monthly income and expense submissions you’ll give to your LIT, you’ll make monthly payments for the duration of your bankruptcy period. That money pays your LIT for administrative costs and fees, and is used to pay back some of your debts if you have surplus income. You will attend two credit counselling sessions with your LIT or a credit counsellor, which will help you manage your finances and rebuild your credit during and after the bankruptcy process. You will also need to provide your LIT with the appropriate information so he or she can file tax returns on your behalf.
A first-time bankruptcy can be discharged in as little as nine months, but the time-period can vary based on your specific circumstances. If you have surplus income (your monthly income exceeds the government limit) or you have previously filed bankruptcy, the process can last up to 36 months.
When you file for bankruptcy, it is automatically included on your credit report with an R9 credit rating. The R9 rating stays on your report for six years after you’ve been discharged from bankruptcy. Being discharged from bankruptcy means you’ve met all your responsibilities under the filing. So, if you are declaring bankruptcy for the first time, the R9 rating will be on your report for nine months plus 6 years.
But rebuilding your credit is possible, and it’s something you can begin to work on right away, with the assistance of an LIT. An LIT will show you how to apply for credit slowly, and how to strategically make purchases and payments to build a positive credit history so that lenders will be willing to approve your credit applications in the future.
For those people who want to keep their assets and can repay a portion of their debt, a consumer proposal is a popular alternative to bankruptcy. A consumer proposal is a negotiated agreement between you and your creditors that usually results in you repaying a portion of what you owe for a period of up to five years with no interest accumulating. A consumer proposal will impact your credit rating, but not to the same extent as a bankruptcy. Learn more about consumer proposals here.
Sometimes, debt becomes overwhelming. If you need debt relief, a free initial consultation with a Licensed Insolvency Trustee (LIT) can help you understand what solutions are available to you. Don’t avoid your financial problems, even if you’re worried that you might need to file for bankruptcy. The sooner you reach out, the sooner you’ll be on your way to being debt free.
If you’re wondering whether bankruptcy is the best debt solution for you, schedule a no-obligation meeting with a Licensed Insolvency Trustee.