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5 Things You Should Know About Filing for Bankruptcy

Jan 27, 2020 | 8:29 AM

Household debt levels are high and many families are struggling with debt repayment. It is important to know that there are options available. People with serious debt problems are often afraid or hesitant to speak to a Licensed Insolvency Trustee like myself because they believe a Trustee will always recommend bankruptcy as a debt solution. While it is one option, it is not the only option.

There are certain debt situations that require the immediate debt relief and fresh financial start that filing for bankruptcy provides. Perhaps your wages are being garnished or creditors and collection agencies are regularly calling about missed payments. Or perhaps you cannot pay your bills or keep up with debt payments without using additional credit. While bankruptcy is not the only option, in some circumstances, bankruptcy may be the best solution.

If you’re experiencing debt problems, the more you know about all of your options for resolving your debt, the more comfortable you’ll be with whatever debt solution you choose. That’s why understanding each available debt relief option, including bankruptcy, is so important.

Here are five important facts that you should know about filing for bankruptcy.

1. Bankruptcy allows you to be discharged from your debt

Filing for bankruptcy is one of the formal, legally-binding solutions that allows you to eliminate most, if not all, of your unsecured debts. Another common option is to file a consumer proposal. You must use the services of a Licensed Insolvency Trustee (LIT) in order to file for bankruptcy or to file a consumer proposal in Canada. A Licensed Insolvency Trustee will guide you through the bankruptcy process, deal directly with creditors on your behalf, file the necessary paperwork with the Office of the Superintendent of Bankruptcy, and help you rebuild your finances once you’re discharged.

Once your bankruptcy (or consumer proposal) documents are filed, legal action taken against you in pursuit of debt collection, including wage garnishments and contact from collection agencies, will cease. Bankruptcy serves to eliminate almost all of your unsecured debts, such as credit card balances, lines of credit, personal loans, payday loans and income tax debt.

2. Student loans may be eligible for bankruptcy

Whether student loans are dischargeable through a bankruptcy proceeding depends on your last date of study. If you have been out of school for more than seven years, one option may be to file a bankruptcy to eliminate your student loan debt. This timeframe may be shorter, depending on your financial situation. A Licensed Insolvency Trustee can review your situation and determine whether you are eligible.

3. You won’t lose everything

One of the most common misconceptions about bankruptcy is that you will lose everything when you file. Many assets, especially in the province of Saskatchewan, are protected or exempt from seizure. Saskatchewan exemptions include household furniture and appliances, tools of your trade, RRSPs and registered pension plans, one vehicle worth up to or with equity up to $10,000 and up to $50,000 per titleholder of equity in your home. There are options available to protect your assets.

4. The cost of filing a bankruptcy is regulated by the federal government

Bankruptcy costs are regulated by the federal government. What you pay will depend on your individual situation. The federal government has an income guideline based on the number of family members in your household that allows for a reasonable standard of living. Depending on your income, you may pay a basic administration fee, or you may have to make surplus income payments that will allow the LIT to repay a portion of the outstanding debt to your creditors.

5. It is possible to rebuild your credit after filing for bankruptcy

It’s a popular misconception that once you file for bankruptcy, your credit rating will never recover. Bankruptcy is meant to provide the debtor with a fresh financial start, and it is possible to rebuild your credit after you are discharged.

As part of the bankruptcy process, individuals are required to attend two credit counselling sessions. These sessions help you build healthy money and credit management skills. Additionally, you’ll learn about tips, strategies and resources that will help you rebuild your credit once you’ve been discharged from your bankruptcy.

Every situation and every bankruptcy is unique. Consulting a Licensed Insolvency Trustee like myself can help you determine whether bankruptcy is the right step for you to take and can provide you with the answers to any questions you may have about the process. However, bankruptcy is not the only option for dealing with debt. A LIT will explore all options with you to help you choose what is right for you.

Are you feeling overwhelmed by your debt? You can schedule a free, confidential, no-obligation consultation on our website. You can also find helpful information about debt solutions and money management by visiting us on Twitter or Facebook.

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