Personal Debt Solutions Canada - Things You Need to Know
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What you need to know before you file for personal bankruptcy
1. A licensed Trustee in Bankruptcy is the ONLY person in Canada licensed to manage Bankruptcy Canada filings or Consumer Proposals.
To file for bankruptcy in Canada, or file a Consumer Proposal, you will need to hire a licensed bankruptcy trustee. In the United States lawyers administer the Insolvency process, but in Canada, this is solely the job of Trustees who cannot be a lawyer currently called to the Bar. In Canada, there are lawyers who practice law in the insolvency area, and may be used by both debtor and creditors if you end up in Court for some reason during the bankruptcy process, but the Bankruptcy and Insolvency Act in Canada is designed to most times avoid having to go to Court. This process must be overseen by a Bankruptcy Trustee.
In Canada the bankruptcy trustee is required by law to act according to the Bankruptcy and Insolvency Act ("BIA") which sets out the rights, duties, and obligations of trustees, debtors and creditors. Canadian bankruptcy laws are set out in the federally legislated BIA, are designed to be fair and equitable to both debtors and creditors, allowing debtors to get a fresh financial start while allowing creditors to recoup some of their losses based on the debtor's ability to pay. A licensed bankruptcy trustee overseas this process to ensure that both parties are "playing by the rules".
2. You may lose or have to repurchase some of your assets in a bankruptcy Canada filing.
Bankruptcy laws in Canada have exemption allowances for a variety of asset classes which lets debtors keep basic living assets which will cover most, but not necessarily all, of what they own. Assets that are considered exempt vary greatly from province to province. For instance, Alberta allows bankruptcy filers to keep $40,000 equity in their homes, while in Ontario, there is no exemption allowance for home equity at all. This forces debtors to either "buy back" equity in their homes from the bankruptcy estate or the debtor may be asked to agree to sell their homes with the equity (the amount the home is worth above any secured mortgages) payable to the trustee for the benefit of the creditors.
Our Personal Debt Solutions Canada (PDSC) network of Canadian Bankruptcy trustees, offers you a FREE Consultation to outline the bankruptcy process in Canada and we can discuss which options you have as a debtor. As bankruptcy trustees, our members are uniquely positioned to outline all of your options for you from negotiating personally with your creditors, to a debt repayment plan such as a proposal, to overseeing a personal bankruptcy if that is the option that you choose.
3. If you have previously filed for bankruptcy, you have to stay in bankruptcy for at least 2 years and sometimes as long as 3 years before you are discharged.
If you have previously filed for bankruptcy your second assignment into bankruptcy it is going to take longer and cost you more money than it did the first time. If your income is high enough to require making payments into the bankruptcy estate you will have to remain in bankruptcy for at least 3 years before being eligible for discharge. Debtors who have been bankrupt more than once should discuss their personal circumstances with a PDSC trustee in your area.
4. Bankruptcy is not a free option and may cost more than you expect.
Declaring bankruptcy in Canada does often costs more than just the trustee's fees and taxes. Higher income debtors and those with assets beyond what is considered "exempt" are expected to contribute some of what they earn and possibly some of what they own into a bankruptcy estate. The trustee collects and keeps safe these funds, which are distributed to creditors with valid claims at the end of the bankruptcy.
5. Once you declare Bankruptcy, all collection action against you will stop, including wage garnishments and lawsuits.
If your wages are being garnished and you are receiving harassing calls and letters from debt collectors, all this will stop once you file for personal bankruptcy or file a Consumer Proposal. The Bankruptcy and Insolvency Act is a powerful federal act that all collection agents must obey including the Canada Revenue Agency. You will be legally protected from all forms of collection activity, including lawsuits, phone calls, garnishments etc.
6. Bankruptcy can remain on your credit report for up to 14 years or longer for repeat filers.
For first time filers, you credit rating will list your bankruptcy for usually 6 years while for second filings it can be reflected on your credit bureau for 14 years or more. However, it is important to realize that even though you are in bankruptcy, you can still be positively affecting your credit rating if you having secured debt that you keep paying during the bankruptcy process. Even though the record of your bankruptcy may stay on your credit bureau for a period of time, it does not mean that you can't apply for and receive credit, especially is you have steady income and use other sources of credit wisely. To determine how long a bankruptcy will remain with your credit rating; meet with a bankruptcy trustee in your Province.
7. There are legal alternatives to avoid bankruptcy, which can also protect your assets and put you on a payment plan you can afford.
Many Canadians are unaware there is a legally binding alternative to bankruptcy called the Consumer Proposal. A proposal is an option also governed by the Bankruptcy an Insolvency Act of Canada which allows debtors while working with a trustee, to pay back only w portion of the total debt owed.
For specific information about bankruptcy Canada filings in your area, click on the Find a Trustee map and come in for a FREE consultation with one of our members.