Dealing with debt is never fun. Many of us try to sweep our financial woes under the rug and hope they disappear with time. But what happens when that pile under the rug becomes too big to go by unnoticed? Debt is never fun to deal with, but it has to be done. The bigger you allow the problem to get, the harder it will be to get rid of the problem.
If you are feeling extremely overwhelmed by a large amount of debt, you may be considering bankruptcy. You might have even heard from lenders and others offering debt solutions that bankruptcy is your only option. At 4 Pillars, we disagree. Bankruptcy may be one option, but it’s not necessarily the best and only option for you. Below, we will explain what bankruptcy is and what happens when you declare bankruptcy. We will also explain when you may need to file for bankruptcy.
What is bankruptcy?
Bankruptcy is a court process in which your debts are either cleared out or repaid under the protection of the bankruptcy court. It allows those who cannot pay their debts to have those debts erased. Essentially, you assign (or surrender) your non-exempt assets to a Licensed Insolvency Trustee. In exchange, your debts will be eliminated.
In order to qualify for bankruptcy in Canada, you must meet the following requirements:
- Must be a resident in Canada, work here or at least own property in Canada.
- You owe at least $1,000
- You are unable to meet the payment requirements of your debts as they come due
- Your debts must exceed the total value of your assets
A Licensed Insolvency Trustee (or LIT) decides if you are eligible to file for bankruptcy. Once they’ve approved that you are eligible, then you can move forward with declaring bankruptcy. You will then need to declare all of your outstanding debt (both secured and unsecured), and your assets to then move forward from there. For more information about filing for bankruptcy, click here.
What happens when you file for bankruptcy?
All of your unsecured debt will be eliminated. It’s important to note that not all of your debt will be included when filing for bankruptcy. Any secured debts you have such as mortgage loans, car loans, or legal fines can not be cleared through bankruptcy.
Once you file for bankruptcy, you will stop making payments directly to your creditors. Any and all legal actions will stop as your LIT is now in charge of your file. No more warnings and phone calls about your missed payments from your creditors.
However, you will now begin making payments towards your bankruptcy. The amount you pay towards your bankruptcy will depend on your income. Meaning that if your income were to increase, your payment will also increase.
Some of your assets will be seized by the LIT as it is their duty to get the best possible return for the creditors. Which assets are seized will depend on your personal situation. Depending on the amount of your debts, you may be able to keep certain assets such as your house, your car, your RRSP’s or other investments, and so on. It all depends on the severity of your debt and how much you owe in comparison to what you have. When you file for bankruptcy, a LIT can explain to you what your options are and what you may (or may not) keep.
If you are married, you don’t need to declare bankruptcy together. However, when you are declaring your assets, you will need to show the LIT any and all joint accounts and shared assets you have with your spouse.
What happens after you declare bankruptcy?
Bankruptcy has the most severe impact on your credit and finances compared to any other debt-relief option. It can take anywhere from 6 to 10 years to rebuild your credit and your finances back to where they were.
After you’ve declared bankruptcy, you will be required to attend mandatory credit counselling sessions. These sessions will review money management and review the importance of staying out of debt. On top of that, you will also need to complete anywhere between 9-36 income and expense reports for the LIT. The amount of time you are kept in bankruptcy and the number of reports you will need to provide all depends on your income and your financial history.
Once your bankruptcy is complete, you receive a notice from the LIT. At which point, you are free from all your unsecured debts and you can start rebuilding your credit.
When should you file for bankruptcy?
The only time you should consider filing for bankruptcy is when it is TRULY your last option. Yes, bankruptcy can eliminate your debts, but you could also loose assets, a significant portion of your income, an even your tax refunds. And of course Rebuilding your finances can take YEARS to accomplish after filing bankruptcy. There are easier and more effective ways of consolidating your debt and paying it off – without damaging your finanial situation so intensely.
If you have absolutely exhausted all other options for relieving your debt, that’s the only time bankruptcy should be considered. But how do you know if you have exhausted all options?
Evaluate your best options at 4 Pillars When you’re dealing with debt, the Government of Canada recommends you meet with a Licensed Insolvency Trustee as your first step. However, the trustee is tasked with a fiduciary responsibility to the creditors, and does not represent the debtor. If you want to find the best solution to your debt, then work with us at 4 Pillars. We work hard to help our clients avoid bankruptcy – in fact, less than 1% of our clients in our local office end up filing for bankruptcy. And believe us when we say, we see significant debt loads from our clients and many of them have been told by others that bankruptcy is their only option. 99% likliehood that we can help resolve your debt issues without resorting to bankruptcy? We like those numbers. Don’t you? At 4 Pillars, we work to show you a debt consolidation plan that won’t see you loose your assets and income, and that will give you the best shot at debt relief that lasts. To learn more about bankruptcy and to understand your full range of options, call us today! Reach out to one of our three locations across Northern Ontario today. You can reach our Muskoka & Parry Sound office at 705-640-0187, our North Bay office at 705-980-0158, or our Sudbury office at 705-806-1252. Make today, the day, you take back control of your life and say goodbye to debt for good.