Considering Bankruptcy? Here are the Facts
If you are having financial difficulties, you may be looking for options. Struggling with debt is difficult. Having to handle creditors and calls from collection agencies can leave you awake at night, unable to sleep. The entire situation is stressful and can lead to a variety of issues and even illnesses. If this is the position that you are in, you may be thinking of bankruptcy.
Bankruptcy is an option for those who have levels of debt that they cannot pay down and who cannot make their debt payments as they become due. If you are thinking of bankruptcy, it’s important that you understand the process and what it entails. Bankruptcy is an option for many people, but it is often not the only option. When you understand the facts about bankruptcy and the facts about any available alternatives, you can make an informed decision for yourself and your financial future.
What is Bankruptcy?
Bankruptcy is a legal process that is designed to provide those who are in financial trouble with a way to eliminate most (if not all) of their debts and start fresh. This process can only be administered by a licensed trustee in bankruptcy. A trustee is a person who has been trained, registered and licensed by the federal government to administer bankruptcy and proposal processes. Trustees are regulated by the Office of the Superintendent of Bankruptcy and the process is dictated by the federal Bankruptcy and Insolvency Act of Canada.
Most trustees offer a free consultation where they will meet with you, review your financial situation and provide you with details about the possible options. If you decide to proceed with bankruptcy, your trustee will work with you to ensure that all of the appropriate paperwork is completed and submitted. This can be done electronically.
Once you have filed for bankruptcy, you receive legal protection from your creditors. They are no longer able to contact you directly or send collection agencies after you to collect their debts. All communication with your creditors must be done through your trustee. In addition, most civil legal action to collect debts will stop, as will most wage garnishments.
For many people, this is a big relief as dealing with creditors and collection agencies is very stressful.
Bankruptcy and your Assets
If you are thinking of bankruptcy, you may assume that you lose all of your assets when you file. This is not true. You are able to keep the assets that are deemed necessary to live a basic lifestyle. Each province has its own exemptions that apply. For many people, this means that they do not lose many assets, if they lose any at all. Your trustee will review your assets and make sure that you are able to keep the assets that are considered exempt by your province.
In addition, you will likely be able to keep most of your RRSP contributions, except for those made in the last 12 months. Many pension plans and insurance policies are also exempt, as long as they meet certain requirements.
You will find out the details regarding what will happen with your assets before you file so that you can use this information when you are making your decision.
As mentioned, bankruptcy is not the only option for those who are struggling to pay their debts. One of the benefits of meeting with a trustee is that trustees are required by law to provide you with information on all possible options, not just the ones that they can help you with.
One other option that may be available is called a consumer proposal. Like bankruptcy, a consumer proposal is a legal process. However, unlike bankruptcy, a consumer proposal is a situation where you make an offer to your creditors to pay them on terms that you can afford. In most cases, this means you will offer to pay less than the full amount in monthly payments over a set period of time. A consumer proposal is also administered by a trustee in bankruptcy.
Each financial situation is different. Therefore, each financial solution is different. What works for one person may not be the best option for another. By meeting with a trustee, you can learn more about all of the available options. If you are thinking of bankruptcy, setting up a consultation with a trustee can be a good idea.