The Pros and Cons of Filing  Bankruptcy in Canada

Pros and cons of Filing  Bankruptcy in Canada 

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By Bromwich+Smith Staff | 775 words | Reading Time:  3 minutes, 46 seconds. | Date: 2021/11/02

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. 

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. 

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. 
  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.
  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.
  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. 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.
  1. Filing for bankruptcy negatively affects your credit rating for a while. A bankruptcy will be reported as an R9 on your credit report for 6 years, and a second bankruptcy extends this to 14 years. Missing payments, however, also negatively affects your credit rating and bankruptcy can be the first step to repairing it by eliminating your debt.
  2. 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, any prior year’s refunds that are outstanding. To see the standard exemptions for each province and territory in Canada, click here
  3. 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. 



Submitted by Danny Choi (not verified) on Mon, 01/16/2023 - 10:44 Permalink

Hello, My mother would like to file bankruptcy.
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