06 Mar Personal Bankruptcy: what we should know!
Our last post was about consumer proposals as an option to avoid bankruptcy. We all work really hard to avoid going bankrupt, but, in some instances, it might be the only possible way to deal with debt. Just like with anything else, the most important thing to do before making the decision to declare bankruptcy is to be informed.
So, personal bankruptcy is a legal process where a person who cannot repay debts to creditors can be discharged from those obligations. The debtor assigns his/her rights to non-exempt assets for the benefit of the creditors. In return, they are free from unsecured debts. The process of filing for bankruptcy in Canada must be done with a Licensed Insolvency Trustee who ensures that the rules and laws around the bankruptcy process are applied fairly to both the debtor and creditors.
Who can file for bankruptcy?
Anyone owing least $1,000 in unsecured debt;
Anyone unable to pay the debts when they are due;
Anyone whose debts surpass the value of the assets owned.
You must also be living or own property in Canada.
Can an individual keep any assets when declaring bankruptcy?
Even though there are consequences to filing bankruptcy, an individual can still keep some assets. For instance, most personal belongings are exempt from the list of things being “lost”. Depending on the individual situation, sometimes it is even possible to keep the car or the house. It is also important to know that RRSPs are protected in a bankruptcy in Canada with the exception of contributions made in the last year.
Do all debts get discharged?
Bankruptcy is for unsecured debts. This means credit card balances, bank loans, lines of credit, payday loans, and tax debts. If you have been out of school for more than seven years, student loans can also be included. This does not include your mortgage or car loan, as they are secured debts. If your debts are related to fraud or court fines, than they will still remain as debts and not be included in the bankruptcy file.
Above all, keep in mind bankruptcy should be the last thing to go to: it doesn’t get rid of all debts, it contributes to the loss of non-essential assets, it really impacts your credit, and in some cases, it may even have an impact on your career.
Contact us to go over options if you feel you are in a situation where you can’t make your monthly payments.