Lethbridge, like many urban areas in Alberta, can be an expensive place to call home. What’s worse, if you don’t act quickly enough, the consumer debt you accumulate will follow you and make your financial situation harder than it needs to be.
Although there are many different debt relief products and programs in Lethbridge, if your position is drastic enough you may need to consider the legal procedure known as a personal bankruptcy. Keep reading to learn more about the benefits of filing for bankruptcy in Lethbridge.
What Happens to Your Debt During Bankruptcy?
This is the first of many questions that most people in Lethbridge have when they are thinking about declaring bankruptcy. In essence, bankruptcy is a drastic legal solution that you can file for with the help of a Licensed Insolvency Trustee, meaning a court-appointed officer who works within the bounds of Canada’s Bankruptcy and Insolvency Act (for more information about this, click here).
When accepted, this solution can allow you to drastically reduce your debts via a series of payments and duties toward the court, over a minimum period of 9 months. It should also put an end to any wage garnishment, mounting interest, or other debt collection penalties that have been laid against you.
Eligible debts typically include those that are unsecured (do not involve collateral), as well as those that come from certain sources that are unrelated to credit.
Secured debt, on the other hand, must be excluded because a creditor still has a temporary claim over your house, vehicle, or another asset, which you would have initially offered as collateral in exchange for a more favorable credit product. The same conditions apply for some debts from legal or government-related sources.
For more information about how secured debt in treated during bankruptcy, click here.
Examples of Eligible Debts in Lethbridge
- Unsecured loans
- Personal lines of credit
- Payday loans
- Credit cards
- Overdue taxes
- Various unpaid bills (utilities, cell phone, etc.)
Examples of Ineligible Debts in Lethbridge
- Secured loans
- Home equity loans and lines of credit
- Mortgages
- Vehicle loans
- Federal student loans
- Various legal fines (tickets, lawsuits, etc.)
Do you know what the true cost of borrowing is? Find out here.
When is it Appropriate to Declare Bankruptcy?
Remember, declaring bankruptcy is a bold choice and not one that you should make on a whim, as it can have a serious long-lasting impact on your financial health. Before you attempt this process, be sure to get a consultation from a financial advisor, credit counsellor, or a Licensed Insolvency Trustee in Lethbridge.
Only consider bankruptcy when you:
- Have at least $1,000 of unsecured and/or non-credit debt.
- Are being sued by debt collectors due to multiple defaulted payments.
- Are willing and able to complete all payments/court duties as assigned.
- Are comfortable with extensive damage to your credit report and credit ratings.
- Cannot possibly earn more income than you are currently.
- Cannot pay off your debts through any more conventional methods (such as the alternatives listed below).
Some less drastic alternatives to bankruptcy include (but aren’t limited to):
- Borrowing from friends or family
- Withdrawing funds from your home equity
- Applying for a guarantor loan
- Applying for a debt consolidation loan
- Entering a debt consolidation program
- Offering a debt settlement to your creditors
- Filing a consumer proposal
How is Bankruptcy Different From a Consumer Proposal?
There are two legally binding debt relief procedures available in Canada. The most drastic and impactful overall is bankruptcy. There other, a consumer proposal, can also reduce your consumer debt and eliminate collection penalties, but does much less damage to your finances under various circumstances.
Your Debt
As mentioned, you can technically file for bankruptcy when you meet the $1,000 minimum debt threshold. In addition, there is no maximum limit for the amount it takes to qualify. On the other hand, eligibility for a consumer proposal is restricted unless you have between $5,000 and $250,000 of consumer debt.
You can qualify for bankruptcy discharge after 9 months, provided your mandatory court duties are complete. Some of these duties include credit counselling sessions, surplus income payments (if your income crosses a designated threshold) and a base contribution of $1,500 – $2,000. If all goes well, you may be out of debt faster than you would with a consumer proposal.
That said, a consumer proposal will allow you to divide your debt into monthly installments over a maximum period of 5 years, which can sometimes be more affordable. Rather than going to the court, you would slowly pay your lenders back through your third-party Insolvency Trustee. Additionally, you will be permitted to make extra or larger payments during the process, so that your debt ends faster.
