Recent studies show that PEI currently has one of the highest levels of debt in the country. With most of the province’s residents situated in Charlottetown, the city is sure to hold a large percentage of that debt. Therefore, a plan has recently been set in motion to balance the island’s provincial budget and debt levels are expected to lower within the next few years. That said, there’s a big difference between the amount of debt your city carries and the amount you’re carrying.
When your own level of consumer debt has become too much to manage with conventional methods, it might be time to consider filing for bankruptcy in Charlottetown.
Does Your Debt Disappear After Bankruptcy?
In a sense, yes, much of your consumer debt can be eliminated when you declare personal bankruptcy in Charlottetown. Essentially, the process involves filing a legally binding document that allows you relief from any unsecured, as well as any wage garnishment, late penalties, and other collection efforts brought down by your creditors.
Bankruptcy proceedings can only be administered by Licensed Insolvency Trustees, who are court-appointed employees regulated by the Bankruptcy and Insolvency Act of Canada. These trustees can be found throughout Charlottetown and their job is to help borrowers file both consumer proposals and bankruptcies, as well as to negotiate with creditors and ensure that all parties involved are treated with fairness.
Nonetheless, while you’ll be free from your consumer debt and the reaches of your creditors, your overall debt problems will not simply disappear. In fact, bankruptcy can have a profound negative effect on your finances and credit which, if handled irresponsibly, can leave you with even worse debt issues than before.
For a more detailed article concerning the Bankruptcy and Insolvency Act, click here.
Secured vs. Unsecured Consumer Debt
In addition, only certain kinds of debt can be included within the bounds of bankruptcy in Charlottetown, namely those that are unsecured and not tied to any collateral.
When you apply for new credit, you’re usually given the option of offering your lender temporary ownership over one of your assets, such as your house or car. The asset is used as security to lessen the risk for the lender, which is common for more expensive loans and products. As a result, you can access a larger amount of credit with a more affordable interest rate, since your lender has something to sell to regain part of their loss in the event that you default. The only problem is, secured debts, as well as many legal and government debts, cannot be included during a bankruptcy.
Check this out for a more detailed explanation of secured and unsecured debt.
Below, we’ll demonstrate a few examples of each kind of debt so you’ll have a better idea of what does and doesn’t qualify for bankruptcy.
Qualified Debts:
- Non-collateral loans (personal, installment, short-term, etc.)
- Non-collateral lines of credit
- Traditional student loans
- Back taxes
- Bills unrelated to credit (internet, utilities, phone, etc.)
- Credit card bills
Unqualified Debts:
- Collateralized loans
- Collateralized lines of credit
- Government granted student loans
- Home mortgages
- Car loans and leases
- Liens, tickets, lawsuits, and other legal fines
Understanding Personal Bankruptcy In Charlottetown
How is Bankruptcy Different From a Consumer Proposal?
There are two legally binding debt relief solutions that you can choose from. The one you may have heard about more often is, of course, bankruptcy. However, the option that you might not have heard about as much is a consumer proposal.
Does the federal government provide debt relief? Find out here.
Although both options are similar in that they’re meant to clear the unsecured consumer debts and collection penalties against you, and can only be conducted by a certified Insolvency Trustee, they are quite different in their overall results.
A consumer proposal is different because:
- You must have between $5,000 (minimum) and $250,000 (maximum) in consumer debt in order to qualify.
- A deal will be proposed directly to your creditors via your trustee that allows you to pay a large portion of your overdue payments, rather than your full balance. Typically, this is done through a scheduled string of monthly payments.
- All payments must be completed within 5 years of the proposal being filed.
- You will usually have the option of making larger and/or more frequent payments if you’d like to pay your proposal by an earlier date.
- Your credit rating will drop to an R7, meaning it’s part of a special debt settlement arrangement. This will last until your proposal is complete.
- Your credit report will retain a record of the event for 3 years from the time of your final payment. During this time, it will be difficult to obtain for new credit.
Can I pay off my consumer proposal early? Find out here.
Bankruptcy is different because:
- While you must have $1,000 minimum, there is no restriction for the amount of unsecured consumer debt you can have in order to qualify.
- If your income outweighs a specific threshold, mandatory monthly surplus income payments will be part of your bankruptcy duties. You’ll make these payments to your trustee.
- A minimum base contribution of around $1,800 will also be mandatory. This can be paid as one lump sum or through 9 months of $200 installments.
- If all payments are made on schedule and all compulsory credit counselling sessions are attended, you may be eligible for discharge after 9 months. However, minimum discharge times will increase by more than double if you ever declare bankruptcy in Charlottetown a second time.
- Once your payment schedule is set, you are not usually able to modify it in any way. If you don’t make payments on time, you may be subject to a penalty.
- If you owe a significant amount, the funds may be withdrawn from your assets, such as your home equity and RRSP fund.
- Your credit rating will descend to an R9, the lowest rank also reserved for cases of extreme debt, and collections accounts. This will last as long as your bankruptcy does.
- Your credit report will retain a record of the event for 7 years from your discharge date. During this time, it will be almost impossible to obtain new credit.
Want to know what will happen to your house during a bankruptcy? Read this article.
How Can My Credit Recover From Bankruptcy?
Although bankruptcy can certainly get you out of debt, the reality is that it can also have a very harsh impact on your financial profile, particularly when it comes to your credit. Not only will obtaining new credit be more or less out of the question until your discharge is official, but it can also take a ton of credit improvement before any creditor will trust you with their money.
Don’t worry, if your bankruptcy is complete and you’re ready to recover from it, there are plenty of ways to do it, although a lot of effort is essential on your part. Some basic credit improvement methods include but aren’t limited to:
How much does it cost to declare bankruptcy in Charlottetown? Click here.
Apply for a secured credit card – A product available to those with bad credit, these cards require a security deposit (equal to your credit limit) to be activated. You can then spend time making payments on time and in full, which will slowly elevate your credit score. When you pay your full balance and cancel the card, your deposit will be refunded.
Monitor your credit report consistently – Once your secured credit card is registered, your progress will be reported by the lender to Canada’s credit bureaus (Equifax and TransUnion). You can then request a copy of your credit report from either bureau (we suggest both) and track your progress. The first copy you request each year is free.
Dispute errors, fraud, and identity theft – When you look at your credit report, it’s extremely important to check it for any mistakes or inconsistencies that could hurt your credit score. This might be information that wasn’t reported properly or even something as simple as your name being misspelled. However, the worst case scenario is that you’ve been subject to fraud or identity theft, wherein fraudulent accounts were opened in your name or random charges were made to them that you have no recollection of. Either way, be sure to dispute the error with both credit bureaus. If you can prove that it’s not your fault, the problem will be quickly rectified.
Take a look at this infographic for more information about credit scores.What Are My Pre-Bankruptcy Alternatives?
Remember, bankruptcy is meant to be a last resort when you’ve exhausted all other resources. So, if you’ve talked through your situation with a financial advisor and determined that bankruptcy is not actually your best option, you can start looking into some less drastic alternatives, such as:
- Asking for a pay raise or overtime at work
- Borrowing from your home equity with a loan or HELOC
- Asking your friends or family for financial aid
- Getting regular advice from a credit counsellor
- Applying for a debt consolidation loan through your bank or another lender
- Entering a debt consolidation program
- Proposing a debt settlement directly to your creditors
Getting Help From Us
Whether you’re about to file for bankruptcy in Charlottetown, are currently recovering from one, or would like to avoid the process altogether, you can rest easy knowing that Loans Canada is here with a helping hand. Contact us today!
