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Like many major cities in the country, the residents of Edmonton are often subject to a higher cost of living than those in the rural areas of Canada’s prairie provinces. While the quality of life there is also relatively high, this can lead to consumer and household debt, especially in the urban sector.
Although having a small amount of debt can actually be good for your finances, an unmanageable amount can have the complete opposite effect. For those living in Edmonton and struggling to keep up with their debt payments, bankruptcy could the solution you need. Here is everything you need to know before you consider declaring bankruptcy.
Consumer Proposal or Personal Bankruptcy?
Before we research the bankruptcy process any further, let’s clear up a point of confusion for some borrowers in Edmonton. When it comes to more drastic, legally binding debt management solutions, you’ll generally have two choices. The first is the consumer proposal and the second, of course, is bankruptcy.
Both solutions are similar because they must be conducted via a court procedure that’s overseen by a Licensed Insolvency Trustee, wherein certain duties must be performed to be discharged, such as mandatory payments and credit counselling sessions. In addition, any rules or actions involved with either procedure will be regulated under Canada’s Bankruptcy and Insolvency Act (for more information about insolvency laws in Canada, click here).
It’s good to be able to distinguish between these two solutions, as one can affect your finances differently than the other.
Filing a Consumer Proposal in Edmonton
The consumer proposal needs to be mentioned first because it’s actually your last line of defence before declaring bankruptcy. In this case, you and your trustee will work together to negotiate a deal with the creditors that hold the majority shares of your unsecured debt.
Typically, those creditors will meet to discuss the terms of the proposal, which they’ll then have 45 days to accept or reject. If accepted, you’ll be able to pay back a large portion of what you owe through installments, thereby freeing yourself from the total debt amount, as well as any collection efforts, added interest, or wage garnishment.
Where a consumer proposal differs:
- You must have $5,000 – $250,000 of consumer debt to qualify
- Your assets will be safe from seizure or foreclosure
- All payments and duties must be completed in 5 years maximum
- Your credit rating will drop to an R7 for the duration of the procedure
- Your credit report will retain a record for 3 years after your final payment
Click here to find out if you can get approved for a loan while in a consumer proposal.
Filing a Personal Bankruptcy in Edmonton
Remember, you should only consider declaring personal bankruptcy when you’re totally out of less drastic options. Unlike a consumer proposal, this type of procedure can actually free you from all your unsecured debts. Here, however, you would be making your payments directly toward the court, which should again prevent any more collection efforts or other penalties you’ve been facing.
Where personal bankruptcy differs:
- You can technically file for bankruptcy with at least $1,000 of unsecured debt
- There is no set debt limit to qualify.
- If all duties are met responsibly, you may be eligible for discharge after 9 months
- In addition to a $1,800 – $2,000 base contribution, you will have to make surplus income payments if your gross monthly income is over a specified threshold
- Your credit rating will drop to an R9 (the lowest) for the duration of the procedure
- Your credit report will retain a record for 7 years following your discharge date
What Kind of Debt Can Be Included in Edmonton?
As we mentioned, declaring bankruptcy can be the right solution if the majority of your debt is unsecured. This refers to any debt that has not been collateralized by an asset, such as your home or vehicle. Many kinds of non-credit related debt can also be included in bankruptcy.
Secured debt, on the other hand, is what happens when you offer security to your lender, which is typical when you apply for a mortgage or other more expensive credit product. While this offering can usually help you gain a larger credit amount and a lower interest rate, it also means that your lender holds temporary ownership over the asset in question. As a result, this type of debt cannot be included in bankruptcy.
Qualified Debts in Edmonton
- Unsecured personal loans
- Unsecured lines of credit
- Credit card bills
- Unpaid income taxes
- Bills from internet, utility, and phone companies
Unqualified Debts in Edmonton
- Secured loans and lines of credit
- Mortgages and home equity products
- Car and vehicle loans
- Government granted student loans
- Lawsuits, alimony payments, and other legal fines
Want to know what how secured debt is treated during bankruptcy? Find of here.
