Bankruptcy

By now you should have read through the pages about debt consolidation, credit counseling, and proposals to creditors and for whatever reason none of these solutions seems right for you. By process of elimination, that leaves bankruptcy as the final option for you to consider in order to solve your financial problems.

Unlike the other alternatives that we have discussed so far, most people have heard about bankruptcy before they visit this website. They may not know exactly what it is or how it works, but they know that it is something that people in financial difficulty often resort to.

Here’s the description right from the government: Bankruptcy allows the honest, but unfortunate, debtor to obtain relief from their unsecured debts. The idea is to allow someone that has gotten themselves in over their heads financially to have a legal method of eliminating those debts.

Bankruptcy only deals with unsecured debts; things like credit cards, lines of credit, personal loans, income taxes, payday loans, overdrafts, etc, etc. If you have a secured debt it will be excluded from bankruptcy. That means things like mortgages, car loans or leases, and contracts from finance companies may not be dealt with in a bankruptcy.

Bankruptcy isn’t free – the cost is based on the things that you own, the income that you earn and the size of your household (people living together as a family).

When you file bankruptcy you surrender the things that you own to your trustee so that they may be sold – the money raised will go towards repaying your debts. You won’t lose everything, but you may lose things that the government has determined go beyond the basic needs for someone that lives in Ontario. (For a detailed list of things that are exempt from seizure in Ontario click here.)

In addition, you will probably be required to make a monthly payment to your trustee. This payment will change depending on how much you earn and how many people live in your household. The more you earn, the more expensive filing bankruptcy will become.

Advantages of bankruptcy: it is a legal procedure that provides protection from collection action, legal action and wage garnishees; it provides a procedure for eliminating a persons unsecured debts; it is relatively quick; it can be relatively inexpensive when compared to the other options we have described.

The disadvantages of bankruptcy: it is very hard on your credit history (bankruptcy basically resets your credit history to zero once the procedure has been completed); it may require you to surrender some of the things that you own to your trustee; it requires you to keep detailed records of your income and expenses while you remain bankrupt.

Bankruptcy is normally a 9 month procedure, at least for persons that have never been bankrupt before. During those 9 months you will be required to report (on a monthly basis) your income and expenses, and based on your income you may be required to make a payment to your trustee. You will also be required to attend 2 credit counseling sessions – these are designed to provide you with the basic tools necessary to manage your money more effectively in the future. And finally, when you file bankruptcy, the day you file is treated like the end of your tax year so that in the year you file bankruptcy you actually have to file 2 different tax returns. If you re entitled to a refund it will likely be lost. If you owe money to the government you may be required to pay it.

There are other duties and responsibilities if you file an assignment in bankruptcy – we’ve tried to list here the basic so that you can make an informed decision about which option sounds right for you.

If you’ve visited each of the different pages you should now be familiar with the 4 different solutions that are available for most people: debt consolidation loan, credit counseling, proposal to creditors, and/or bankruptcy.

If you have any questions may we suggest you either use the link to send a question to a trustee by e-mail, or you go to our sponsour’s website, www.hoyes.com, for more detailed information about all of the items we have discussed so far.

And now the big question: how to decide which option is right for you?

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