What is Personal Bankruptcy?
Personal bankruptcy is a form of insolvency and is a debt relief solution that is suited for individuals who are unable to cope up in paying off their debts within the allowed timeline. If you have exhausted all your options to overcome your indebtedness, such as a consumer proposal, debt consolidation, consumer credit counseling, and debt settlement, bankruptcy is what’s left for you to stay out of your debts. It allows you to eliminate the burden in dealing with your creditors every month.
Personal Bankruptcy Process
If you have filed for bankruptcy, you will automatically receive legal protection from your assets in lieu of the Bankruptcy and Insolvency Act of 1985. However, you will have to surrender some of your assets to pay off some of your debt from creditors. Having this in place, both you and your creditor will receive an equal right and protection in bankruptcy.
How to Qualify for Personal Bankruptcy?
Considering bankruptcy as your last resort to get out of debt, you must meet the following qualifications:
- Your unsecured debt must not be lesser than $1000
- You must be incapable to pay the minimum debt payments each month
How to File for Personal Bankruptcy?
If you think that filing bankruptcy is what’s best for your situation, you will have to reach out to a licensed bankruptcy trustee. The role of your trustee is to arrange a trust where your assets will be deposited aside from those that are exempt. Your trustee will then use this trust to pay your creditors. Moreover, you will have to comply with the bankruptcy requirements up until your discharge. It is important that you diligently follow the required agreement to be discharged after the intended period.
Debt and Personal Bankruptcy
Although filing for bankruptcy might free you from your financial restrain, you must be aware that it does not necessarily clear your indebtedness from secured debts. Bankruptcy will only erase your unsecured debts but not entirely all of it. These are debts are listed as follows:
- secured loans such as mortgages and car loans
- student loans if it has been less than seven years since you ceased as a student
- provisional payments or alimony
- payment for child support
- Secured Debts
- Unsecured Debts
Your debt is secured when you have vouched for one of your assets as a guarantee or collateral. Also, when the bank has a claim for the asset you acquired with your loan and haven’t paid the bank in full. In contrast, if you seek for a consumer proposal, your and assets will not be jeopardized as well as your secured debts. This is mainly the reason why most people would prefer to exhaust their chances through a consumer proposal than in bankruptcy.
Generally, unsecured debt pertains to your regular consumer debt which does not involve any asset. Examples of unsecured debts are credit card debt, lines of credit, payday loans, or unpaid utility bills, or medical bills.
Pros and Cons in Bankruptcy
- trigger an automatic stay which will prevent creditors s from collection
- discharge of debts or any obligation towards dischargeable debts
- makes you more aware of how to manage your finances wisely
- some of your property may be seized aside those in exempt
- can destroy your credit report
- may hinder your chance to obtain a mortgage or loan
- some debts are not discharged after bankruptcy
- may ruin your credibility and employment
Bankruptcy in Every Province and Territory
Each province and territory in Canada is allowed to establish certain exemption and amounts, which is inlined with the federal law. Although each province and territory has its own specifics, some commonalities are as follows:
- The timeline between filing and discharged runs an average of nine months.
- Registered Retirement Savings Plans are commonly exempt in every province and territory besides the contributions rendered throughout the year before bankruptcy.
- You will have to give up your credit cards to your trustee.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.