Bankruptcy Consultation

It’s understand that some financial issues can become too overwhelming to handle on your own and that sometimes filing for bankruptcy is the only option. While bankruptcy is one of the most extreme debt relief solution out there, it’s also one of the best ways to regain financial control when you’re neck deep in debt.

What Is Bankruptcy?

Generally speaking, bankruptcy is a legally binding debt management process that you can file for when you’re totally out of options. The procedure itself is then regulated under the terms of Canada’s Bankruptcy and Insolvency Act, and can only be administered by a court officer known as a Licensed Insolvency Trustee.

Bankruptcy is by far the most effective way of reducing your unmanageable consumer and household debts. When put into play, it should also end any debt collection penalties and legal fines that you’ve been charged with, such as wage garnishment, late fees, and accumulating interest.  

To complete your bankruptcy, you will have to make a series of mandatory payments toward the court over 9 months. This period can be extended to 21 months if you’re required to pay surplus income payments. Once you’ve made your payments, you’ll be automatically discharged from bankruptcy.

Who Is Eligible For Bankruptcy In Canada?

Prior to filing for bankruptcy anywhere in Canada, it’s important to figure out if your particular case is actually eligible for the procedure. 

In fact, it’s a good idea to speak thoroughly with a number of professional sources beforehand, such as a financial adviser, a credit counsellor, and a Licensed Insolvency Trustee to determine whether it is truly your best option. 

Essentially, you can become eligible for bankruptcy if:

• You have a minimum of $1,000 worth of unsecured consumer debt
• Your total debt amount outweighs the estimated value of your assets
• You can provide sufficient proof that you’re unable to pay your debts on time by more conventional methods

There are also specific types of debt that can and can’t be included in the bankruptcy process. More often than not, only your unsecured debts, as well as those that relate to certain non-credit sources can be successfully discharged. 

Unfortunately, most secured debts cannot be included because a creditor still holds ownership over one or more of your assets (which you would have initially offered as collateral). Many forms of legally or government-assigned debts must also be excluded. 

When Is Bankruptcy The Right Choice?

Bankruptcy, while effective in more ways than one, is not a process that you should enter on a whim. It is reserved for cases of extreme, unmanageable debt and is only the right choice when you:

• Have at least $1,000 of unsecured/non-credit debt
• Are being frequently contacted by collection agencies
• Are comfortable with the potential loss of certain assets
• Are able to get by without credit products for several years after the process
• Are willing to attend a number of credit counselling sessions
• Have gotten proper advice from certified financial professionals
• Have exhausted all the less harmful options that are available to you
• Have an income that’s large enough to support all your court payments but too small to pay off your debts within a reasonable time frame

Pros And Cons Of Filing For Bankruptcy In Canada

Suffice to say, bankruptcy is rarely the right choice, simply because of the damage it can do to your financial profile. For a better idea of whether you should even attempt such a procedure, be sure to carefully read through all the following benefits and drawbacks.

Pros

• Easy To Qualify – In Canada, there is no specific limit for the maximum amount of debt you can have in order to qualify for bankruptcy. 
• Legally Binding – Bankruptcy results in an automatic, legally binding stay of proceedings. Meaning once, you file for bankruptcy, your creditors and debt collectors can no longer contact you about your debt. Moreover, any lawsuits or wage garnishments against you will stop.
• Short Process – If you complete all your court duties, you may be discharged from bankruptcy after 9 months (which is shorter than some other debt management methods).  
• Gets Rid Of Debt – This will effectively eliminate your unsecured debts, allowing you to rebuild your finances and fix your credit report over time. 

Cons

• Surplus Payments – If your income crosses the court-mandated threshold of your province/territory, you may be forced to make surplus income payments for quite some time. 
• Fees – This may include a number of court-related costs, such as a base contribution of $1,800 – $2,000 and several administrative fees. 
• Negative Impact On Credit – There will be a heavy negative impact on your credit report. Generally, you’re assigned the lowest credit rating (R9) when you file for bankruptcy.
• Assets Are Sold – Although some of your personal belongings will be exempt, many of your assets will be seized as payment toward the court.
• Public Record – The ordeal will become a matter of public record, so potential lenders, as well as the federal government may see it when performing background checks.

What To Expect When Filing For Bankruptcy

With all the information above, it can be tough to know whether bankruptcy is really the right debt relief option for your situation. However, you may have an easier time making your decision if you’re aware of what to expect from the process. 

Working With a Licensed Insolvency Trustee

As previously mentioned, a licensed insolvency trustee is the only person that is legally permitted to administer a bankruptcy. While you must meet with them regularly and follow their instructions, the advice they give you can definitely be worth the effort. Any trustee should also give a free, private consultation after you contact them by phone or online. 

Length Of A Bankruptcy

The overall time that you’re involved in a bankruptcy will depend on how much debt you have, how high your monthly/yearly income is, and what assets you own. That said, you may be fully discharged in as little as 9 months, as long as you haven’t declared bankruptcy in the past, make all your payments on time, and perform every duty that the court assigns you. 

Surplus Income Payments

Although the designated threshold varies from province to province, you may have to consistently relinquish a portion of your household income if it goes over a certain amount. Depending on how much you owe, these surplus income payments can last for several months, maybe even years. You may only be able to retain enough income to live off.  

Exemptions

If your debt is large enough, many of your assets will be seized in accordance with the regulations of your particular province or territory. This may mean your home equity, your car or truck, your investments and RESPs, as well as any windfalls you earn during the process (lottery winnings, inheritance, etc.). 

Exemptions may include (but aren’t limited to):

• Various personal items (clothes, furniture, etc.)
• Tools, vehicles, and machinery that you use for work
• Personal vehicles that do not exceed a certain value
• RRSP contributions that have not been made within the past year
• Home equity balances under $10,000

Additional Reading

Car Loans After Bankruptcy

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The Cost of Filing For Bankruptcy a Second Time in Canada

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Can I File for Bankruptcy Online in Canada?

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Thinking of Filing for Bankruptcy in Canada?

If you are out of alternatives and your debt is only growing, filing for bankruptcy may be your last option. Don’t worry, because Loans Canada can help you get back on track by putting you in contact with the best debt specialists in your area or by helping match you with the right debt relief service.