Should you file for Bankruptcy?
# Things to Consider
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By Bromwich+Smith Staff | 1325 words | Reading Time: 6 minutes and 36 seconds | Date: 2021/11/19
We understand that life can be complicated especially when it comes to financial stress. Knowing your options can help you conquer debt effectively.
One of the options you may be thinking about is filing for bankruptcy. You may be asking yourself directly, should I file for bankruptcy? We wish the answer to that question was simple but unfortunately it isn’t.
While bankruptcy seems to fall in the last resort category, we are going to illustrate all sides of this issue before you make your decision. One of our key principles is providing impartial and unbiased financial knowledge so you can make an educated choice to effectively deal with your finances.
Reasons to Consider Filing for Bankruptcy
Filing for personal bankruptcy starts with understanding that you have a debt problem to solve. If you have been wondering whether or not to file for bankruptcy, here are a few signs that you might need to consider taking this step:
- Your credit cards are always at their limit
- You are paying bills with your credit cards or cash advances
- You continually fail to make one or more payments each month
- You have received letters threatening legal action unless you pay money owed
- Loss of income in the household means there is no money to pay the debts
- You are making the payments, but the debt is persisting/increasing
- You are credit reliant – the cost of the debt is so high there is no money left for everyday expenses so you need to use your credit cards to buy gas and groceries
- You are overwhelmed and stressed about your finances, and it is affecting your sleep and wellness
- You have reached your borrowing limit and your bank will not provide any further financial assistance
While every bankruptcy file is different, there are consistent indicators that you need to seek help with your finances. If any of the above points sound familiar, declaring personal bankruptcy may be the right choice.
Things to Consider before Filing for Bankruptcy
There are other debt-relief solutions than bankruptcy available for people who are struggling financially, but have enough resources to deal with their situation. Ultimately, it will come down to what your circumstances are in order to determine what solution is best for you.
Connecting with a Licensed Insolvency Trustee (LIT) immediately can support you in getting sound advice to determine solutions that support your needs.
Another step would be getting serious about creating and living within a budget. You could supplement your current income with things like taking a second job or trying to sell some of your assets to pay bills.
Other things to consider before making a final decision: Did I try to negotiate the debt down to a manageable level? Is my current status permanent or is the situation expected to improve soon?
A final consideration: Do I have a big bill or series of big bills coming due soon? You might want to hold off on paying that until you decide whether or not to file bankruptcy since those bills could be dismissed through bankruptcy.
Here are some other questions you will need to consider before making a decision on whether you want to file for bankruptcy.
Do I Qualify for Bankruptcy?
In Canada you can qualify for bankruptcy if you are an insolvent person which means you:
- owe at least $1,000 in unsecured debt,
- are unable to pay your debts as they come due or,
- you owe more in debts than the value of the assets you own, and,
- you must either reside, do business, or have property in Canada.
Do Debts Qualify for Bankruptcy?
Not all debts qualify for bankruptcy. Debts that can’t be wiped out are unsecured debts that include student loans that are less than seven years old, court fines, penalties, and child support.
Debts that can be wiped out in bankruptcy include credit card debt, personal loans, lawsuit judgments and obligations from leases or contracts.
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.
Bankruptcy also 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.
However, once you are discharged from bankruptcy, with a few exceptions, you are debt free.
What is the impact of Bankruptcy?
Bankruptcy can have quite a few impacts and we want to make sure that you understand what these could look like.
Once you file for bankruptcy it will be reported as an R9 on your credit report for six years and a second bankruptcy can extend this to fourteen years. The positive here is that by declaring bankruptcy you are on the road to dealing with your debt.
Many people believe that you can lose everything in a bankruptcy. We are here to tell you that you can keep many of your assets through bankruptcy. Some non-exempt assets include RESPs and any contributions you made to your RRSP in the last 12 months. To see the standard exemptions for each province and territory in Canada, click here.
Finally, there are fees to filing a 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.
Can Bankruptcy Impact My Home?
We understand that your house is likely your most valued possession. There are exemptions that allow you to keep some of the equity in your home when you file for bankruptcy. However, if you’ve already paid off a large portion of your mortgage (ie. you have built up equity in your home), filing for bankruptcy might not be the best solution for you—the law requires you to use that equity to pay off some of the money you owe to your creditors.
To keep your home after filing a bankruptcy, you would need to pay out the amount of home equity you have—minus any provincial exemptions.
Remember that the goal of bankruptcy is to give you a fresh start and it’s a lot easier to start over if you can stay in your home. That’s why bankruptcy laws make homes exempt from creditors’ claims. This only applies though if you can make the payments.
Will Bankruptcy Benefit You?
If you can’t foresee getting out of debt in the next five years and have researched all solutions then yes bankruptcy can be the right choice for you.
We know making this type of decision especially when it comes to bankruptcy can be frightening.
You may want to check out our related bankruptcy blog on the pros and cons of bankruptcy or complete guide on bankruptcy to ensure you have all the information you need for your first meeting as well.
At Bromwich+Smith, we have a thoughtful, knowledgeable, and helpful team that is here to support and create a fresh start for you. Before recommending bankruptcy, all other debt relief options will be explored (including debt consolidation, debt forgiveness, consumer proposals, and credit counseling). In some debt situations, personal bankruptcy is the best solution. The good news is that working with our compassionate and knowledgeable Debt Relief Specialists will enable you to be debt-free in as little as 9 months.
For that reason, it is important to seek help as soon as possible from a credible source. 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. Our team of Debt Relief Specialists are here to assist you with unbiased and nonjudgmental support, ensuring you find the right solution that will help you conquer your debt and rebuild your worth today.
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