I’ve Declared Bankruptcy: Now What?
Bankruptcy should be seen as your final resort. Only when you have no viable options left for repaying your debt should you even consider bankruptcy. It can be a difficult hurdle to overcome, but sometimes there are no other alternatives. A failed business, economic downturn, major illness, or even a divorce can leave you unexpectedly broke. If you’re facing the possibility of bankruptcy or surmounting debt, keep reading.
We’ll explain everything there is to know about bankruptcy, how it works, when it’s necessary, how it will affect and of course, how you can avoid it! Read on to learn everything there is to know about declaring bankruptcy.
What Happens When You Declare Bankruptcy in Canada?
In Canada, when you file for bankruptcy, you are essentially turning over all of your assets in exchange for having all of your debts removed. However, that’s a very general description to bankruptcy. Like with anything else, there are some limitations and exceptions. For example, if you have a secured debt, like a mortgage, the lender has the right to take your asset to resolve the payment for themselves. You cannot surrender that asset to anyone else.
In addition, you are not exempt from paying back government fines, court-mandated payments like child support, or any debts that are the result of fraudulent activity. Other than those major areas, most of what you have is surrendered in exchange for eliminating the need to pay debts back. However, it’s important to understand that once you file for bankruptcy, you are also surrendering your right to secure a loan for seven years, get a credit card, or do anything else in which good credit is required.
Filing for bankruptcy is a last resort that should only be considered when you have no foreseeable way out of your debts. If unexpected life circumstances have made it such that it is nearly impossible for you to repay your debts, you may have no other choice. But it’s a choice you should make together with a financial advisor. An experienced professional can help figure out which financial moves are best for you.
How Much Debt Do You Have to Have to File Chapter 7?
According to Canada’s Bankruptcy and Insolvency Act, the minimum amount of debt required to file for bankruptcy is $1,000. However, very few people with this little debt actually file for bankruptcy. It’s simply the minimum set forth by the government. According to statistics from the Office of the Superintendent of Bankruptcy Canada, most bankruptcy filings occur when individuals have over $100,000 in liabilities.
When you ask yourself how much debt is needed to require filing for bankruptcy, you should know it isn’t a specific number for anyone. If you earn $300,000 per year, you can afford to have $50,000 in liabilities. If you earn $25,000 per year, owing $50,000 is an entirely different story. The answer doesn’t focus on a particular amount. Instead, it should focus on your individual situation. What is the amount that is too much for you? Once debt reaches a level that you can no longer manage it and are no longer able to make the payments required to ever finish paying this debt, you may need to consider bankruptcy.
Do You Stop Paying Bills Before Chapter 7?
If you’re going to declared bankruptcy, you may not see the point in paying more of your bills – and you may be right. However, you don’t know for certain. You’ll first need to meet with a financial advisor to see if you qualify for filing for bankruptcy. You need to go over your specific case to see what assets will be lost, how you will recover, and what you are and aren’t allowed to hang on during the transition. In the end, you may not decide to choose bankruptcy and your debts will only be increasing if you’re not paying anything anymore.
Before making any rash decisions, meet with a finance expert and discuss your individual case. Find out what you need to do to file for bankruptcy and determine with a professional whether or not this is the right choice for you. When you are positive you can file for Chapter 7, you may forego any other payments you need to make. You just want to be absolutely certain that you aren’t just adding more debt to your already unmanageable debt problem.
Does Bankruptcy Clear CRA Debt?
Before moving into filing for bankruptcy, you should know that if you owe money to the Canada Revenue Agency (CRA) that you cannot afford to pay back, you may try submitting a consumer proposal to the CRA. This may allow you to get a reduction in the amount you owe so you can avoid filing bankruptcy at all. If the debt still remains too high, filing for bankruptcy will absolve all of your CRA debts. A debt to the CRA is an unsecured debt, similar to that of a credit card of personal loan, and is therefore dismissed after bankruptcy clears.
Of course, if you have committed any fraudulent activity, any debts you have to the CRA will still need to be paid back as they are court-ordered. Other than that, if you owe money to the CRA, you can consider your debt officially cleared once your bankruptcy takes effect.
What Assets Can CRA Seize?
If you owe money to the CRA, before you file for bankruptcy, they can try to get some of their money back. They may garnish your wages to begin the debt settlement. They may also seize assets that you have to compensate. They can also withhold any funds the federal government owes you to put towards your outstanding payment. They can seize assets like your bank accounts or other accounts like your retirement savings (RRSPs). Of course, if you file for bankruptcy, all of these assets and funds will be lost anyway.
Can You Negotiate with CRA?
Yes, you can send a consumer proposal outlining your financial troubles and your inability to pay the amount requested. The CRA handles these issues on a case-by-case basis so it’s difficult to say what they will and will not accept as a settlement. This may involve negotiation on both sides. It is advisable to have a financial professional inform you on your rights and coach you through a meeting with the CRA so your best interests are represented.
If you are unsure where to begin, start by contacting your accountant or financial advisor. You can also call BHM Financial to meet with our financial experts to discuss your debt solutions prior to reaching out to the CRA or filing for bankruptcy. They can help explain everything ti you and help guide you to making the right financial decision for your future.
What Should I Know Before Filing Bankruptcy?
Filing for bankruptcy isn’t as simple as it seems. There are several things you need to know before you file for bankruptcy to protect yourself as you move forward. Here are a few examples:
1. You must cancel contracts you can’t afford before. If you are planning to cancel your cellular phone, do so before you file for bankruptcy. If you still have your contract and try to cancel afterwards, you will still be on the hook for whatever the phone provider charges for cancellation. If you do it before, the bills end up in your bankruptcy file and are then removed.
