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Debt can come from all sorts of places, whether you live in a quiet area of New Brunswick or a busy city like Saint John. While a manageable amount of debt can, in some cases, be good for your credit, it can quickly become unmanageable and a drastic solution may be needed to resolve the issue.
When you’ve exhausted all other options and that solution becomes necessary, a bankruptcy may be it, as long as you’re certain that you can recover financially from the process. If you’re interested in learning more about this viable but serious debt management decision, keep reading.
Looking for some simpler debt management tips? Take a look at this.
Personal bankruptcy is a procedure that involves filing for a legally binding document that frees you from your consumer debt. The procedure will be administered by a Licensed Insolvency Trustee in Saint John and regulated under the Bankruptcy and Insolvency Act. Once the filing is approved by the Office of the Superintendent of Bankruptcy, any and all collection efforts, wage garnishments, and penalties against you should cease.
Click here to know more about what a Licensed Insolvency Trustee can do for you.
However, before we get any further into our study, let’s discuss a roadblock that a lot of borrowers in Saint John come to when looking into the process. Firstly, it’s important to be aware of the fact that only certain kinds of debt are actually eligible to be covered by bankruptcy in Saint John. Namely, those that are unsecured, meaning not collateralized by an asset that you’ve offered up as security. We’ll give you a few examples:
Click this link to know if bankruptcy is the right option for your tax debt.
Generally speaking, no. Declaring bankruptcy is not more advisable that filing for a consumer proposal, which is a less drastic but still serious debt management solution available in Saint John. Like a bankruptcy, a consumer proposal is a legally binding process in Saint John that’s administered by an Insolvency Trustee and deals mainly with severe cases of unsecured consumer debt.
Filing for bankruptcy in Saint John eliminates all of your unsecured debt, but you may be required to sell your assets, and later on, make additional payments. On the other hand, a consumer proposal allows you to pay off a large portion of what you owe, rather than the full amount. Here are a few other notable differences between the two procedures:
To be eligible for a consumer proposal in Saint John, you have to have a certain amount of debt, usually between $5,000 and $250,000. On the contrary, anyone with a minimum of $1,000 can technically qualify for personal bankruptcy. Additionally, there is no maximum limit for consumer debt with bankruptcy.
Here’s what happens to your debt when you file for a consumer proposal.
One good thing about filing a consumer proposal in Saint John is that you likely won’t lose any assets, such as your house or car, during the process. On the contrary, one of the reasons why bankruptcy is so detrimental is because you may have your assets seized and sold as compensation, depending on how much you owe. At the very least, you may lose a significant amount of the equity you hold in them. Even your RRSP (registered retired savings plan) may be subject to seizure if your debt is large enough.
Can your consumer proposal be paid off early? Click here to know.
While a consumer proposal can reduce your total debt amount, you’ll need to pay off your remaining balance through monthly installments toward your Trustee, who will send them to to the lenders or collection agencies that hold your debt. That said, those payments may still be easier on your bank account than the ones that accompany a bankruptcy, which is known as surplus income payments.
You can avoid this if your income falls under that year’s bankruptcy surplus income limit, which is imposed by the Federal Government. However, if your income is over that limit, you will be assigned mandatory monthly payments, to be made to your trustee. If you don’t make all your payments on time and in full, the consequences can be harsh (this also goes for a consumer proposal).
This is how much it can cost you to declare bankruptcy in Canada.
When you file for a consumer proposal in Saint John or anywhere in Canada, your credit score may drop quite a bit. The same goes for your credit rating, which will fall to an R7, meaning you have an account that’s in a special debt settlement program. In addition, a record of those events will remain on your credit report for 3 years following the completion of your proposal. During that time, if you apply for new credit and your lender requests said information from either of Canada’s credit bureaus (Equifax and TransUnion), it can lead to low chances of approval or, at the very least, extremely high-interest rates.
Look here to know if you can be approved for a loan after a consumer proposal.
Despite that, a bankruptcy’s effect on your credit is far worse. Not only will your credit score drop significantly, but your rating will also tumble to an R9, the worst of all. Your bankruptcy will also stay on your credit report for a total of 7 years. As such, it would be extremely difficult, if not impossible to get approved for new credit in Saint John or anywhere else in Canada until you can rebuild yours.
Interested in more information about credit scores? Check out this infographic.
The good news is that, with a lot of work and dedication, there are ways of repairing your credit score, rating, report, and history after your bankruptcy has been discharged. It’s not going to be easy, but it will be worth it in the long run and show future lenders that you’ve learned from the experience.
Traditional credit improvement techniques include (but aren’t limited to):
For more ways of rebuilding your credit after bankruptcy, check this page.
Because of the serious and lasting effect of bankruptcy, most people would like to prevent it when possible. If that’s how you’re beginning to feel, there are several less drastic debt management options you can choose from, including but not limited to a:
While these options can also have a profound impact on your financial health, credit, and even your personal relationships, you can still research them to determine if any of them are right for you. If it helps you prevent bankruptcy, the cost may be well worth it.
Not sure which debt management option is right for you? Check out this infographic.
All this being said, it’s still possible that a bankruptcy is a necessary evil for you. If you’re considering it, be sure that it’s an unavoidable last resort. Here are some situations that may call for a bankruptcy:
Click here to see if bankruptcy can affect your spouse.
If you feel as though bankruptcy is the right option for you and you’re interested in getting the process started in Saint John, Loans Canada can help.
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