By Jasmin Brown, BDO Debt Solutions

BDO Debt Solutions

5 Things You Should Know About Bankruptcy

Dec 7, 2020 | 9:41 AM

The stress and anxiety of not being able to pay your debts can be overwhelming. Bankruptcy is not the only solution for insurmountable debt, but it may be the best solution if you are experiencing any or all of the following: you owe more than you earn, you can no longer pay your bills and debts without borrowing, you are receiving calls from creditors, your wages are being garnished.

There any many misconceptions and stigma surrounding bankruptcy. In reality, the best way to know if bankruptcy is the right solution for you is learn about all available debt solutions so you can choose one that is right for your situation. Here are 5 things you should know about bankruptcy:

1. Bankruptcy legally eliminates all of your unsecured debts.

Bankruptcy is a legal debt solution that regulated by the federal government under the Bankruptcy and Insolvency Act. Filing for bankruptcy is a form of legal debt forgiveness; it will release you from most, if not all, of your unsecured debts including personal and payday loans, credit cards, lines of credit and income tax debt. The ability to forgive or eliminate student loans in a bankruptcy will depend on how long you have been out of school. Secured debts (debts tied to an asset) like a mortgage, vehicle loan and home equity line of credit can be dealt with, if you are willing to surrender the asset. Otherwise, for example, to keep your car or house, it is generally acceptable to just continue to make your payment. Alimony, child support payments and court fines cannot be eliminated in a bankruptcy.

2. You will not lose everything when you file for bankruptcy.

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When you file for bankruptcy, you will have to give up certain assets in order to pay your creditors some of what you owe them. But you won’t lose everything. Each province has a list of exemptions or assets that are protected and will not be taken from you. For example, in Saskatchewan you may keep up to $50,000 of your home’s equity per titleholder, a vehicle worth up to $10,000 or with equity up to $10,000, furniture, appliances and tools of your trade. The BDO Debt Solutions website offers a more complete list of bankruptcy exemptions in Saskatchewan.

3. All legal action against you will stop when you file for bankruptcy.

When you file for bankruptcy you are legally protected under Canada’s Bankruptcy and Insolvency Act, legislation that protects honest debtors who can no longer pay their debts. Collection agencies and your unsecured creditors can no longer contact you. Wage garnishments end and interest charges on your unsecured debts are frozen. Bankruptcy provides immediate debt relief, giving you the opportunity for a fresh financial start.

4. Only a Licensed Insolvency Trustee is legally authorized to file for bankruptcy on your behalf.

A bankruptcy and consumer proposal are also known as insolvency proceedings. The only professionals authorized by the federal government to oversee (or administer) insolvency proceedings are Licensed Insolvency Trustees. The role of a Licensed Insolvency Trustee (LIT) is to help you explore all viable debt solutions. An initial meeting with an LIT does not always result in a consumer proposal or bankruptcy filing. However, if you decide that bankruptcy is best, an LIT will guide you through the bankruptcy process.

5. Bankruptcy will affect your credit rating.

If you are in a financial position where you are considering bankruptcy, your credit score may already be low. Loan delinquencies, foreclosure, wage garnishments, missed bill payments and even opening too many credit accounts at once can negatively impact your credit score. Filing for bankruptcy will result in an R9 credit rating, which is the lowest credit rating. The R9 rating will remain on your file for six years after you are discharged from your bankruptcy. However, as part of the bankruptcy process you will attend two sessions with a qualified credit counsellor who will help you create a plan to rebuild your credit. The purpose of a bankruptcy is to give you a fresh financial start.

How do you know if bankruptcy is the right solution for you? Visit the BDO Debt Solutions website for more information about bankruptcy or call 1-855 BDO DEBT to schedule a free consultation with a local debt professional.

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