Nobody wants to file for Bankruptcy. Yet, each year over 120,000 Canadians declare Bankruptcy or file for a Consumer Proposal. These are hard-working people who, for one reason or another, find themselves unable to maintain their debt. From the financial planner who gets behind on credit card payments after an expensive divorce; to the single mother who recently experienced job loss and can no longer make ends meet. There is no one reason or one type of person that files for Bankruptcy. It can happen to anyone.
If you are contemplating Bankruptcy, know that you are not alone.
What to Do If You Are Considering Bankruptcy?
Bankruptcy is a legal process that can help to eliminate certain types of debt. It can provide the fresh start that you need to get back on track financially. While filing for Bankruptcy can make you feel embarrassed or defensive, it can also be a great source of relief.
Filing for Bankruptcy can mean the end of collection phone calls and harassment from creditors. It can protect you from legal actions taken by your creditors, stop wage garnishments, and can help to eliminate debt.
If you are considering Bankruptcy, reach out to a Licensed Insolvency Trustee (LIT) as soon as possible to discuss if it’s the right choice for you. A LIT is a federally regulated professional who can give you advice and work with you to create a plan to deal with your debt. And, a LIT is the only professional that is authorized to administer Bankruptcy in Canada.
The Main Reasons People File for Bankruptcy
People file for Bankruptcy for many reasons; however, it is usually a combination of life events or circumstances that get you to the point of being financially tapped out. Some of the main reasons people file include:
Divorce or separation
Divorce can be emotionally and financially devastating. One-third of Canadians filing for personal Bankruptcy are either divorced or separated at the time of filing. The cost of lawyers and the actual process of divorce can be very expensive. Your daily expenses will also increase now that you and your former partner must manage two separate households on the same income.
For those that have gone through multiple divorces, the expenses can be even more substantial. With the combination of legal fees, increased expenses, and spousal or child support payments, many people simply can’t manage to pay their debts.
The loss of a job or a reduction in pay can quickly take a financial toll. This is especially true if you are the only source of income for your family. If you have to turn to credit cards and loans to pay your bills while you try to find employment, it doesn’t take long to accumulate a pile of debt. Even if you are able to find a new job, your income may not be enough to cover your debt payments.
While Canadians are lucky to have government healthcare, the costs associated with a medical issue or illness can be substantial. Additionally, a serious medical issue can result in the loss of a job, reduction in hours, or necessary medical leave. Those that are required to go on disability to deal with a medical issue may find the payments are not large enough to cover all of their expenses.
Whether it’s a flood, fire, a major car repair, or the death of a loved one. Life can be unpredictable, and it’s impossible to plan and save for every potential situation. An unexpected event or disaster can quickly erode any savings that you may have. Without adequate insurance, the cost of an unexpected event may push some people into Bankruptcy.
Some people struggle to manage their money. They spend too much, abuse their credit cards, and take on a number of loans and installment payments. This results in high-interest credit card payments and too much debt to handle. Those that acquire a large sum of debt are often unable to make their minimum payments and find themselves searching for debt management solutions.
What Can I Do to Avoid Bankruptcy?
There are several things you can do to avoid filing for Bankruptcy.
Talk to a Licensed Insolvency Trustee (LIT)
If you are struggling to manage your debt, the first thing you should do is speak to a Licensed Insolvency Trustee (LIT). They can work with you to review your situation and make recommendations about what you can do. Depending on where you are in your debt journey, Bankruptcy might not be your only option.
If you are experiencing debt then it is time to slash your expenses. Create a simple budget so you know exactly how much money you have coming in and going out each month. Review your expenses and eliminate anything you don’t need. This can include things like eating out, subscription services, and shopping. Look at this as a temporary plan. You can always re-evaluate your budget when you have your debt under control.
Stop using credit cards
If you are constantly struggling to make the minimum payments on your credit cards, then it may be time to move to cash. Only purchase things when you have enough money to pay for them. Using physical cash can make it easier to track your money and can help you to avoid accumulating high-interest credit card payments.
Pay your bills first
Ensure all of your responsibilities are taken care of before you spend money on anything else. This includes things like your mortgage or rent payments, utilities, insurance, and cell phone bills.
Build an emergency fund
The purpose of an emergency fund is to cover essential costs such as your mortgage, utilities, and groceries if you were to lose your job or deal with an emergency. Financial professionals recommend saving enough to cover three to six months of essential costs. If this seems impossible, start small. Even if you can put away $20 a month, having something in your emergency fund is better than nothing.
Consolidate your debt
A consolidation loan is a personal loan that is used to pay off all of your debts. A consolidation loan can simplify your debt. Rather than paying many separate loans, a consolidation loan lumps all of your debt together into one monthly payment. A consolidation loan can also offer a lower interest rate, depending on your credit score and credit history. However, if you are already deep in debt and struggling to make your payments, you might not be in the financial position to qualify for a consolidation loan.
Discuss Your Options With a Licensed Insolvency Trustee
You may look at filing for Bankruptcy as a major defeat or failure. However, life is unpredictable. You can’t always plan for everything, and some circumstances can have a devastating financial impact.
What’s important to remember is that Bankruptcy does not define you, and you do not need to go through it alone. A LIT can explain your debt management options and help you determine if Bankruptcy is the right choice. If you are struggling with debt, reach out to one of our Licensed Insolvency Trustees at Adamson and Associates to schedule a free consultation.