Personal bankruptcy in Canada is the debt relief option of last resort that allows people who cannot pay their debts to have these debts erased. If you are having difficulty paying your bills and have already exhausted other debt options such as debt settlement, debt consolidation, consumer credit counselling and the consumer proposal, bankruptcy is probably the only answer to get yourself out of trouble.
What Happens in Bankruptcy?
Under the provisions of the Bankruptcy and Insolvency Act of 1985, individuals who file for bankruptcy receive legal protection for many of their assets but turn over some of them to a bankruptcy trust in order that creditors may receive some of what they are owed. Thus, both debtors and creditors receive some protections when an individual files for personal bankruptcy.
Once you have determined that you should file for bankruptcy, you will contact a licensed bankruptcy trustee in your province or territory. That trustee will set up a trust into which your assets, with some exemptions, will be deposited. Your trustee will pay your creditors from this trust, and, until your bankruptcy is discharged, you will be required to abide by certain bankruptcy requirements. As long as you satisfy these requirements, your bankruptcy will be legally discharged after a waiting period, and most of your debts will be erased.
Qualifying for Personal Bankruptcy
Since bankruptcy is the debt solution of last resort, you will only qualify for personal bankruptcy under the following circumstances:
• You must owe at least $1,000 in unsecured debt.
• You must be unable to make the minimum payments on your debt each month.
Are There Debts That Bankruptcy Will Not Eliminate?
Although bankruptcy gives you a relatively clean financial start, it is important to recognize that bankruptcy will not eliminate all of your debts. Bankruptcy only eliminates your unsecured debts, and even then it will not erase all of them. These debts are not erased in personal bankruptcy:
• secured debts such as mortgages and car loans
• student loans if it has been less than seven years since the debtor was a full-time student
• alimony payments
• child support payments
Is Bankruptcy the Same in Every Province and Territory?
Although federal law establishes the basics of the bankruptcy process, each Canadian province and territory is allowed to set its own exemption amounts and establish other procedures that are in line with federal law. This provincial bankruptcy exemption guide provides more information on the specifics for bankruptcy in each province and territory. Across all provinces and territories, however, the bankruptcy process holds the following in common:
• The length of time between filing for bankruptcy and seeing the bankruptcy discharged is an average of nine months.
• Registered Retirement Savings Plans are generally exempt in all provinces and territories except for the contributions made during the year prior to the bankruptcy.
• You will have to surrender your credit cards to your trustee.
Are There Disadvantages to Bankruptcy?
The clean start bankruptcy provides for your finances makes it an attractive debt solution for many people. Becoming debt free and escaping calls from debt collectors are certainly a plus. However, bankruptcy does have two significant disadvantages. First, you will have to give up at least some of your assets, which is not required under other debt relief solutions such as a consumer proposal. Second, a bankruptcy will ruin your credit for seven years. Virtually no creditor will be willing to extend you a loan, and those that are willing to extend credit will charge you astronomical interest rates.
Is Personal Bankruptcy My Only Hope?
Filing for bankruptcy should never be done lightly, especially because so many people qualify for other debt solutions. Fill out the Canadian debt relief form for more information on debt relief programs that can help you avoid bankruptcy.