Carrying debt is something that most consumers in Fredericton will need to do at one time or another. This could be a mortgage for a home, a loan for a new car, or even a student loan to help further your education.
However, you need to be sure to pay off that debt when the time comes. Unfortunately, in many areas of the country, the delinquency rates are on the rise, which means there are many consumers who are struggling to meet their credit and debt obligations. For example, New Brunswick reported a recent 7.8% increase in credit delinquency, which is troubling.
For consumers who are unable to pay back their debts and have tried or considered all other options, filing for bankruptcy in Fredericton might be the solution you need.
Everything you need to know about bankruptcy court in Canada.
What is Bankruptcy?
So what exactly is bankruptcy? Bankruptcy in Fredericton is a legal process in which an individual will surrender a large portion of what they own in exchange for their debt to be eliminated. There are exceptions as to what needs to be surrendered that vary from province to province.
If you want to file for bankruptcy in Fredericton, you need to have lived in Canada within the last year, and be insolvent. This means you owe at least $1,000 and are simply unable to pay back your debt. In order to file for bankruptcy, you need to enlist the help of a Licensed Insolvency Trustee (or a LIT).
A LIT is someone who can administer a bankruptcy in Canada. They are licensed, experienced and educated on the subject matter and they are who you will surrender all of your assets to. Bankruptcies are relatively affordable all things considering and the bankruptcy process can be done in as little as 9 months.
In terms of cost, a bankruptcy will cost a minimum of $1,800. This is the base contribution for bankruptcy that can be paid off all at once, or at $200 a month for the 9 months. These fees are set by the government, so they must be paid no matter what. However, there are also some other costs you might be required to pay. For example, if you make over the “surplus income threshold”, you may have to make surplus income payments. The amounts will depend on how much you make, as well as the number of members in your family.
The assets you may need to surrender are also often considered an expense. While it is a lot to give up your assets, it allows you a fresh start and be free from debt after months or years of struggling.
Learn how to calculate your bankruptcy payments.
How Does Bankruptcy Affect Your Credit?
Now that you know what bankruptcy in Fredericton is, how does it affect your credit? As you might expect, bankruptcy will have a negative effect on your credit score. In Canada, all credit accounts are given a credit rating between 1 and 9. 1 means the account is in perfect standing and 9 means the account is associated with bankruptcy. Thus, when you file for bankruptcy all your accounts that are a part of it will be given a 9.
Unfortunately, as you can see, bankruptcy will do about as much damage to your credit as possible. This will make it difficult and quite expensive to borrow money while you are bankrupt if you’re even able to at all. So how long will this bankruptcy negatively affect you and show up on your credit report? A first bankruptcy will remain on your report for six years after your date of discharge. If you go bankrupt a second time, it will remain on your credit for 14 years.
However, while it damages your credit, a bankruptcy can be a good thing for many people. Starting over instead of continuing to battle under a mountain of debt can often be a good thing and give you a fresh start you need.
Interested in what else affects your credit score? Check out this infographic to learn more.
How to Repair Your Credit After Bankruptcy in Fredericton?
Rebuilding your credit post-bankruptcy may seem like a daunting task, but there are many steps you can take. Once your bankruptcy has ended, here are a few things that you can do to repair and rebuild your credit:
- Apply for a secured credit card and use it responsibly
- Keep your credit utilization lower than 30%
- Don’t apply for too many credit cards or loans within a short period of time
- Make all bill and debt payments on time
- Check your credit report frequently for errors
- Make a budget and stick to it
- Start building an emergency fund
Any of the aforementioned things will be able to help your credit improve. However, it is important to remember that they are not magic. You will still need to put in a lot of work and make some serious lifestyle and financial adjustments in order to improve your credit. It won’t happen overnight and could take several months or years, but it will be well worth it in the end.
What Debts Can and Cannot be Included in a Bankruptcy?
While many people will assume that all debt can be included in a bankruptcy in Fredericton, that isn’t always the case. There is a chance the kind of debt you have cannot be included, and thus filing for bankruptcy wouldn’t help you at all. But in that case, what kinds of debt can and cannot be included in a bankruptcy?
Types of Debt That Can Be Included in Bankruptcy
- Credit card debt
- Lines of credit
- Personal loans
- Payday loans
- Income tax debt
- Medical bills
- Utility bills
Types of Debt That Cannot Be Included in Bankruptcy
- Secured loans
- Child support
- Alimony
- Some student loan debts
- Legal fines or tickets
- Any debts relating to fraud or embezzlement
If you’re unsure about a specific type of debt you have or you have questions about can and cannot be included in your bankruptcy, make sure you speak with a LIT. A LIT in your area of Fredericton will be able to help you determine whether or not bankruptcy is the best choice for you.
How is secured debt treated during bankruptcy, find out here.
When is Bankruptcy the Right Choice?
Not all situations call for bankruptcy. It is a fairly extreme measure and will make financial decisions more difficult in the future. It shouldn’t be considered your first option when you find yourself in debt.
So when is bankruptcy the right choice? Well, there are a few scenarios when it can make sense, including:
- When you can simply no longer keep up with your loan payments and don’t see any way that you’ll get out of debt
- You are unable to earn more money to help pay off the debt
- When a trained LIT has said that bankruptcy is right for you
- When you have exhausted all other options when it comes to debt relief
Know Your Pre-Bankruptcy Options
As mentioned earlier, a bankruptcy in Fredericton is a serious and extreme method of getting out of debt. It can cause a lot of damage to your credit, will follow you for years and has the potential to make your life difficult. As a result, it should never be your first resort when it comes to getting out of debt.
Instead, there are several other debt relief solutions that you should consider before going right to bankruptcy. These are less harmful to your credit, will negatively affect you for a shorter period of time, and are generally less extreme. Some of the options include:
- Credit counselling
- Debt consolidation (loan or program)
- Debt settlement
- Consumer proposal (a less harsh and extreme process that is very similar to bankruptcy in many ways)
As for which of these is the best option for you, that is for you and your LIT to discuss. The right option will depend on how much debt you have, how much you make, your spending, your lifestyle, as well as a wide variety of other factors.
Is Bankruptcy the Best Solution For You?
If you aren’t sure if bankruptcy in Fredericton is right for your situation or want a little more information, we can help match you with a bankruptcy professional in your area. Or, if you’re interested in a less harsh debt relief service, we have all the options you need.
