Consumers end up in bankruptcy for a variety of different reasons, but the results of bankruptcy are the same for everyone who files. All who successfully complete their bankruptcy requirements enjoy the elimination of their unsecured debts and a clean start to their financial future.
What bankruptcy does not do, however, is get you off the hook for absolutely every debt that you have incurred. In fact, you will still be held liable for secured debts such as a mortgage or car loan, as well as various legal fines and other judgments against you. In personal bankruptcy, you give up some assets in exchange for having some debts wiped clean. That is, you no longer have to pay your unsecured debts and, from a certain point of view, you no longer have to pay your secured debts either. The reason you no longer have to pay your secured debts is that the lending institution has reclaimed the asset against which the debt was held. In other words, you don’t pay your mortgage anymore because the bank has repossessed your house.
Before filing for bankruptcy, it will be helpful for you to understand exactly what happens to your debt upon a bankruptcy discharge. That way, you will be more aware of the true costs of bankruptcy in Canada and will be better able to make an informed decision about your financial future rather than a hasty one. After considering what happens to your debts in bankruptcy, you may find that filing for bankruptcy is exactly what you need to do. On the other hand, you may find that another debt relief option is better for your needs, be it a debt consolidation loan, a consumer proposal, consumer credit counselling, or a debt settlement program.
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Discharged Debts in Bankruptcy
With a few exceptions, all of your unsecured debts are forgiven in bankruptcy whether your bankruptcy is discharged in nine months, twenty-four months, thirty-six months or longer after you file. Unless you have no real assets to speak of, your creditors will not walk away without having received anything of what you owe them, though they will not have received the full amount of what they have loaned you.
Upon discharge, you will owe nothing more on your:
• credit cards
• personal consumer loans
• other unsecured loans and lines of credit such as payday loans
• past-due medical bills and insurance premiums
• past-due utility bills including electricity, water, gas, and telephone service
• student loans if more than seven years have passed since you were a student
As noted, there are some debts and fines that remain when you file for bankruptcy. These fall into two major categories:
• Legal Fines and Judgments — The government and the legal system do not look the other way once you have filed for bankruptcy. You will still be responsible for certain judgments imposed on you before you went bankrupt. Child support payments, alimony, fines imposed for restitution, payments ordered because of a fraud conviction, and overpayments to the government on your income taxes are all charges that you will still have to pay after bankruptcy.
• Secured Debts — The key difference between a bankruptcy and a consumer proposal is that when you fulfill the conditions of the consumer proposal, your creditors cannot come after your assets. Apart from certain exemptions, however, you will give up secured assets for your secured debts to be forgiven. The best example of this is debt that is held against your house in the form of a mortgage or line of credit. Banks will not wave your indebtedness away when it comes to these debts and let you keep your property. Instead, they will repossess your home.
• Student Loans—If it has been less than seven years since you were a student, your education loans will not be discharged in bankruptcy.
Before Filing for Bankruptcy
Before you file for bankruptcy, get informed about this debt relief option and the others that may be available to you. Debt settlement programs, for instance, can help you eliminate your debt without forcing you to surrender your assets. Fill out the Canadian debt relief application for more information about your options.