Canadians by the thousands are looking for answers to their bankruptcy questions. Here are 7 of the most frequently asked questions about bankruptcy Canada:
- What are the requirements for declaring personal bankruptcy in Canada?
- What does a personal bankruptcy in Canada cost?
- Will I lose my house and other assets in bankruptcy?
- Does my personal bankruptcy affect my spouse?
- Will all my debts go away if I declare personal bankruptcy in Canada?
- How will bankruptcy affect my credit rating?
- How long will I be in bankruptcy?
1) What Are the Requirements for Declaring Bankruptcy?
If you have more than $1,000 in debt and are insolvent, you can declare bankruptcy in Canada. Insolvent means you can no longer pay your monthly bills on time, either through your current income or through the sale of personal assets. If you owe $50,000 in debt and have $50,000 or more in liquid investments or in the equity in your home, you are not insolvent.
2) What Does a Personal Bankruptcy in Canada Cost?
Although some Canadians believe the costs are limited to the fees paid to the licensed bankruptcy trustee hired to handle the bankruptcy, administrative and court costs, this is not always the case. Although these are real costs, you may end up paying much more, depending on what you own and how much you make.
Bankruptcy laws have exemptions allowances for certain personal assets and a monthly living expense allowance based on your family size and where you live. If your assets are worth more than the exemption amount and your income is higher than the living expense allowance, you will have to contribute some of your surplus income and proceeds from the sale of non-exempt assets into a bankruptcy estate. Those funds are then distributed to your creditors.
3) Will I Lose My House and Other Assets in Bankruptcy?
This depends on the province in which you live. There are differences in the exemption allowances established in each province. Although you can find listings of provincial exemptions on the Internet, the allowances change frequently so a phone call or a personal visit to a trustee in your area is your safest option for getting up to date information.
4) Does My Personal Bankruptcy Affect My Spouse?
If your credit cards and other unsecured debt are in your name only, your spouse is not affected at all. However, when the trustee calculates your income to determine whether you will be required to contribute some of your surplus into the bankruptcy estate, your spouse’s income will be included.
5) Will All My Debts Go Away in Bankruptcy?
Your unsecured debt as well as any CRA (Canada Revenue Agency) debt will go away. However, secured debt, such as a home or car loan, will not. Bankruptcy trustees can help arrange payment schedules for those assets if you do not lose them in the bankruptcy. In addition, alimony and child support payments, any court imposed fines, debt payments due to fraudulent activity, or student loans less than 7 years old, remain your responsibility.
6) How Will Bankruptcy Affect My Credit Rating?
Basically, it will reset your score to 0 and will remain in your credit file for anywhere between 7 and 14 years, depending on whether or not you have filed for bankruptcy before and were required to pay surplus income during bankruptcy. However, it is not only possible to rebuild your credit rating after discharge from bankruptcy; it is easier than you might think. There are actually lenders that specialize in offering mortgages to recent discharges.
7) How Long Will I Be in Bankruptcy?
First time filers with no surplus income are discharged in as little as 9 months. Those with surplus income will remain in bankruptcy for up to 21 months. Repeat filers with surplus income stay in bankruptcy for 3 years.
As you noticed, the answer to many of these questions included an “It Depends” response. To get answers to how your bankruptcy questions will impact your unique financial situation, consult a trustee in your area.