Bankruptcies: What are they & How does the Process Work?
The term “bankruptcy” can seem pretty scary to a lot of people. However, a big reason for this fear is because many people don’t understand what bankruptcies really are. It’s natural to be afraid and even wary of something when you don’t have all of the information. The bankruptcy process is actually quite straightforward and not the terrifying experience that you may think it is.
What are Bankruptcies?
Bankruptcy a legal process that aims to provide debt relief to anyone who is unable to meet his or her financial obligations. In Canada, people or companies can file for bankruptcy when they become insolvent and cannot pay their debts as they become due and if they have at least $1,000 in debt.
When a person files for bankruptcy protection from his or her creditors, this means that a creditor will not be able to collect on their debts or to seize a person’s wages via a garnishment or initiate any other collection action against a person. In addition, a bankruptcy trustee will become the person who deals with creditors on all issues relating to the outstanding debt once the bankruptcy is effective.
How do Bankruptcies Work?
Bankruptcies could occur for a number of reasons beyond a person’s direct control, including unexpected and sudden interest rate increases, job losses or illnesses resulting in reduced income, marriage, or separation/divorce. If you begin to notice that you cannot make your payments as they become due or that you are borrowing more money in order to pay your existing bills, this may be a sign that you are in financial difficulty and that you may need some help.
If creditors start contacting you with threats to freeze your bank account, your wages or take other action, you will need to do something. The first step is to contact a financial professional who can discuss your financial options with you. It’s important to keep in mind that bankruptcy is not the only option for a person who is experiencing financial difficulties. A financial professional will review your situation and determine what the best course of action is for you to take.
Bankruptcies: The Process
If bankruptcy is the route that you will be taking, the financial professional will work with you to complete all required forms and file for bankruptcy on your behalf. Once this is done, all assets ( with the exception of exempt items) become the property of the trustee , interest ceases and any garnishments are lifted. The trustee will then sell these assets and distribute the proceeds to your creditors in full and final settlement of your debts. In addition,
all communication with creditors will be done by the bankruptcy trustee.
While in bankruptcy, you may be required to make payments to your trustee for distribution to your creditors if your monthly income is over a certain regulated amount. You will also be requird to provide monthly proof of income. Part of the process all includes the requirement to take counselling classes that will help you understand money management, budgeting and how to rebuild your finances. This information is crucial for learning how bankruptcies happen and what you can do in order to avoid bankruptcies in the future.
In most cases, if you have performed all of the duties required of you, you will be automatically discharged from bankruptcy at the end of the bankruptcy period which may vary from nine to twenty two months. At that point you will then need to mail or fax your letter of discharge to the major credit bureaus in order to start rebuilding your credit.
Learn more about:
Bankruptcy in Toronto