What happens before, during and after filing for bankruptcy?Aug 12, 2020
We can still only guess what the real economic fallout from the coronavirus pandemic will look like. Many people continue to benefit from the financial assistance offered by the government and their financial institutions. It’s why bankruptcy filings dropped drastically between March and August. But as the economy continues to opens up, these programs will recede, and the reality of the global recession will sink in. Many people will be in financial distress and will need help with their finances. Filing for bankruptcy will be one of the solutions that people will need to find relief from debt.
You have certainly heard of bankruptcy, but it remains a misunderstood solution to a debt problem. It can often be perceived as a complicated process with many negative connotations. Bankruptcy stigma only adds to the misunderstanding. In fact, the fear and shame associated with bankruptcy will only encourage someone to neglect a problem and delay getting the help they need.
A good way to overcome the fear of dealing with financial difficulty is to learn more about the solutions available to you. Here’s a breakdown of what happens before, during, and after you file for bankruptcy.
What happens before bankruptcy?
Filing for bankruptcy is a big decision that should be made carefully with the help of a Licensed Insolvency Trustee (LIT). In simple terms, bankruptcy is a way for debtors to free themselves from the debts that they are no longer able to pay back. Several stages lead to making this decision.
Someone who is considering bankruptcy will necessarily have a high debt load from a range of debt, like lines of credit, credit cards, student loans, medical bills, etc. They will have trouble making bill payments and will likely have payments in arrears. Collection agencies have probably started calling and sending threatening correspondence. It’s a very stressful situation.
If you are dealing with serious financial difficulties, you should seek professional advice. An LIT is ethically obligated to help you explore all your debt relief options and is the only professional who can assist you with filing for bankruptcy. They can meet with you over the phone to review your debts, assets and income and provide you with trustworthy advice.
It’s very important to note that bankruptcy is not the only debt settlement solution to a serious debt problem. If other options such as a debt consolidation loan or a consumer proposal are not appropriate solutions, the LIT will help you understand what filing for bankruptcy means and guide you through the process.
What happens during bankruptcy?
If you decide to declare bankruptcy, your Licensed Insolvency Trustee will deal directly with your creditors on your behalf. A stay of proceedings will automatically be issued that legally protects you from your unsecured creditors. A stay of proceedings will stop collection calls, threats of legal action and existing legal action, such as wage garnishment.
A common question about bankruptcy relates to the seizure of assets. Will I lose everything? Will I lose my car or my home?
In a bankruptcy, you may have to surrender certain assets to your LIT who will then sell or liquidate them in order to reimburse your creditors. But this does not mean that you will lose everything. Most personal belongings are exempt from seizure. For example, many people often keep their assets, like their cars and their homes.
How long does a bankruptcy last? A first bankruptcy normally takes nine months. During this time, you make monthly payments to your LIT to pay for fees and administrative costs. Your monthly payments and the term of your bankruptcy may vary based on your income.
Your LIT will help guide you through the process. You will attend two credit counselling sessions which are an important component of the process. These sessions will help you manage your finances during the bankruptcy but they’ll also provide you with the resources, skills and strategies to help you rebuild your finances after you’re discharged.
What happens after bankruptcy?
When your bankruptcy is finished, you are discharged from your debts. You will no longer make monthly payments to your LIT and you can focus your efforts on planning for the future and getting a fresh start.
Your LIT will ensure you understand the consequences of declaring bankruptcy. The bankruptcy will appear on your credit report and you will receive an R-9 rating, which is the lowest credit rating, for six to seven years following your bankruptcy discharge.
However, a low credit rating is temporary and you can apply the skills you learned during the counselling sessions to help rebuild your credit and improve your overall financial well-being.
The purpose of a bankruptcy is to provide immediate relief for people who are facing an unmanageable debt load. A bankruptcy will free up significant resources and gives you the opportunity for a new beginning. Filing for bankruptcy is certainly not an easy decision, but it’s likely not as scary as you might think. It ultimately means that you will be in a better position to meet your immediate needs so you can leave your debts behind and start looking forward to the future.