Business Bankruptcy in Canada is primarily governed by the Bankruptcy and Insolvency Act (BIA), a…
Are you feeling stressed out by your debt and wondering if it’s time to get some bankruptcy advice in Ontario? You might be struggling to make your payments while juggling your day-to-day expenses. Now might be a good time to learn if bankruptcy is right for you.
You may be curious how you can afford to get advice when you’re already having trouble making ends meet. It might surprise you to hear that bankruptcy advice is free.
How does bankruptcy work?
In Ontario, bankruptcy is a legal proceeding that can only be carried out by a federally Licensed Insolvency Trustee (LIT). Before filing bankruptcy, your trustee will determine if you are eligible and discuss other bankruptcy alternatives with you.
If you and your trustee determine bankruptcy is the best way to go, your trustee will be responsible for filing all the paperwork on your behalf. This is done through the Office of the Superintendent of Bankruptcy (OSB).
What are the advantages of claiming bankruptcy?
Bankruptcy is a big step that’s not to be taken lightly, but it also comes with several advantages worth considering. Here are two of the major ones:
1. Financial benefits
When you file bankruptcy, you will receive protection from your creditors. This means they are prevented from acting to collect their debts and reclaim property like vehicles.
You will be required to take two financial counselling sessions as part of your bankruptcy. These sessions help you learn to manage your money, so you are better able to deal with your finances after claiming bankruptcy.
2. Emotional benefits
There is a bit of a stigma around claiming bankruptcy, but bankruptcy can help you move on with your life.
When you claim bankruptcy, you can breathe a sigh of relief knowing that you have a chance to start your financial life over. You’ll no longer feel the constant stress of wondering when the next creditor will show up at your door demanding their money.
Will my spouse be affected?
A bankruptcy claim is based on whose name the debt is listed under. If you are the sole owner of the debt, your spouse will not be affected by your bankruptcy claim. Every situation is unique though, so it’s best to discuss this with an LIT. This way you’ll know for sure whether your bankruptcy claim will impact your spouse and their credit rating.
Will I lose my house and car?
Many people don’t think about claiming bankruptcy because they are worried they will lose their house or vehicle. This makes sense. Your house is one of your prized belongings and you need your vehicle to get to work.
If you don’t have a lot of equity in your home, there’s a good chance you can keep it too. But the rules around home ownership can be complicated. If the equity in your home is less than $10,000, you can keep your home. If you have more than $10,000 equity in your home, you will need to pay your LIT for the equity.
In Ontario, there are items you can keep when claiming bankruptcy including clothing, pension plans, and limited amounts of furniture and tools that you use to earn a living. In most cases, you can also keep your car depending on its value and financing situation.
Claiming bankruptcy isn’t your only option.
Bankruptcy options in Ontario
The goal of an LIT is to help you find the best solution to your debt struggles. Before making the decision to file for bankruptcy, it’s important to know there are other options. Here are three to consider.
1. Credit Counselling
The goal with credit counselling is to help you learn how to manage your money better. In order for credit counselling to be successful, you must be able to repay the full amount of your current debt.
Credit counselling can be helpful in changing old patterns. But if you’re not making enough money to cover your loan payments, then no amount of credit counselling will help you get out of debt.
2. Consolidation Loan
A consolidation loan is a loan that is used to pay off your other debts. This way you only have one loan and one monthly payment to focus on, which can make things less difficult than your current situation. Often the only way to combine loans is to hire a consolidation professional which will mean extra fees for you.
In order to qualify for a consolidation loan, you must have a good credit rating. This can be difficult to achieve when you’ve been struggling to make your payments. While a consolidation loan can offer relief, it won’t help you learn how to improve your financial future.
3. Consumer Proposal
Like bankruptcy, a Consumer Proposal is legally binding and can only be filed by an LIT. Once a Consumer Proposal is filed, you will be protected from your creditors.
In a proposal, you agree to pay your creditors a portion of what’s owed to them, and they agree to forgive the balance. As part of the proposal, you are required to make monthly payments to your trustee, attend two financial counselling sessions, and agree to the terms of the proposal.
An advantage of filing a Consumer Proposal rather than bankruptcy is that as long as you make all the required payments under your proposal, you get to keep all your assets. A Consumer Proposal is also less complicated and impacts your credit rating less than a bankruptcy does.
This list only touches the tip of the iceberg when it comes to bankruptcy advice and options. As the above image demonstrates, there are lots of things to consider when deciding the best way to handle your debt and each individual situation is as unique as you are.
To find out the best option for you and learn more about how Adamson & Associates can help, contact us for a free, no-obligation consultation.