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A recent survey found that nearly half of all Canadian adults are $200 away from going bankrupt. That’s an astounding statistic and is a testament to how deeply in debt many Canadians are.
While some amount of debt is fine and even necessary to some degree, being so far into debt can place you at grave risk of having to take drastic steps to deal with your situation, and bankruptcy is typically the last resort.
If your debt is so high that you are no longer able to keep up with your bill payments and you have collection agencies and creditors calling you all the time looking for payment, you need to do something about your situation. And sometimes the best solution is bankruptcy after all other options have been looked into.
Let’s look closer at bankruptcy in Brampton to help you decide if this route is the one you should take.
What is Bankruptcy?
Bankruptcy is a process that’s governed by the Bankruptcy and Insolvency Act (BIA) and helps to provide financial relief to people who are no longer able to keep up with their bills and pay off their outstanding debts. In many cases, bankruptcy in Brampton is the only way for some consumers to effectively deal with their debt woes after all other options have been exhausted.
Bankruptcy should only be considered as a last resort because of the severity of this process on your credit and the risk of losing certain valuable assets. For years after filing for bankruptcy, the repercussions will be felt in the form of bad credit and the struggle to secure loans.
That said, bankruptcy can be a good option for consumers if they have nowhere else to turn. If debt continues to mount and creditors continue to look for payment, the amount of stress this can cause can be overwhelming. With bankruptcy, this stress can finally come to an end and you can start over with a clean slate.
Not only will you be relieved of your debts through bankruptcy, your creditors will also be treated fairly when it comes to repaying them what they’re rightfully owed.
When you file for bankruptcy, you agree to surrender many valuable assets – or a certain amount of equity in those assets – in exchange for protection against collection agencies and creditors.
Will You Lose Everything in Bankruptcy?
There’s a long-standing myth floating around out there that anyone who files for bankruptcy will be left with absolutely nothing. Consumers fear that they’ll be left with no home, no equipment needed for work, and no more investment funds.
That’s not necessarily true. While you will have to surrender certain assets, you won’t be left empty-handed. Instead, there are exemptions that are applicable. While you file for bankruptcy, you can still hang onto the following:
- Your clothes
- Tools needed for work or for your business
- RRSP savings, except for any contributions made over the past 12 months
- One vehicle up to $6,000 in value
- Home equity under $10,000
- Furniture and appliances up to a value of $13,150
Learn about what happens to your house when you file for bankruptcy, click here.
When is Bankruptcy a Good Idea?
As mentioned, bankruptcy should only be sought as a last resort. There are other options that you may want to look at before filing for bankruptcy Brampton.
That said, if any of the following are applicable to you, then bankruptcy might be an option to consider:
- You keep missing bill payment deadlines
- Your loans are in default
- You’ve tried everything to make more money
- All other options have been tried with no success
Will Bankruptcy Impact Your Credit Score?
One of the biggest concerns that consumers have when it comes to filing for bankruptcy is the effect that it will have on their credit score. Generally speaking, all credit accounts associated with your bankruptcy will have a rating of R9 on your credit report, which is considered the worst rating and will remain there for as long as six years.
Otherwise, if this is your second bankruptcy, that rating will stay on your report for at least 14 years. Only after you’ve been discharged will you be able to make strides to improve your credit score.
What does bankruptcy discharge mean? Find out here.
Rebuilding Your Credit After Bankruptcy in Brampton
As already mentioned, improving your credit score can only begin once you’ve been discharged from bankruptcy in Brampton. Until then, you’ll need to wait patiently.
But once you have been discharged, you should start taking measures right away to start giving your credit score a boost. Here are some things you can start doing in order to improve your credit score:
- Pull your credit report to look for errors and have them fixed
- Pay your bills on time and in full every month
- Don’t spend any more than 30% of your credit card limit (if you’re able to secure a card)
- Make more than your minimum monthly credit card payments
- Apply for a secured credit card and be responsible with your payments
- Cut back on spending
- Put a certain amount of money away every month
What Types of Debt Can Bankruptcy Help With?
Not all types of debt can be relieved with bankruptcy. The types of debt that this process can help with include:
- Credit card debt
- Payday loan debt
- Unsecured personal loans
- Unsecured lines of credit
- Taxes in arrears
- Unpaid insurance premiums
- Unpaid utility bills
- Medical bills
- Income and property taxes
- Medical bills
- Payday loans
Debts that bankruptcy may not be able to relieve include:
- Secured auto loans
- Student loans if it’s been less than 7 years since you stopped going to school
- Child support
- Fines imposed by the court
- Debt due to fraud
How Much Does Filing For Bankruptcy in Brampton Cost?
It may sound strange that you would have to pay for a process that’s meant to help you deal with bills that you can’t pay. But filing for bankruptcy does come at a cost. You can expect to pay the following when you file for bankruptcy in Brampton:
Base contribution. This covers the cost associated with administrative duties that are required to handle your estate, which is in the range of $200.
Surplus income. Your income will be assessed every month to make sure it doesn’t go over a specific established threshold. If you earn more than that amount in any given month, you’ll be required to pay surplus income payment, which usually means you’ll have to pay half of the surplus income amount into your bankruptcy estate.
Value of assets surrendered. The value of your surrendered assets will be taken into consideration.
Before you choose to go with bankruptcy, consider other options to help you deal with your debt that are not so harsh on your credit score and don’t require any assets to be surrendered:
Credit counselling – If your debt is still somewhat manageable and you just need some help and education into making better decisions, then consider credit counselling. These professionals will work with you to help establish a workable budget to make better use of your income so you can cover your debts.
Debt consolidation – If you have multiple credit accounts, many of which have high interest rates, debt consolidation may help. This process involves taking out a large loan that is intended to be used to pay off all outstanding debts. This will help you save money if you can secure a lower interest rate, and will also help make it easier to manage your debt. Instead of having to deal with several debts, you’ll only have to manage one.
Debt settlement – If your situation is a little more dire and you’re really struggling with paying your current debt, you may be able to have your debt settled through a debt settlement program. Your creditors will be negotiated with to either have your debts reduced or eliminated completely. Or, you may have your interest rate lowered to make it more affordable to pay your debt down. Since your debt will be considered settled instead of paid, your credit score will be negatively affected.
Consumer proposal – The option everyone should consider before bankruptcy is a consumer proposal. This process involves having a Licensed Insolvency Trustee work on your behalf to draft up and submit a consumer proposal to your creditors to ask for your debt to be forgiven in exchange for a smaller amount to be paid. This will also have a negative impact on your credit score, though not as severe as in bankruptcy.
Bankruptcy Vs. Consumer Proposals
Bankruptcy and consumer proposals are both meant to help forgive debts that consumers are struggling to pay down. But the similarities end there. Here are some key differences between the two processes:
Assets – Consumer proposals allow you to keep your assets, unlike bankruptcy which requires some of your valuable assets to be surrendered.
Credit score – While both processes will negatively affect your credit score, bankruptcy’s impact is more severe.
Cost – The cost associated with bankruptcy may change from month to month based on your incomes. If you make more in any given month, you may be required to pay surplus income payments. With a consumer proposal, the costs remain consistent throughout and involves monthly payments to be made to your Licensed Insolvency Trustee until the entire debt amount is fully repaid.
Should You File For Bankruptcy?
If you’re struggling to pay your bills, have multiple accounts in default, and your debt keeps mounting, now may be time to consider a program that will alleviate your debts and stop all those collection calls. To find out if bankruptcy in Brampton is right for you, get in touch with Loans Canada today.