What happens when a person files for Bankruptcy?
If you have a large amount of debt that is too much to bear, you may be considering filing for bankruptcy. Many people do not understand what is all involved in a bankruptcy so I wanted to take a few minutes today to give you a brief overview of what a bankruptcy is, what it involves and how you can avoid bankruptcy. Let’s get started.
What does it mean to file for bankruptcy?
Bankruptcy is a court process in which consumer debts can either be wiped out or repaid under the protection of the bankruptcy court. This is done through a Licensed Insolvency Trustee. If you have seriously considered the pros and cons of bankruptcy and decide to move forward with it, you will fill out all of the paperwork and your bankruptcy will be filed.
After the bankruptcy is filed you will stop making payments to your unsecured creditors. Your trustee will notify all of your creditors of your bankruptcy, so if you have collection agencies or creditors contacting you, that will now stop. You will however have to make payments into your bankruptcy depending on your income. Which means if your income goes up, your payments will also increase. Some of your assets may be seized, but other secured debts such as car loans and a mortgage, you may be able to keep. It will all depend on your personal situation. The assets that are taken in the bankruptcy will be sold by your trustee and the amount made will be distributed among your creditors.
What is my role in a bankruptcy?
There are a few things that you can expect when going through a bankruptcy.
1. You will have to declare all of your debts, secured and unsecured, as well as your income to your Trustee.
2. You will have to complete an income and expense form each month. There you will bring along your pay check to prove your income for that month and that will determine your payment toward your bankruptcy for that month.
3. You may be required to make “surplus payments” if your income is above what the Office of the Superintendent of Bankruptcy Canada deems as a reasonable standard of living.
4. You will have to attend two credit counselling sessions. These can be very beneficial for you in the future, giving you knowledge to make the right choices in your finances so you will not end up right back in debt again.
5. The length of time you are kept in bankruptcy will depend on your income and if you have been bankrupt before and will be between 9-36 months.
6. Your credit rating will be affected for the next six to seven years if this is your first bankruptcy. Whether you will be able to convince lenders to give you credit after your bankruptcy will depend highly upon how well you can prove to them that you have grown in your knowledge and financial maturity and can once again be trusted with credit.
If you would prefer to not take the bankruptcy route, there may be other options available to you. A consumer proposal may be an option for you if you would like to avoid bankruptcy, yet still have your debts taken care of. In a consumer proposal your debts can be reduced by up to 80%. You will still have to make a payment, but your credit rating won’t be affected in the same way as a bankruptcy.
If you would like to learn more about bankruptcy, consumer proposals or would like to know your options for your situation, give 4 Pillars Red Deer a call at 403-755-1757.
We can set up a free appointment to go over your current situation and help you make the right choice for you. We are not a Bankruptcy Trustee, we are independent consultants that work for you, not the creditors to find the most effective solution to deal with your debt.