Your Credit
Keep in mind that both of these procedures will result in a hefty negative impact on your credit report, as well as the credit ratings of any associated accounts.
For example, a consumer proposal will cause your credit ratings to drop to R7, a category that’s reserved for anyone settling their debt through special methods. This will last as long as it takes for you to complete your assigned duties. Once the final installment is complete, your credit report will retain a record of the event for 3 years, during which it will be more difficult for you to obtain new credit products.
Unfortunately, bankruptcy is much more harmful in this respect. Not only will your credit ratings change to the worst category of R9, but the ordeal will also be listed in your credit history for 7 years (per filing). During and even in the years that follow, the vast majority of new creditors will not approve your applications. Any credit products you do get approved for will be smaller, more expensive, and unadjustable.
Your Assets
Perhaps the most profound difference between bankruptcies and consumer proposals is how they will impact the valuable properties you own. Namely, that your assets will be safe from seizure during a consumer proposal but may not be once you’ve declared bankruptcy.
That’s correct. Depending on how much you owe in the first place, the court may deem it necessary to withdraw the funds from the equity that your assets have accumulated. In the worst cases, this could result in your home being foreclosed, your car being repossessed, and even your RRSP account being drained (click here for more information about RRSPs and bankruptcy). Although the court will likely allow you to retain part of your earned income, any “windfall” money, such as lotteries or inheritance, may also be subject to seizure.
Video: Personal Bankruptcy Explained
What Are Your Other Options in Lethbridge?
So, while it’s clear that a consumer proposal can have a pretty negative effect on your finances and credit, a bankruptcy would definitely be worse. In other words, if you’re going to choose either of these options, you must be well prepared for the consequences that follow soon after.
If you’re not comfortable with taking that kind of risk, don’t worry, because there are plenty of less drastic debt relief alternatives in Lethbridge that you can consider, including but not limited to:
Simple Techniques
- Borrowing from friends or family
- Asking for a raise, overtime hours, or getting a second job
- Finding a cosigner so you can apply for a guarantor loan
- Getting a secured credit card (in exchange for a deposit)
- Attending regular credit counselling sessions
- Selling any unused assets (extra vehicles, etc.)
More Effective Methods (products & programs)
- Taking out a home equity loan or line of credit
- Applying for a debt consolidation loan
- Entering a debt consolidation program
- Offering your creditors a debt settlement
Everything you need to know about going to bankruptcy court, click here.
How Can Your Credit Be Repaired After Bankruptcy?
If you’re planning to or have recently declared bankruptcy, chances are that your access to favourable credit products is severely limited and you may need to get by for some time using solely your income and savings. So, it’s best to get started on repairing your credit as soon as you can. While this goal may take a lot of time and effort to accomplish, your hard work will be worth it when you have good credit again.
Try Some of the Following Techniques:
- Create a proper budget and track your spending habits closely.
- Pay your remaining bills responsibly and consistently.
- Make payments using a bad credit loan or secured credit card.
- At least once a year, check your credit report for errors, fraud, and identity theft.
- If they are not listed, request that your non-credit bills (utilities, etc.) be reported to Canada’s credit bureaus; Equifax and TransUnion.
- If you are denied for new credit at first, wait several months before reapplying for new credit (hard inquiries make your credit score drop).
Check out this infographic for more information about your credit score.
Watch Out For Credit Repair Scams
Although you can repair your credit by yourself or with the help of a certified credit counsellor, no one can wave a magic wand and simply make your bad credit disappear. When it comes to the health of your credit, be sure not to let your desperation cloud your judgement, as there are many scam artists in Lethbridge and Canada, in general, who will try to take advantage of it.
If anyone, no matter who makes an offer of guaranteed credit repair for a price, walk away. These organizations do not have your best interests in mind, nor will they sell you anything that’s remotely effective at improving your credit. Do not give them any information and, if necessary, report them to the Lethbridge authorities.
Want More Bankruptcy Information?
If you think you’re at risk of declaring bankruptcy in Lethbridge, don’t worry, because Loans Canada can set you up with the right experts for your case. Contact us today if you’d like to learn more about the bankruptcy process in your hometown.
