Bankruptcy is a method to clear most of your existing debts. It should be considered as a last resort because it will completely destroy your credit. It will take approximately a decade for you to have good credit again afterwards because it stays on your credit report for 7 years and it will take a few years to rebuild again. You will be denied any type of loan or credit product during that time. This means you will not be eligible for credit cards, loans, mortgages, rent and it may even affect employment as some jobs look at your credit history. There is one option you can try before declaring bankruptcy though.
Consumer Proposal
This is where you try and negotiate with your lenders and let them know that you are unable to pay them. You could try talking to your lenders yourself or seek out the assistance of a Licensed Insolvency Trustee in your area. Your negotiations may not work and your lenders may refuse your proposal even with a Licensed Insolvency Trustee helping you. At that point, your only option is to declare bankruptcy. However, if they do accept your proposal, people usually try to settle for a percentage of the total in one final large payment or a new payment schedule to their lenders. You will need to pay taxes on the amount forgiven by your lenders. Read more about consumer proposals here. You will have a few responsibilities to provide during the process of consumer proposal:- List all your assets and liabilities
- Attend a meeting of your lenders
- Attend 2 counselling sessions
- Be compliant and update any changes to your information
Bankruptcy
During bankruptcy, you are not completely cleared from all debts. There are some debts which you will still be required to pay regardless. These payments are not released when you declare bankruptcy:- Debts which included a co-signer or guarantee from another individual
- Student loans if bankruptcy occurs while you are still a student
- Student loans if bankruptcy occurs within 7 years after you stop being a student
- Spousal & child support payments
- Debts related to fraudulent activities
- Court fines
- Payments to an individual due to assault
When you declare bankruptcy, you will be working closely with a Licensed Insolvency Trustee. Once it's been filed, you will enter creditor protection and no longer need to make any payments with the exceptions I've listed. This is known as being discharged. Any lawsuits against you relating to your debt, garnishment of your salary and collection calls are also stopped at this time. Being discharged could take as little as 9 months for first-time bankruptcies and 24 months for your second bankruptcy. These time periods could take longer if you have surplus income higher than the allowable limit as you will be required to make payments to your lenders for the extra income you've earned. Read more about that here. You will only be discharged if the following 2 conditions are met:
There are 2 main forms that you should be made aware of:
You will have duties and responsibilities to fulfill while you are bankrupted:
A common question homeowners have during bankruptcy is, "Can I keep my house?". You may or may not be able to keep your house depending on provincial rules and how much equity you have built into it. Remember that you have to sign the Assignment form to proceed, which means you are giving up your house as well. There is a limit set by each province for the amount of equity that you may own while bankrupt. If you possess assets that exceed the limit, which includes your homes, then you will not be able to keep it. Refer to this link to see the limits.
- The Licensed Insolvency Trustee, your lender or the Office of the Superintendent of Bankruptcy all agrees to your discharge
- Attend 2 counselling sessions
There are 2 main forms that you should be made aware of:
- Assignment - You are signing over all of your assets and liabilities over to the Trustee
- Statement of Affairs - A list of your net worth, income and expenses and questions relating to your family, employment and sold assets
You will have duties and responsibilities to fulfill while you are bankrupted:
- Declare all assets
- Give up credit products like credit cards and line of credits
- Report your household income and expenses
- Make non-exempt bankruptcy payments
- Attend 2 counselling sessions
- Attend meetings of your lender
- Be compliant and report updates to your information
When you declare bankruptcy, you are required to file 2 tax returns for the year.
- From January 1 to the date of the bankruptcy
- From the date of the bankruptcy to December 31
A common question homeowners have during bankruptcy is, "Can I keep my house?". You may or may not be able to keep your house depending on provincial rules and how much equity you have built into it. Remember that you have to sign the Assignment form to proceed, which means you are giving up your house as well. There is a limit set by each province for the amount of equity that you may own while bankrupt. If you possess assets that exceed the limit, which includes your homes, then you will not be able to keep it. Refer to this link to see the limits.
I truly hope none of you ever have to go through the bankruptcy process because you wouldn't be able to save for your retirement. I believe I covered the majority of the information. If you are going through bankruptcy and have any questions, consult your Licensed Insolvency Trustee. Also be sure to read the links I have.
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