When living in Victoria or another city in BC, the feeling of having a lot of debt is an all-too-familiar feeling. While some people can manage their large debts and keep it under control, others may struggle. Some struggle to the tune of a few missed payments here and there, while others dig themselves into a much deeper hole.
Do you know how your bankruptcy payments will be calculated? Find out here.
For some consumers, their situation may get so bad that they can’t see a realistic way to get out of debt. While these people have a few different things that they can do, bankruptcy may be the last resort option they’ve been looking for.
What to Expect When Filing for Bankruptcy?
As you are likely aware, bankruptcy is the legal process for when someone is unable to pay back their debt. It essentially gives someone a chance to start fresh in terms of debt, but they will have to relinquish some of their assets for liquidation. Here is a step by step guide to what you should expect when you file for bankruptcy in Victoria.
The first thing to do is meet with a Licensed Insolvency Trustee and go over your current financial situation with them. They will then work with you to ensure that bankruptcy is the correct choice for you. Keep in mind that if bankruptcy is not the right choice, they will still be able to recommend the right debt relief option for you.
Once it has determined to be the right choice, you will fill out an application. Your LIT will then file the necessary paperwork and the process will begin. As of that moment, you are protected from creditors harassing you or suing you. Your LIT will also be in contact with your creditors, letting them know about the decision.
Your non-exempt assets will be sold in order to get some money to pay off as much of your debt as possible. You may also be responsible for paying your LIT for their services, the amount can vary.
If you make all required payments and attend all the mandatory credit counselling meetings, you will be discharged from your bankruptcy. You will get a fresh start, but your credit score and credit report will suffer for around 7 years as a result of your bankruptcy.
How is secured debt treated during bankruptcy? Click here.
How Does Bankruptcy Affect Your Credit in Victoria
Speaking of how bankruptcy will affect your credit, let’s take a deeper look at what bankruptcy will do to your credit score. In general, bankruptcy is one of the worst things you can do to your credit score, which is to be expected as it is a serious financial choice. As for how much it will hurt your credit score, that will depend on where it was before your bankruptcy. There is a good chance your score was low due to your massive amounts of debt anyway, so a low score likely isn’t a huge concern for you at this point.
One thing that is consistent is just how long a bankruptcy will appear on your credit report for. A first bankruptcy will remain on your credit report for 7 years after your date of discharge, and if it is a second bankruptcy, it will stay on your report for 14 years.
But while it is bad for your credit, sometimes it is better to start fresh than to struggle with debt and deal with constant calls from creditors and collection agents. Of course, you need to be sure to learn from your mistakes and not get in debt trouble anymore.
Check out this infographic to learn how your credit score is calculated.
Other Options to Consider
As mentioned earlier, bankruptcy is one of the most extreme debt relief solutions that you have at your disposal in Victoria. However, it isn’t the only one you have. You would be doing yourself a disservice if you didn’t consider the other options before taking the big leap into bankruptcy. There are several other options you can choose from including:
A Debt Consolidation Loan
Any way you look at it, having many different loans and credit accounts to pay off every month can be confusing. With so much to remember, it can be easy to forget certain payments and fall into debt trouble. A debt consolidation loan is all about simplifying your monthly payments by essentially taking out a single, larger loan to cover all of your smaller loans, thus giving you one simple payment each month. In addition to a debt consolidation loan, you can also enter a debt consolidation program which has the same goal of making your debt much easier to manage.
Debt settlement is where a consumer and their representation, typically a debt settlement expert or credit counsellor, will reach out to a creditor and offer to pay off a portion of their debt. For example, if you owe $20,000, you might offer your creditor a one-time lump sum payment of $10,000 to get your debt marked as paid. While there are no guarantees your creditor will accept the settlement, it is definitely worth a try. In your creditor’s eyes, it is often better to get some of the money you owe them than to get nothing at all.
A consumer proposal is an agreement between you and your creditors to pay back a portion of what you owe, as an alternative to bankruptcy. You’ll work with a LIT to create a proposal that includes a repayment plan. This agreement protects you from debt collectors, as well. One of the best reasons for someone to choose this over a traditional bankruptcy is because it also protects your assets. Also, the effect on your credit score is not as great, which is another positive.
Is Bankruptcy the Best Option For You?
If you are struggling with debt and are unsure where to turn, Loans Canada can help. Figuring out what debt relief option you should choose can be tough, so there is no need to do it alone. Contact us today!