The Pros and Cons of Filing  Bankruptcy in Canada

_{By Bromwich+Smith Staff | 1037 words | Reading Time:  6 minutes, 32seconds. | Last update: 2023/05/04}

At Bromwich+Smith, we understand the stress that debt can have on all aspects of your life. You can rest assured, no matter how complicated your financial situation may seem, there are always options to explore. When you make the first steps towards debt relief, you will quickly learn that you are not in this process alone. Thousands of Canadians struggle with debt and decide that filing for Bankruptcy with a Licensed Insolvency Trustee is the best financial option for their situation.  

We want to make sure that you have the knowledge to find the right solution for you. Navigating these solutions can feel daunting so we have compiled a list of pros and cons on bankruptcy to ensure you feel empowered to make the best decision for you. We understand that no two stories are the exact same, so if you feel like you are overwhelmed with debt, feeling the emotional drain brought on from demanding creditors and letters in the mail demanding payment make sure to reach out. Knowing your options today, can mean a brighter tomorrow.  

Pros of Bankruptcy: 

1. When you file for bankruptcy, you receive an automatic stay of proceedings, which is a legal order that creditors need to abide by. This order gives you immediate creditor protection and it is a unique feature only available through a Licensed Insolvency Trustee.  Creditors will no longer be able to contact you for collection of debt or take any legal action against you either. Simply stated you will be safe from the emotional stress you have been experiencing due to harassing phone calls, overdue bills in the mail and demands for payment.   

2. Bankruptcy stops wage garnishments. When you claim bankruptcy, your Trustee will notify your employer, the court, and the creditor to stop the wage garnishment. An exception is that bankruptcy cannot stop the garnishment of your wages by the Family Responsibility Office. Any wage garnishments due to Child Support payments for example will remain in place but will be removed due to bill payments like credit cards or line of credit.    

3. Once you are discharged from bankruptcy, with a few exceptions, you are debt free. The few unsecured debts that cannot be discharged include student loans that are less than 7 years old, court fines, penalties, and child support. Your Licensed Insolvency Trustee will be able to outline which debts will remain throughout the process so you have a complete understanding of which debt if any you are still responsible for.    

4. Filing for bankruptcy will give you a target date for a clean credit report. What does a clean credit report mean, visit this video to find out more.   

5. Once your bankruptcy is filed, you will know when you will be discharged. There is an end date in sight, and this will help you plan how to start rebuilding your wealth.  

Cons to Bankruptcy: 

1. Contrary to popular belief, there are fees for filing into Bankruptcy. These fees are set by the Office of the Superintendent of Bankruptcy and are also based on your income. The office of the superintendent of bankruptcy sets thresholds that determine the various income levels and required payments. Rest assured that your Licensed Insolvency Trustee will work with you on these payments. This will be explained in full detail. 

2. Filing for bankruptcy negatively affects your credit rating for a while. A bankruptcy will be reported on your credit report for 6 years, and a second bankruptcy extends this to 14 years. If you are already missing bill payments, you are already seeing negative affects to your credit rating and bankruptcy can be the first step to repairing it by eliminating your debt. It is important to note that you are able to start rebuilding your credit during and immediately after your bankruptcy. Your Licensed Insolvency Trustee and Credit Counsellor will be able to help you to rebuild your credit.    

3. A common myth is that you lose everything in a bankruptcy. The good news is there are many assets you can keep through bankruptcy. Some non-exempt assets include RESPs and any contributions you made to your RRSP in the last 12 months. If your home has equity over $10,000, that equity will need to be paid into your bankruptcy however there are options that can allow you to keep your house when you claim bankruptcy. You will also lose your tax refund for the year in which you are filing bankruptcy as well as any prior year’s refunds that are outstanding. To see the standard exemptions for each province and territory in Canada, click here.    

4. You are required to report your monthly income, make payments, attend credit counselling and provide income tax information to get discharged from your bankruptcy. However, this process often helps support the knowledge of money management so that you don’t find yourself dealing with too much debt in the future.  

For many Canadians, the pros of bankruptcy far outweigh the cons. After all, once your bankruptcy is complete, you are debt free and have a fresh start. 

However, if you are concerned about the cost of bankruptcy and also wish to keep your assets, like an RRSP and home equity, consider learning about our consumer proposal. A consumer proposal enables you to be debt free, and  keep your assets without declaring bankruptcy.  

Only a Licensed Insolvency Trustee like Bromwich+Smith has the legal authority to administer a Consumer Proposal or a Bankruptcy for you. If a debt relief service offers a Consumer Proposal or bankruptcy, ask if they are Licensed Insolvency Trustees. If they are not, they will be required by law to engage an external Trustee, which could add unnecessary fees to the process.  

For that reason, it is important to seek help as soon as possible from a credible source.  At Bromwich+Smith we want you to know you are not alone, there is real help out there and by taking action you can alleviate that ongoing pressure you are feeling. We offer an initial free, no obligation, confidential consultation by phone 1-855-884-9243 or video. You can also request a call back at our contact us page.  

FAQ Related to Pros and Cons of Filing  Bankruptcy in Canada:

1. Will I Lose Everything If I File for Bankruptcy?

While you may be required to liquidate some assets in order to pay your creditors, you likely will not lose everything if you file for bankruptcy. Certain assets, such as your primary residence, vehicle, and personal belongings, may be exempt from seizure. The amount and type of assets that are exempt vary by province. A LIT will be able to outline the requirements when you have your initial consultation.

2. Can I Keep My Credit Cards If I File for Bankruptcy?

When you file for bankruptcy all credit cards must be surrendered to the LIT, and any outstanding balances will be included in the bankruptcy. You will be able to rebuild your credit during your bankruptcy. Bromwich+Smith works with preferred partners to help you obtain credit and rebuild your credit score.

3. Can I Keep My Job If I File for Bankruptcy?

A3. Yes, you can keep your job if you file for bankruptcy. Bankruptcy does not affect your employment status, and your employer will not be notified of your bankruptcy unless you owe them money.

4. Can I File for Bankruptcy More Than Once?

Yes, you can file for bankruptcy more than once, but there are certain restrictions. If you received a discharge from bankruptcy in the past, you may need to ensure a set amount of time has elapsed before filing again. This waiting period varies by province. The length of your bankruptcy file will also increase if you have previously filed.

5. Will Bankruptcy Affect My Spouse's Credit?

No, your spouse's credit will not be affected by your bankruptcy unless they are a co-signer on a debt or have joint accounts with you.

6. How Long Will Bankruptcy Stay on My Credit Report?

If this is your first time filing Bankruptcy, it will stay on your credit report for six to seven years from the date of discharge.