How Much Will it Cost me to Declare Bankruptcy in Canada?
Debt is something that most people will encounter and have to deal with at some point in their lives. Whether you are getting student loans for university, need a car loan for a new vehicle, or need to secure a mortgage to get your first home, having debt is inevitable.
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Most of the time, having debt is no big deal as long as you are aware of the cost, can handle the debt, and make timely payments. However, there are times where debt can get the better of us and we find ourselves drowning in it. In some extreme cases, debt coupled with various financial issues might be too difficult to handle alone and you might need to look for assistance.
There are many different types of debt relief options available, each with their own pros and cons. But, sometimes, if your situation calls for it, filing for bankruptcy is the best (and potentially only) option for you, so it is important you are aware of how it works.
What is the Process of Filing for Bankruptcy in Canada?
Before looking at how much it costs and what the main sources of that cost are, we will first take a closer look at the actual process of declaring and filing for bankruptcy in Canada. The first step you should take is to create an inventory of your current financial situation.
Once you have done the research and know that bankruptcy is the option you want to do go with, you need to find a Licensed Insolvency Trustee. These are the only individuals who can handle bankruptcies, so if you want to file for bankruptcy, you must work with one. They will provide all the information you need, ensure you are treated fairly and will be there for you during the entire process. Your city should likely have at least a few of these individuals, so simply choose the one you feel the most comfortable and confident with.
Next, you and your trustee will have to meet and do a final review of your options to ensure that bankruptcy is the right move for you. After reviewing your finances, expenses, debts, and assets, they will give you their recommendation. Of course, the final choice of what to do is always up to you.
Once you guys decide to proceed with the bankruptcy filing, your trustee will give you a form to fill out. You will need to provide all of your personal information, a list of all your creditors and debts, and then a list of all of your assets. Once they have that, the initial paperwork will be filled and once you sign the forms, your bankruptcy will officially begin.
From there, your trustee will send copies of the paperwork to your creditors so they will be able to file their claims. During your bankruptcy, you will have certain obligations to adhere to which include attending credit counselling and a monthly income statement. Your bankruptcy should be discharged within 9 months or so and once it is, your debts will be cancelled. A bankruptcy will stay on your credit report for at least 6 years, so getting your credit back in check after a bankruptcy can be a long process, but is worth it in the long run. Now that you know the process of bankruptcy and what to expect, let’s look at how much bankruptcy costs in Canada.
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The Three Main Costs of Bankruptcy and How Much Bankruptcy Costs
Most people will pay a minimum of $1,800 for their bankruptcy. This can, of course, be paid at once or can be paid over 9 months at $200 a month. The fees are set by the government and will be the same no matter which trustee you go with. However, the overall costs of bankruptcy will depend on how much you make, how big your family is, your assets and more.
In total, there are three main costs associated with bankruptcy and they are:
The base contribution is the costs we listed in the paragraph above. Everyone needs to pay these fees no matter what and they are fairly uniform for everyone, no matter what you make or how much debt you are in. If your situation is more complicated, however, there is a chance it could be higher than the $200 a month that most people pay.
If your monthly income is above the “surplus income” threshold, you must make what is called surplus income payments. During the first seven months of your bankruptcy, if your monthly income is, on average, over $200 above the limit, your bankruptcy (and the associated payments) will be extended for another year. This basically means that those who make a lot of money will generally have to pay more for their bankruptcy than those who are barely scraping by.
Assets You Lose
Of course, another huge cost in your bankruptcy will be the assets you lose. You will not only lose your tax return for the year of filing (and any others that haven’t been received yet) and all of your RRSP contributions of the last 12 months, but also all of your investments. Also, you can potentially lose the equity in your home and your vehicle but that depends on which province you live in and the individual rules for that area.
Alternatives to Bankruptcy
As we mentioned briefly in the introduction of this article, there are many different options for debt relief in Canada, so don’t just assume you have to declare for bankruptcy. One common and popular alternative to consider is a consumer proposal. A consumer proposal is a legally binding agreement between you and your creditors to arrange for a partial repayment of your debts. Unlike a bankruptcy, your assets aren’t at risk and the effect on your credit score is not as large.
Here are some more options you can choose before you declare bankruptcy.
However, you will be required to make payments, which can be tough if your income is low. So why would a creditor agree to take only a partial repayment? Well, this is because oftentimes a creditor will get nothing when you file for bankruptcy, so they would rather have a partial repayment than nothing at all. There are some qualifications you must meet before a consumer proposal is a viable solution for you.
Of course, there are other options too and the trustee you decide to work with will go over them with you, as well.
In conclusion, we hope that this article has helped you not only know how much it could potentially cost to declare bankruptcy in Canada but also taught you about the process and the main costs involved with bankruptcy. We know dealing with bankruptcy is never fun, but being prepared and knowing what to expect can soften the blow and make the entire process easier to handle and go through.