2. You should change all your bank accounts. If you have automatic payments set up, these providers may still take cash from your account at the moment of or right after declaring bankruptcy. Technically, they should not be taking payments from you after they are notified of the bankruptcy, but if there is a delay in letting them know, they can and will take their payment. This can leave you without any cash on hand after you file.
3. Learn to live without credit. Once you have declared bankruptcy, you will not be eligible to obtain a credit card, loan, or credit of any kind for a period of seven years. Once your credit report updates and your bankruptcy is removed seven years later, you may start building up credit once again. However, during the seven year-period, you cannot use these things. This may seem like something simple, but not being able to obtain a credit card can prevent you from shopping online or at some stores where cash is not accepted. Buying a home will also be impossible until your credit record is updated.
4. You can’t go on a shopping spree in the months before declaring bankruptcy. This means you can’t go racking up insane amounts of debt because you know you’ll be filing for bankruptcy. This financial move is a last resort. If you go on a big spending spree in the 60 to 90 days leading up to your filing, it may be refused on the basis of fraud. Bankruptcy is intended to help consumers when they have no other options, not to help them go on a spending spree for free.
What Do You Lose if Your Declare Bankruptcy?
If you declared bankruptcy, you lose your assets as well as your debts. You may lose your home, vehicle, jewellery, clothing, and anything else you own that can be sold off to pay off at least some of your debts. Your savings bonds, savings accounts, RRSPs and other money you have may be seized as well. You may keep some personal belongings. The Canadian government requires seizures to be reasonable.
You will also not lose any tools you need to continue working and earning your livelihood. There are some bankruptcy exemptions in Canada to protect you from ending up completely helpless. In some cases, you may be able to retain your home, but this will be determined once you file for bankruptcy.
Do You Get Out of All Debts if You Declare Bankruptcy?
While most of your unsecured debts are discharged, not all debts are. If you have student loans and have graduated in the last few years, you may not be able to get that debt discharged. You can only get them discharged if you have been out of school for a period of at least seven years.
If you owe spousal support, child support or alimony, these debts will not be relieved if you file for bankruptcy either. Court-imposed fines, traffic tickets, and restitution orders will also not be discharged by your filing for bankruptcy. If you decide to run up charges on your credit card shortly before filing for bankruptcy and bankruptcy is still permitted, you may be required to repay the debt after your bankruptcy is completed. So you may still be on the hook for the charges. It is best not to rack up any new charges if you are considering filing for bankruptcy.
What Can You Not Do When Filing Bankruptcy?
During the process of filing for bankruptcy, there are several limitations to prevent fraud. There are certain financial moves you cannot make if you want your bankruptcy to be approved. Here are some examples:
- You may not run up your credit cards.
- You may not transfer property in your name to a friend or family member during the process.
- You may not pay off a personal debt to a friend or relative.
- You may not take out another line of credit or second mortgage.
- You may not miss court dates with creditors, the CRA, or collections agencies.
- You may not use up your retirement savings.
Doing any of these things during the period you are filing for bankruptcy, or in the 60 to 90 days prior, can result in your request for bankruptcy to be denied. Then you will still be on the hook for the money you owe. Doing these things when you are applying for bankruptcy signals a possible fraud. The assumption is that if you are suffering financially that will not be seeking to make more debts. If you rack up more debts knowing you can’t afford to pay it, your bankruptcy claim will be rejected.
How Much Do Bankruptcies Cost?
Although you are essentially giving everything up today and for the next seven years to have your debts erased, there is still a cost associated with it. In Canada, the cost for a first bankruptcy is $1,800 and it is required to be paid in nine monthly installments of $200. This is the minimum requirement to file for bankruptcy in Canada.
How to Avoid Bankruptcy
Bankruptcy is a serious financial decision that will have lasting effects. It’s not a decision that should be taken lightly. If you are considering bankruptcy, it’s high time you meet with a financial consultant to see what other options you have first.
When your debts are overwhelming, you may not be able to see a way out and think bankruptcy is your only option, but it’s a drastic one. You should consider a personal loan to consolidate your debts. This can make repaying your debt much simpler and easier to manage. You will save interest and only need to make one payment per month. This will get creditors off your back and allow you to focus on slowly repaying your debts. Plus, our debt consolidators will work together with you to develop a debt repayment that is flexible enough to work for you. This can help you get out of debt without surrendering all of your assets.
One of our BHM financial experts can also help you leverage your home to get you the cash flow you need to repay your debts. Through a home equity loan, you can pay off the unsecured debts you have, turn them into secured debt, and begin rebuilding your credit.
What It Means to Choose BHM Financial
Choosing BHM Financial is a step in the right direction. We can help you navigate the world of debt to help you get back on your feet and try to avoid bankruptcy if at all possible. Our goal is to help you manage your debt problems, and find financial solutions to your problems. Contact us today to meet with one of our consultants. They can help you understand your debts and understand the options you have available.
We can also help you with a flexible repayment plan as opposed to the rigid repayments plans of traditional banking institutions. That can make debt seem overwhelming. Once you are able to consolidate your debts, reduce your payments, and visualize the end of the repayment process, you’ll see that bankruptcy may not be necessary.
Making the decision to file for bankruptcy is a big one. Before you go ahead and do so, be sure you have explored every avenue first. If you and your financial advisors deem you are insolvent, you may proceed with your request to file for bankruptcy. However, if there is a way to settle your debts, keep your assets, and help you pave the way to financial success, our expert financial advisors will be able to help.