Thousands of Canadians file for bankruptcy each and every year. Bankruptcy is designed to relieve a debtor from her financial obligations when she cannot repay debts owed to her creditor.
There exist various tight laws and regulations around bankruptcy. Bankruptcy is a heavily regulated legal status that an individual or organization can hold. In Canada, bankruptcy is governed by the Bankruptcy and Insolvency Act and it is applicable to both businesses and individuals.
Why would an individual declare bankruptcy?
People declare bankruptcy due to their inability to repay creditors. It is a method of last resort for those that are under pressure by creditors to pay off their debt. It serves also as a way to terminate harassment by collection agencies or aggressive creditors when a debtor has no way to pay off his or her debt.
Declaring bankruptcy also serves as a way to start fresh from a financial perspective. You are given a clean slate and absolved of all of your previous debt. However, bankruptcy is noted in your credit report and that makes it quite difficult to get approved for a loan. It is a strong strike against your record which is why bankruptcy is known as a method of last resort.
Who files for bankruptcy?
People and businesses usually land in bankruptcy due to a result of unfortunate events. To illustrate, an individual who takes on a lot of debt and later falls ill and loses his or her ability to work may lose the ability to pay off debt. This can eventually result in bankruptcy. Businesses can go bankrupt if they don’t receive enough revenue to cover their costs.
How does bankruptcy work?
You need to use the services of a trustee to go bankrupt. You can find one online or check your local directory. You need to review your situation with your trustee before filing for bankruptcy.
In most cases only your creditors and yourself will know you have filed for bankruptcy.
During bankruptcy you and your trustee will work to work out certain responsibilities to fulfill. The period of time you remain with the status of bankrupt depends on your situation but the minimum amount of time is 9 months. Your trustee will investigate your financial situation, administer the fair distribution of property and assets among creditors and recommend whether the debtor in bankruptcy should be discharged.
Credit Score & Disadvantages of Bankruptcy
For an individual facing so much financial distress that bankruptcy is the only way out, there are little disadvantages to filing for bankruptcy. The fact of the matter is that if an individual has gotten himself to this point, their credit score is already very damaged and filing for bankruptcy wont harm them any further. Moreover, after bankruptcy the individual will not have any debt.
Building your Credit After Bankruptcy
Bankruptcy stays on your record for 7 years, however you can rebuild your credit in a much shorter time frame (2 years) by following the guidelines outlined in our credit learning section.