Do you have mounting debt that you can’t seem to climb out of? Are you having trouble keeping up with all of your debt payments? Do you have high-interest debt that makes it almost impossible to pay down the principal? If so, you’re not alone. Thousands of Ontarians struggle with debt every day.
In Ontario, the average amount of non-mortgage consumer debt is $22,022. This is quite a lot of debt and it could easily spiral out of control if income is suddenly affected. And if you don’t have a handle on your payments, your debt can quickly and easily climb.
To learn more about consumer debt, click here.
If you’re currently drowning in debt, you may have thought about seeking resolutions to get you out of your financial mess. Perhaps you’ve considered credit counselling or debt settlement. However, if these options are not enough, you may have even contemplated bankruptcy as a means of eliminating all of your debt once and for all.
If you think that filing for bankruptcy might be the right solution for your debt issues, it’s important to become familiar with all aspects of claiming bankruptcy in Ontario.
What is Bankruptcy?
Simply put, bankruptcy is a process that eliminates all consumer debt. Ontario bankruptcy can help you receive protection from your creditors right away. It will also put a stop to any wage garnishment, protect you from being taken to court, and eliminate all of your debts. Basically, declaring bankruptcy means getting a fresh start on your finances.
Personal bankruptcy is a legal process that is legislated under the federal Bankruptcy and Insolvency Act. Bankruptcy is filed with a Licensed Insolvency Trustee who will supervise the situation and ensure that the laws surrounding the bankruptcy process treat both the consumer and creditors fairly and ethically.
You will participate in credit counselling sessions that will teach you how to manage your finances and budget appropriately in order to rebuild your credit and avoid being put in a position to have to declare bankruptcy again.
Want to know how long credit counselling usually takes? Read this.
How to Tell if You Need to File For Bankruptcy
Bankruptcy can be a scary proposition, even though it promises to eliminate all debt. Before you consider filing for bankruptcy Ontario, it’s important to carefully assess your situation first.
Usually, consumers who consider filing for bankruptcy often have the following traits:
- They’re being bombarded with collections calls
- They’re only able to make minimum payments on their credit cards
- They don’t have enough money to pay for daily necessities
- They’re unable to sleep at night as a result of all the debt they carry
- They don’t even know how much they owe
If you fall into these categories, bankruptcy may be an option for you.
Before you file for bankruptcy, make sure you consider these other options.
How to File For Bankruptcy in Ontario
In Ontario, bankruptcy is a legal process that is filed with a Licensed Insolvency Trustee. If you have decided to declare bankruptcy, the first thing you will need to do is get in touch with a trustee to discuss your debt relief options to see if there is a way for you to avoid bankruptcy.
If bankruptcy is your best bet, your trustee will get the process started. You will be required to sign some paperwork which will then be filed with the Office of the Superintendent of Bankruptcy which oversees all bankruptcies in Canada. Once this paperwork is completed and filed appropriately, your bankruptcy will begin right away.
Look here to learn how much it costs to declare bankruptcy in Canada.
All of your creditors will be informed of your bankruptcy within five days of filing. They can then file their claim for the amount that they are owed with your trustee.
You will have to perform certain tasks during the bankruptcy period, including the following:
- Submit your tax information to your trustee to file your outstanding tax returns
- Provide copies of your pay stubs every month
- Attend credit counselling sessions
- Contribute to your bankruptcy estate
- Give up possession of specified assets (not including exemptions)
Will I Lose Everything By Filing For Bankruptcy?
Bankruptcy is meant to help consumers get rid of all of their debt and make a fresh start. However, it also means giving up many of your valued assets. When you are legally bankrupt, the law governing bankruptcy in Ontario requires that you surrender your assets to a trustee, which will then be sold. Any proceeds of the sales will be distributed to your creditors.
That said, there are certain items that you are allowed to keep when declaring bankruptcy in ON, including the following:
- Motor vehicle up to a value of $6,600
- Furniture and appliances up to a value of $13,150
- Tools and equipment needed to work or run a business, up to a value of $11,300
- Most pension plans
- Specific types of life insurance policies
- RRSPs (not including recent contributions)
Whether or not you lose your home depends on your particular situation and how much equity you have in your home. Generally speaking, if you don’t have a lot of equity in your home, then you might be able to keep it.
Is your credit card debt the problem? Read this to know if you can use your home equity to deal with it.
How Does Bankruptcy Affect My Credit?
Your credit score will be affected when you file for bankruptcy in Ontario. Once you file for bankruptcy, the credit bureaus will be notified and your credit report will be updated accordingly. This note on your credit report will remain there for 6-7 years after discharge for a first bankruptcy filing, and 14 years after a second filing.
Since your credit will be affected, so will your ability to take out any other loans until your credit report is given a clean slate. You likely will not be able to take out a mortgage, auto loan, or anything else on credit. If you happen to find a lender who is willing to extend credit to you, they will probably charge you a much higher interest rate.
Here’s how you can rebuild your credit after filing for bankruptcy.
Bankruptcy is obviously not a decision to make lightly. Your best bet is to discuss your situation with a bankruptcy trustee or credit counsellor to go over all of your options. If bankruptcy seems like the right fit for you, we can help you on your journey to a debt free life.