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.
What Kind of Debt Can a Bankruptcy Cover in Saint John?
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:
Eligible Debt (Unsecured)
- Credit cards and personal lines of credit
- Non-collateral loans
- Student Loans that aren’t from the Federal Government
- Personal bills (utilities, internet, cell phone plan, etc.)
- Payday loans
Click this link to know if bankruptcy is the right option for your tax debt.
Ineligible Debt (Secured)
- Vehicle loans
- Child support and alimony payments
- Mortgages
- Home equity products (loans or lines of credit)
- Collateralized loans
- Tickets, lawsuits, and other legal charges
Understanding Personal Bankruptcy in Saint John
Bankruptcy Better than a Consumer Proposal?
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:
Debt Amount
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.
No Loss of Assets
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.
No Surplus Income Payments
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.
The Impact on Your Credit
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.
How Can I Repair My Credit After Bankruptcy?
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):
- Regularly check your credit report – This can be done free of charge, once per year through both credit bureaus, so that you can monitor your credit health.
- Disputing errors – Commonly found within your personal profile or credit history, even a small informational error can be detrimental to your credit health.
- Reporting signs of fraud or identity theft – If you look at your report and discover charges made to accounts that you never made yourself, be sure to inform both Equifax and TransUnion immediately.
- Talking to outside sources – Bills from cell phone providers, utility companies, internet services, and other non-credit providers usually don’t report your payments to the bureaus. However, you may be able to request that they do, so that each good payment you make elevates your credit score.
- Getting a secured credit card – Perfect for those who have bad credit, you can offer a security deposit (equal to your desired credit limit) in exchange for a credit card.
- Going to credit counselling – Although credit counselling cannot directly improve your credit, the courses you take and counsellors you consult will give you the knowledge you need to recover from bankruptcy or avoid it altogether.
For more ways of rebuilding your credit after bankruptcy, check this page.
What Are My Pre-Bankruptcy Options in Saint John?
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:
- Borrowing from friends or family
- Borrowing from your home equity
- Debt consolidation loan
- Debt consolidation program
- Debt settlement
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.
When Should I Seriously Consider Bankruptcy
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:
- When you’re drowning debt and none of the less drastic alternatives can help.
- When you’ve defaulted on all your credit products, causing interest and penalties to pile up higher than you can afford with traditional means.
- When you can’t find more work or make extra income.
- When an experienced insolvency trustee tells you it’s the right path.
- When you can afford all the costs involved and are comfortable getting by without credit products, and just your income for the years after your discharge.
Click here to see if bankruptcy can affect your spouse.
Is Bankruptcy The Option For You?
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.
