Posted on Wednesday 15 October 2014
When your other debt management options are exhausted, it might be time to declare bankruptcy. When the debt collectors are after you and you can’t make your payments even with sensible financial planning, bankruptcy can wipe your slate clean. Your debts are forgiven, your credit history is wiped, and your creditors are required to stop contacting you. On the other hand, bankruptcy has significant costs, and should only ever be treated as a last resort. First, some debts are non-dischargeable, meaning that they will remain with you even after bankruptcy. These include fines imposed by courts, alimony and support payments, and, if you’re less than seven years removed from graduation, student loans. Second, bankruptcy will cost you. Apart from exempt assets, which vary from province to province, your assets will be taken from you and sold. Third, bankruptcy will have long-lasting effects on your creditworthiness. Your credit history will be removed, but your credit report will include your bankruptcy for up to seven years afterwards for a first bankruptcy. This will make it very difficult to get credit, although some forms of credit can be granted to people with no credit history, and if you are filing for bankruptcy, your credit probably wasn’t very good to begin with. Any credit that you can get is likely to be secured. Bankruptcy shouldn’t be taken lightly, and should only be filed for after exploring other options and seeking expert advice. The Bankruptcy Process In order to go through the bankruptcy process in Canada, you are required to work with a bankruptcy trustee. Bankruptcy trustees are bankruptcy experts licensed by Canada’s Superintendent of Bankruptcy. You can find licensed bankruptcy trustees in your region through the website of the Office of the Superintendent of Bankruptcy using this form . Bankruptcy trustees don’t just help you through the process of bankruptcy, they are also trained debt counsellors. They can help you to explore options other than bankruptcy and negotiate with your creditors. If you do go through with bankruptcy, they will prepare paperwork and arrange the sale of your assets to pay your creditors. You will be required to submit lists of your assets and your creditors to your bankruptcy trustee, and to surrender to them any non-exempt assets. Which assets are exempt from this depends on which province you live in. You will also have to file all outstanding tax returns immediately. After filing for bankruptcy, any of your unsecured creditors are banned from taking legal action against you or even contacting you. Garnishing of your wages will cease. However, the process of bankruptcy also imposes duties. Each month, you must provide a report of your income and expenses to your trustee. This should be easy if you make regular budgets anyway. However, if you have any surplus income beyond legally defined living expenses, you must make a payment to the bankruptcy trustee. If this is your first bankruptcy, you will probably be eligible for automatic discharge after nine months. For a second bankruptcy, the period is 24 months. However, there are some factors that may extend your bankruptcy process. If your income is significantly greater than your living expenses, your bankruptcy period may be extended in order to recoup more money for your creditors. If your surplus payment is more than $100 per month, your bankruptcy will be automatically extended for a year. In order to qualify for automatic discharge, you must also attend classes on debt and financial management. Your trustee may be able to provide these. One must be attended between 10 and 60 days after filing for bankruptcy, and a second must be taken no more than 210 days from the date of filing. Your bankruptcy may also be extended if you fail to make required payments in a timely fashion.