Alberta residents enjoy one of the highest median incomes in the entire country. The residents in the province work hard and are rewarded with solid wages. However, when people make more, they tend to spend more and that is the problem many Albertans are facing.
Add to that the recent economic hardships in the province and it should be no surprise that Albertans are struggling with debt, especially in large urban centers like Calgary and Edmonton. Some residents are now facing a ton of debt and simply don’t have the financial means to deal with it without help. While educating people and helping them stick to a plan is sometimes enough, that isn’t always the case.
Unfortunately, many individuals in Alberta will have to file for bankruptcy, which can be an intimidating thought. In an effort to ease your nerves, if that is a position you ever find yourself in, we’ve written this article as a guide, so you can understand the ins and outs of bankruptcy, and determine whether it is the right choice for your situation.
What is Bankruptcy and Why Do People File For It?
Bankruptcy is a process that was created to help people who have no reasonable chance to solve their debt issues, mainly their consumer debts. Most of the time, bankruptcy will stem from unsecured debts, such as credit cards or personal loans. According to the Bankruptcy and Insolvency Act of 1985, which governs bankruptcy in the province of Alberta, as well as the rest of Canada, as long as your debts add up to more than $1000, you can legally file for bankruptcy.
However, just because you can file for bankruptcy, doesn’t mean that you should. There are many potential pros and cons that come with this decision.
In terms of pros, the most noticeable is that you get to start over financially and will no longer be in debt, which will give you a lot more freedom going forward. Also, filing for bankruptcy will enable you to get the financial counselling you need to avoid massive debt problems in the future.
However, there are many cons of bankruptcy to consider before you decide to file. The first, and likely most upsetting, is that your credit will suffer for around 7 years for your first bankruptcy, and 14 years for your second. This means it will be very difficult to get a mortgage, take out new loans, and other things that utilize your credit report or credit score. Also, bankruptcy will often force you to surrender certain amounts of equity in your home, vehicle, household items, and tools. So, while you will likely be walking away debt-free, there will definitely be other problems that you will need to take care of.
Have you filed for bankruptcy? Read this to discover ways of rebuilding your credit.
As for why people file for bankruptcy, it is pretty self-explanatory. They do not see another way past their debts. It is their last resort. Solutions like debt consolidation, credit counselling, or debt settlement can help eliminate your debts too. However, if your debts are too difficult to endure, these typical solutions may not be enough, unless you have a very high income and are able to stick with your program.
To learn about credit counselling in Alberta, read this.
What Does it Cost to File for a Bankruptcy in Alberta?
While you might think it doesn’t cost anything to file for bankruptcy in AB, you’d be wrong. The process of bankruptcy isn’t free for most people, and the costs will depend on a number of different things. Most people will pay a minimum of $1,800 for their bankruptcy. These fees can be paid at all at once or over 9 months (at $200 a month). Prices are set by the government and will be the same no matter which Insolvency Trustee helps you file for bankruptcy. However, the overall costs of bankruptcy will depend on how much you make, how big your family is, your assets, and more.
In total, there are three main costs associated with bankruptcy, which are the base contribution, surplus income, and of course, the costs of the assets you might lose. To get a true understanding on how much it will cost you to file for bankruptcy in Alberta, you will need to speak with a licensed insolvency trustee.
To learn more about the costs of bankruptcy, look here.
What To Expect When You File For Bankruptcy?
The first step when it comes to filing for bankruptcy is to find a licensed insolvency trustee, who will assist you throughout the case. These professionals are tasked with helping you through the filing process and will work with your creditors to help alleviate your debt problems.
When choosing a trustee, they should likely be local and you should feel comfortable working with them. These individuals will never let their biases get the better of them and will always keep the things you talk about completely confidential. Insolvency trustees should also provide you with all the information you need. You can ask them any questions you have about the process of filing for bankruptcy in Alberta. They will also look at other options to consider before deciding to go with bankruptcy, as a bankruptcy should only be treated as a last resort.
Before you can file, however, you will need to provide your trustee with a wide variety of personal information including name, address, birth date, assets and creditors/debts. This will help them understand your situation, so they can give you the best guidance possible. The entire process of bankruptcy should last no more than nine months. If you stick to the terms of the agreement, your trustee will recommend a discharge, which will completely free you from your debts and get you back on the right track, financially.
How Do You Know If You Should File For Bankruptcy?
Now that you are aware of the process, costs, and what to expect from bankruptcy, how do you know whether you should file for it or not? Well, there is no right or wrong answer to that question. It is a personal decision and will depend on how you are handling your debts, and if you think you will eventually be able to get out of your debt at all.
If you have a high income or your debts are nearly done (or small), you may not need to file for bankruptcy, as it is not a dire situation. Also, you might be unwilling to have the multi-year negative on your credit that comes along with bankruptcy. However, if you have a low income and your debt seemingly keeps building and building, bankruptcy is something you could consider.
If you have a low income, but a high amount of debt, check this out.
Basically, it comes down to personal choice and how comfortable you are with your debts. Bankruptcy should be one of the last things you consider, as it is fairly drastic compared to other debt relief solutions at your disposal. Once you have exhausted other options, you may consider bankruptcy. Make sure to speak to friends, family, and financial professionals about your decision to see if anyone is willing to offer any advice or assist you in any way.
Take a look at these other loans and programs that can help you get out of debt.
What Are The Alternatives to Bankruptcy?
Speaking of other options, what are some of the alternatives to bankruptcy? One of the most common alternatives to consider is something called a consumer proposal. A consumer proposal is a legal agreement between you and your creditors to arrange for a partial repayment of your debts. Unlike a bankruptcy, your assets aren’t at risk and the effect on your credit score will not be as large as it would be with a bankruptcy.
Have you filed for bankruptcy? Read this to discover ways of rebuilding your credit.
However, you will be required to make frequent repayments on your debts, which can be tough if your income is low or the payments are too much for you to handle. The reason a creditor may take a partial repayment is that, oftentimes, they will get nothing back when you file for bankruptcy. So, a portion of your debt is a better repayment than nothing at all. There are some qualifications you must meet in order to be able to take advantage of a consumer proposal instead of bankruptcy, so be sure to read up on those if you want to consider a consumer proposal.
How does a consumer proposal affect your credit? Find out here.
The idea of filing for bankruptcy, potentially losing some assets and damaging your credit is a frightening one. However, the more you know about bankruptcy, the easier the process will be. Hopefully, this article has helped you decide whether bankruptcy is the financial decision you should really be making. Remember, you should speak to an expert about all of your options before making a choice to file for bankruptcy.