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Personal Bankruptcy in Canada Rules

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    When you are considering debt relief options, it is important to take the time to understand the various aspects of the available options. For example, it is a great idea to learn the personal bankruptcy rules in Canada and understand exactly what bankruptcy is before you consider this option. Speaking with a trustee in bankruptcy can help you recognize the options that are available to you and provide you with important details on these various options. Most trustees in bankruptcy offer free consultations. During this initial consultation, the trustee will review your particular financial situation and provide you with information regarding the options that are available to you. If you are struggling with debt and looking for a way to get control of your financial situation, speaking with a trustee can be helpful.

    What is Bankruptcy in Canada?

    Personal bankruptcy is a legal process that is governed by the Bankruptcy and Insolvency Act of Canada (BIA) and is regulated by the Office of the Superintendent of Bankruptcy. As a part of the bankruptcy process, an insolvent person (one who cannot pay his or her debts as they become due) is able to file for bankruptcy and receive relief from debt and creditors. An insolvent individual can voluntarily file for bankruptcy or can be petitioned into bankruptcy by his or her creditors. Being petitioned into bankruptcy is not the same as having legal action taken against you by a creditor.  

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      A person who wishes to voluntarily file for bankruptcy must do so with the assistance of a trustee in bankruptcy. The trustee will review the person’s finances, debts and assets and complete and file the required paperwork. Bankruptcy provides protection from legal action. Once a person has filed for bankruptcy, all communication with creditors must be done through the trustee. Creditors and collection agencies are not legally able to contact the person and no legal action may be taken to collect any outstanding debt. In bankruptcy, a person is able to eliminate the majority of his or her debt. However, not all debts are eliminated in bankruptcy. Alimony and child support payments are not eliminated by the bankruptcy process. Student loans cannot be included in a bankruptcy unless the debtor has been out of school or more than seven years. In addition, bankruptcy does not include secured debts such as mortgages.

    Your Assets in Bankruptcy

    As a part of the bankruptcy process, you may lose some non-essential assets. This is because your trustee will take these assets and use their value to satisfy your creditors. However, you do not lose everything. This is a common misconception. The goal of bankruptcy is not to punish you and leave you with nothing. Therefore, you are able to keep assets that are deemed necessary to live a basic lifestyle. These assets are called “exempt assets.” Each province allows for different exempt assets and sets the value for these assets. Your bankruptcy trustee will inform you of which assets are exempt from the bankruptcy process in your province and ensure that you are able to keep these assets.

    Bankruptcy and your Credit Rating

    Many people fear filing for bankruptcy because they believe that the bankruptcy process will damage their credit rating forever. In reality, bankruptcy is noted on your credit report for six years after you have been discharged. In your first bankruptcy, it can take between nine and 21 months to be discharged from bankruptcy. However, if you are in a financial position where filing for bankruptcy makes sense for you, there is a good chance that your credit rating has already been damaged by missed payments, late payments and other issues. Though bankruptcy is noted on your credit report, which can make it more difficult to get loans and favourable interest rates, the bankruptcy process also puts you in a position where you can eliminate the majority of your debts and work to rebuild your credit rating.

    Other Options

    Bankruptcy is not the only option available to those who are struggling with high amounts of debt. While it is important to know and understand the personal bankruptcy in Canada rules, it’s also important to understand that there are other options available. Meeting with a licensed trustee in bankruptcy can help you understand the other options that may work for your particular situation.