Many hard-working Canadian debtors walk into our office filled with questions – and anxieties – about bankruptcy.
Their concerns typically revolve around how bankruptcy works and how filing for bankruptcy might affect their families.
And while most debtors really aren’t familiar with the bankruptcy process, they certainly dread the stigma associated with it.
The truth, however, is that for those debtors that need it…
Bankruptcy can be the best way to get a fresh start on the path toward better financial health.
After decades of expertise assisting debtors with stressful financial situations, we know that education is by far the best way to allay fears of the unknown.
Below is a list of commonly asked personal bankruptcy questions we get on a near daily basis.
Common Bankruptcy Questions and Answers
What is bankruptcy?
Put simply, bankruptcy means that you cannot pay off your debts and you are asking for help. You’ll be enrolled in a plan that works for both you and your creditors to pay back a portion of your debts. When you file for personal bankruptcy in Canada, you surrender your assets in return for the discharge of your debts.
Will bankruptcy put a stop to collection calls?
In Canada, the bankruptcy process is a legal one. This means you will have protection from your creditors that other debt relief methods may not offer. These include an end to collection calls, wage garnishments, frozen bank accounts, and legal actions against you.
How do I file for bankruptcy?
In order to file for bankruptcy in Canada, you must hire a Licensed Insolvency Trustee (LIT). These federally licensed and regulated professionals are able to assist you with a range of debt relief options – of which bankruptcy is just one.
How much does bankruptcy cost?
Many debtors worry that they won’t be able to afford bankruptcy. What your bankruptcy will cost really depends on what you own and how much you earn. And while bankruptcy involves administrative costs, in most cases, it’s a government-set fee which is paid over the course of the bankruptcy so you won’t have to incur them up front.
Will I lose all of my assets?
You will not lose everything when you file for bankruptcy in Canada. That’s because there are certain assets that are exempt from being seized in a bankruptcy. These exemptions vary depending on your province.
In Ontario, most people will not lose any of their assets because the exemptions are quite high. You will be able to keep things like your personal clothing, most household furnishings, your vehicle, if its value is less than $6,600, tools of the trade used to earn a living and your home, if the equity therein is less than $10,000.
Will bankruptcy affect my credit?
Bankruptcy appears on your credit report for up to seven years. Because most lenders will look at your credit report on approval of a loan, you may have difficulty obtaining a mortgage. What’s more, you may also be required to report your bankruptcy to future employers.
Will bankruptcy discharge all my debts?
In general, bankruptcy discharges most of your unsecured debts. These include your credit card balances, unsecured lines of credit, unsecured personal loans, unpaid utility or medical bills, and payday loans.
However, not all debts are eligible to be discharged during the bankruptcy process. For example, student loans less than seven years old, child and spousal support, court-ordered fines and penalties, or debts that came about by way of fraud or theft will still exist after the bankruptcy.
If I file for bankruptcy, what happens to my debts that have a co-signer?
Your creditor may go after your cosigner for the full amount of the loan, despite the fact that you’ve filed for bankruptcy.
Can I keep my credit cards after filing for bankruptcy?
As part of your bankruptcy obligations, you are required to turn over your credit cards to your LIT. But you won’t be left to your own devices to figure out how to obtain credit after your bankruptcy. Your LIT will review other ways to build credit post-bankruptcy, including how to apply for a secured credit card.
What do I have to do in a bankruptcy?
You will have to fulfil certain duties and obligations during your bankruptcy. This includes submitting proof of income and expenses on a monthly basis to your LIT.
With this information, your LIT will determine your average net income and whether you have surplus income that needs to be accounted for in the bankruptcy.
Surplus income is income that exceeds the government’s threshold limit. If you have exceeded this amount, you may be required to contribute to your estate for the benefit of your creditors.
You will also be required to attend two credit counselling sessions which are provided within the Trustee’s offices. They are intended to help you budget and manage your money so you are less likely to encounter financial difficulties in the future.
What if I come into a windfall of money while in bankruptcy?
Lottery winnings or inheritances will become an asset of bankruptcy and vest in the LIT to the benefit of your creditors. If it’s a bonus or commission that stems from your employment, it will be considered part of your income and go toward the calculation of your surplus income.
Will filing for bankruptcy solve my money troubles forever?
Bankruptcy will give you a fresh start with your finances, but you must realize you may lose some assets in the process. One of our goals as LITs is to educate you so that you don’t wind up in such a precarious financial position again.
Our credit counselling sessions will arm you with the knowledge and tools you need to make different, healthier financial choices in the future.
Is bankruptcy my only option?
Bankruptcy is not usually the only option available. If you are experiencing financial difficulties, the best thing you can do is immediately seek help from a Licensed Insolvency Trustee. The sooner you do, the sooner we can help you turn your money troubles around.
Depending on your financial circumstances, which we will review in your free initial consultation, we will present you with all your debt relief options and the pros and cons of each.
This may be as simple as credit counseling to help you work through your situation. Or you might want to consider consolidating your loans or refinancing. The point is…
You should seek help as soon as possible before your finances spiral out of control.
If you’re late to the game, however, we still urge you to seek financial help from an LIT. All is not lost. You don’t have to live the rest of your life saddled with debt.
Bankruptcy was put in place to help debtors who have no other recourse get the fresh start they deserve, so they can begin rebuilding their credit.
Have more questions about bankruptcy in Canada?
Check out our Frequently Asked Questions, or better yet, pick up the phone and call us today. It’s our mission to help you improve your financial health so you can start living the life you deserve.