Unfortunately, this is the first thing most consumers think about when they find themselves in financial distress. Bankruptcy is not a decision to be taken lightly and can affect your credit for several years. Declaring bankruptcy can be a good decision for some people, but rarely is it anyone’s best “first option” when dealing with debt. A couple of things that people don’t realize is that there are costs associated with filing personal bankruptcy and that this information also becomes a matter of public record. There are other alternatives to bankruptcy and it is in your best interest to be well informed before making such a serious decision that could have such a big impact on your financial future.
Will Bankruptcy get rid of all my debts?
That all depends on the type of debt and the status of your payments. There are some debts that may remain, even in bankruptcy. Here are some examples of debts that stay:
- Student loans that do not meet the required waiting period of seven years following study (five years following study under a hardship provision)
- Child and spousal support.
- Fines and most court ordered restitution payments.
- Court awarded damages for sexual assault or intentionally inflicting bodily harm
- Debts that arose as a result of fraud or theft.
- Certain government overpayments.
What are the fees for declaring bankruptcy?
The fees associated with declaring personal bankruptcy depend on how much you own and earn and your family size. There are many factors taken into consideration such as your assets, earnings and surplus income. Bankruptcy involves administrative costs, including court fees, mailing costs and government set fees for filing. You will be required to pay the trustee for the administration of your estate.
What is public record?
Consumer Proposal is a matter of public record. If someone wants this information, they can visit Industry Canada’s website and search for your name in the Bankruptcy Insolvency Records. A small fee of $8 is required.
Will I lose my house?
The laws in each province are different, but the basic concept is the same. You can’t keep a house in bankruptcy if you have a lot of equity in it at the time you go bankrupt. (subtract the mortgage and property taxes owing from the value of your home…that’s your equity). If your house has substantial equity, your trustee will either seize your house and sell it or make arrangements with you to repay your equity. The rules regarding houses can be complicated.
Are student loans included in bankruptcy?
Before filing a consumer proposal or personal bankruptcy, there is a waiting period before student loan debt will be eliminated. There are two key waiting periods with regard to student loans:
- Seven years from the date of the end of your education
- Five years from the date of the end of your education in the case of an extreme hardship provision.
How does filing bankruptcy affect my taxes?
Part of the bankruptcy process includes your trustee filing your income tax return for you. If you did not file a tax return for the year prior to declaring bankruptcy, your trustee will do that first. Then they will file a return for the period of January 1 until the day prior to you filing for bankruptcy. Any refunds or tax credits from the government will be sent to your trustee and form a part of your estate. Find out more about bankruptcy and income taxes from CRA (Canada Revenue Agency).
Does filing for bankruptcy affect my spouse?
Your spouse is only liable for debt they have signed for, not just because they are your spouse. If you took out a loan and your spouse co-signed for it, it is also legally their loan or if you both have a credit card on the same account, the credit card debt legally belongs to both of you.
There may be in indirect impact on your spouse in the future as you are trying to rebuild your credit. You might not be eligible to co-sign or obtain credit or may even be subject to higher interest rates.
Contact us for more information about Bankruptcy and help with your debt.
We have been helping consumers get debt relief since 1994. If you aren’t sure if filing a consumer proposal is the right debt solution for you, we can help. Contact us at 1-888-753-2227 for a confidential appointment with one of our accredited counsellors. We’re happy to sit down with you and review your entire financial situation and provide realistic solutions. We’ll answer your questions about how to manage your debt and become debt free.