Business Bankruptcy in Canada is primarily governed by the Bankruptcy and Insolvency Act (BIA), a…
If you’re having financial difficulties, you are not alone. The number of insolvencies across the nation is steadily rising. According to the Office of the Superintendent of Bankruptcy, nearly 130,000 Canadians filed a Consumer Proposal or bankruptcy just this last year.
The fact is, bankruptcy can and does happen. And it often happens to hard working, honest individuals that simply aren’t expecting it.
In cases like these, knowledge truly is power. Understanding the causes of bankruptcy – as well as what you can do about them – may help you avoid an Ontario bankruptcy in the first place.
Here are the top 6 reasons people go bankrupt.
1. Job Loss
Despite the fact you may get severance pay, losing your job can mean the depletion of your savings and assets. If you get laid off or are unable to work for any reason, you may no longer be able to pay down your debts. You might even have to incur further debt if you don’t have adequate savings to help you get by until the next job comes along (whenever that may be).
2. Reduced Income
As companies cut expenses, workers experience major pay cuts or reductions in hours and bonuses that they’ve come to rely on. Alternately, a family member may need to stop working, so you’re going from running a household on two incomes down to one. While the sensible thing to do is cut your expenses, there may be fixed ones like mortgage payments or rent, utilities, and car payments that you can’t immediately reduce.
3. Medical Expenses
Fortunately in Canada, much of our medical expenses are covered by the government. Even so, a major illness can affect income – through time off work – and living expenses since disability income may not be enough to pay off your debts.
4. Unexpected Expenses
If one thing is certain, life throws unpredicted twists and turns our way. This can include a major car or home repair, property damage as a result of a tree falling during a storm, or funeral expenses for a family member who passes suddenly. Many households don’t even have $1,000 saved to cover such unexpected expenses. Without a healthy amount of savings and insurance in place, you could find yourself relying on credit card debt or payday loans to get you through. And that can lead you to bankruptcy.
Divorce is not only an emotional whirlwind, it’s financially costly. In fact, one-third of Canadians filing personal bankruptcy are either separated or divorced at the time of filing. There are legal fees and loss of income and assets for either or both partners. Additionally, you may be liable for debts that were co-signed or incurred on joint accounts with your ex.
6. Poor (or no) budgeting
If you have more debt than you are able to manage, an unforeseen event, like illness, job loss, or separation can put you over the edge and into bankruptcy.
What can I do to avoid an Ontario bankruptcy?
Your debt will not just disappear on its own. You need to face it and take action. And the very first thing you should do is contact a Licensed Insolvency Trustee.
A trustee is the only professional authorized – and regulated – by the Canadian government to help you file a bankruptcy or Consumer Proposal. But that’s not all a trustee can do.
We can provide you with money management techniques, such as:
- Creating a healthy budget to ensure you are not spending more than you earn;
- Establishing a savings plan; and
- Establishing an emergency fund with adequate savings in place for life’s surprises.
Most importantly, we review your situation and recommend a solution to your problems. And while an Ontario bankruptcy may ultimately be the solution for you, others have found that by consolidating their debts, they can avoid a bankruptcy and get back in control of their finances.
There are alternatives to bankruptcy, and your options may be significantly greater the sooner you come in for assistance. Contact us today to get started on your journey to better financial health.