Bankruptcy and unsecured debt

Which debts can be eliminated by bankruptcy

Does bankruptcy eliminate all of my debts?

You might be wondering which of your debts can be included in a bankruptcy, eliminating your responsibility to try and repay them. The simplest answer is that a bankruptcy eliminates most, if not all, of what are known as ‘unsecured’ debts. These include credit card debt, lines of credit, bank loans, payday loans and income tax debt. When you file for bankruptcy, you will no longer have to worry about repaying these debts.

What debts can't be included in a bankruptcy filing?

Certain types of debt cannot be eliminated by filing for bankruptcy. Even after you complete the bankruptcy process, you will still be responsible for repaying the following debts:

1. Secured debts, such as a mortgage or car loan 

Secured debt are guaranteed by an asset (your home or car), so you need to continue to make payments. Otherwise, your creditors can repossess your vehicle or your property.

2. Child support or alimony

These payments must continue even if you file for bankruptcy. If you’re behind on your payments, your former spouse or partner will be considered a preferred creditor in your bankruptcy claim.

3. Student loans, if you’ve been out of school for less than seven years

If it’s been more than seven years since you were a full-time or part-time student, then student loan debt can be included in bankruptcy.

4. Any court fines, penalties, bail bonds or restitution imposed from a criminal or civil trial

5. Any debts arising from fraud, embezzlement or misappropriation

This includes any debt related to property or services obtained through fraud.

What if I’ve co-signed a loan with someone?

What if I’ve co-signed a loan with someone?

When you file for bankruptcy, it does not eliminate the debt when someone has co-signed or guaranteed the loan for you. If your creditor sees that you’re no longer able to make payments, they will likely pursue the person who co-signed or guaranteed your loan, and that person will be responsible for repaying your debt. If you’re considering bankruptcy as an option for resolving your debt, you will want to notify anyone who has co-signed or guaranteed any of your loans.

In this case, it might be possible to file a joint consumer proposal in order to pay off the co-signed debt. If you have questions, a Licensed Insolvency Trustee will explain all your options.

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