If you are overwhelmed by consumer debt, don’t worry, there’s still hope! There are, in fact, many debt relief options to choose from in Canada to help you get out from under your debt and on your way to financial freedom. Bankruptcy is probably the most well-known, and if you qualify, you should consider it as a way to get out of debt and start your financial life over. It’s definitely the most drastic step, so given all the other debt relief options, including the consumer proposal and debt settlement, should you file for bankruptcy?
Of course, you would only file for bankruptcy if you qualify for this debt relief option. In Canada, all it takes to file for bankruptcy is an unsecured debt total of $1,000 or more and the inability to make the minimum payments on your debt each month. Unlike a consumer proposal, which has a maximum debt limit for an individual of $250,000, there is no upper limit on the amount of debt you can have and still qualify for bankruptcy.
Debts that Matter in Bankruptcy
Many people mistakenly believe that bankruptcy automatically eliminates every form of debt they are carrying. Bankruptcy only gets rid of your unsecured debt such as credit cards and consumer loans. The one exception to this is student loans. You only qualify for student loan forgiveness in bankruptcy if it has been at least seven years since you were a student.
Secured debts such as a home loan are not erased in bankruptcy. Neither are you released from court fines, alimony and child support payments, or debts related to a fraud conviction. Bankruptcy is only a solution for you if you have a lot of unsecured debt. If your only debt is your mortgage, even the bankruptcy exemptions in your territory or province will not qualify you for bankruptcy.
Will I Lose Everything in Bankruptcy?
Some people believe that they should not file for bankruptcy because they think that they will lose all of their possessions in the process. Fortunately that is not the case. Although you will surrender some of your property to the bankruptcy trustee so your creditors receive some of what you owe them, Canadian law stipulates that you can keep some property in order for you to not be left destitute when you start over after your bankruptcy is discharged. Some of your assets are exempt in a bankruptcy, and these exemptions are set at the provincial level. See our province and territory guide for specific exemption amounts.
Generally speaking, you will be allowed to keep assets that you need for your line of work, your Registered Retirement Savings Plans, and the clothing and food you need for you and your family during the course of the year.
So, Should I File for Bankruptcy?
You should only file for bankruptcy if your debt is so high and your income is so low that there is no other debt solution. If you’re struggling with debt, the idea of wiping the slate clean is a tempting one, but it is important to understand that bankruptcy will ruin your credit for an average of seven years, and you will have to surrender a great deal of your property and other assets.
There are other options that will get you out of debt without destroying your credit as badly or forc you to give up any assets. Fill out the debt relief form for more information on Canadian debt relief options.
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