What actually happens when you declare bankruptcy?
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By Bromwich+Smith Staff | 755 words | Reading Time: 3 minutes and 45seconds | Date: 2021/12/07
So you’ve declared bankruptcy and you are on the road to conquering your debt. Once you file for bankruptcy with a Licensed Insolvency Trustee, your creditors are no longer allowed to phone you or sue you and any existing garnishees are lifted. While bankruptcy is something most of us want to avoid, in some circumstances, bankruptcy can provide the financial protection and relief many people need.
The reality of bankruptcy is that individuals emerge from bankruptcy with a financial fresh start.
Filing Bankruptcy Does Not Mean You Lose Everything.
There are exemptions set by each province allowing you to keep up to a set value in personal belongings, plus pensions and other registered savings plans are usually protected. You are also allowed to keep a determined amount of equity in your home and a car up to a certain value. Plus, your income is protected up to the threshold amount set by the federal government, based on your family situation.
Will My Credit Be Ruined If I File For Bankruptcy?
The fact is, if you are behind in paying your bills and creditors are calling or taking legal action against you, your credit is not in a good place. At the same time, unless you have a clear option to get back on top of your bills, your credit will continue to take a downward spiral as will your chances to pay off your debt. With a debt restructuring program like a bankruptcy, you will be able to put a stop to the actions against you, eliminate your debt, and get back on the path to rebuilding your worth and a better financial future. Plus, you don't have to wait to start building your credit. There are resources available that can help you start to rebuild your credit even while you are enrolled in a debt restructuring program.
The Bankruptcy Process
Here’s a quick overview of what the process will be like once you have declared bankruptcy. Your Licensed Insolvency Trustee will help you to prepare and file all required paperwork. During the bankruptcy process, you will be required to perform the following duties:
- File monthly income and expense reports with your Licensed Insolvency Trustee to keep your budget in check and monitor any surplus income.
- Attend two counselling sessions, during which you will examine the causes of your financial difficulties and work on debt-management strategies including budgeting, expense tracking and restoring your credit rating.
- Provide your Licensed Insolvency Trustee with all necessary tax information to prepare and file your tax returns for the year in which you file bankruptcy (and previous years, if required).
- Pay your Licensed Insolvency Trustee any necessary amounts, such as required surplus income payments, costs to repurchase any non-exempt assets, or administration fees.
- Receive your bankruptcy discharge: If you have completed all necessary steps and duties, you will automatically be discharged from your remaining debts at the 9- or 21-month mark (with minor exceptions). Some remaining steps may be required, but they will be outlined closer to your bankruptcy coming to a close.
- Rebuild your credit rating: During your mandatory counselling sessions, you will work with your Licensed Insolvency Trustee to develop strategies to restore your credit rating both during the bankruptcy timeframe and in the long term.
How Long After Bankruptcy Can I Get a Loan?
Some lenders may allow you to get a loan immediately after you have been discharged from bankruptcy, although you will likely be subject to higher interest rates and fees. You may also have to obtain a co-signer (an individual who promises to pay off your debt if you cannot pay it yourself).
How Long After Bankruptcy Can I Get a Mortgage?
You will be able to get a mortgage shortly after being discharged from bankruptcy, again it will potentially be at a higher interest rate and you may need a co-signer. To improve your chances of being approved for a mortgage we recommend saving up as much as possible for a down payment, and showing proof of steady and reliable employment income. After bankruptcy, another area to focus on is rebuilding your credit: getting a secured credit card could be a good place to start.
We’re Here to Help
If you’re struggling with debt, bankruptcy can provide you with a fresh financial start. Gain peace of mind knowing your debt is officially behind you and a blank slate awaits, with most debts permanently erased as early as nine months. If you do need further support don't hesitate to reach out to us at 1.855.884.9243, or through chat on our website. We’re here to ensure you flourish and rebuild your worth.