When is Bankruptcy the Right Solution?
Remember, you can technically qualify for bankruptcy once you’ve surpassed the $1,000 unsecured debt limit. However, you might have that amount of debt and still not be sure if bankruptcy is the right solution for your particular situation. In that case, there are a few clear signs that bankruptcy could be necessary, including but not limited to:
You can’t keep up with all your debt payment
Went it comes to the health of your finances, especially your credit score, maintaining a positive payment history is an essential part of becoming a borrower that lenders want to approve at reasonable rates. It’s also the best way to stop yourself from falling into high-interest debt and ending up with a bunch of late notices on your credit report.
You can’t earn enough income
Paying down debt can be time-consuming but relatively easy when you’re making a sufficient income, working two jobs or putting in lots of overtime. Then again, bankruptcy might be necessary if you’re already working all the hours you can and still not earning enough to cover your unpaid bills. While a lower income can actually lead to less costly bankruptcy payments, it’s obviously better to avoid the process altogether if possible, especially if you’re not comfortable handling all the expenses that will follow.
None of your pre-bankruptcy options are effective
If your income is not enough to cover your debt payments alone and you don’t want to borrow from your friends or family, there are several pre-bankruptcy options that you can choose from in Edmonton, such as:
- Offering your creditors a debt settlement
- Applying for a debt consolidation loan
- Entering a debt consolidation program
- Withdrawing from your home equity
- Voluntarily going to credit counselling
While all of these options are safer for your financial profile than bankruptcy, the harsh reality is that not all of them may be right for your situation. At least, with the exception of credit counselling, which anyone can attend. Always speak to a professional financial advisor or credit counsellor before you decide that bankruptcy is your only option.
Take a look at this infographic to learn about what affects your credit score.
How Easy is it to Rebuild Your Credit?
Unfortunately, it can be quite difficult to rebuild your credit following a bankruptcy. Just another reason why it should be avoided at all costs. Because you’ll be at the lowest credit rating throughout the process and your credit report will be negatively affected for 7 years per filing, many lenders in Edmonton and Canada, in general, simply won’t approve your applications. In fact, it’s quite possible that you’ll have to live without credit products entirely until you can turn your situation around.
To learn what can happen to your house during bankruptcy, click this link.
That said, don’t get discouraged and keep in mind that your effort won’t be in vain. With some careful attention and renewed financial knowledge, reestablishing your credit can be done. Here are a few simple techniques:
Regularly monitor your credit report
As a borrower, requesting an annual copy of your credit report should be standard practice. This goes double after a bankruptcy. Although your report won’t look spectacular, it’s still important to review it regularly to monitor your progress, as well as to check it for any errors, signs of fraud or identity theft.
Get a secured credit card
Don’t forget, paying your bills on time and in full is the best way to increase your credit score. While this can be a challenge when most lenders in Edmonton won’t approve you, a secured credit card is one product that almost anyone can acquire. Here, you would need to provide a security deposit, which will be refunded once you cancel the card and all payments have been made. In exchange, you’ll have a credit card that you can use to strengthen your payment history.
Be wary for credit repair scams
Another unfortunate side effect of financial delinquency is that there will be people who may try and take advantage of your need for a solution. Be careful, because the weight of your bad credit and bankruptcy duties can leave you vulnerable, and scam artists know it. In this case, they would offer you “credit repair”, for a price of course. Do not be fooled. No one can miraculously fix a damaged credit score or get a bankruptcy scrubbed from your credit report before the 7-year mark. You are the only person who can rebuild your credit!
Click here to learn more ways of rebuilding your credit after bankruptcy.
Thinking of Filing for Bankruptcy in Edmonton?
If so, be sure to reach out to Loans Canada first. We understand how tough it can be to get out of debt in a city like Edmonton and we’re ready to help you through the process when push comes to shove. Contact us today for more information.