Bankruptcy is a complicated legal procedure that provides you with certain financial protections. Many Canadian residents have questions about bankruptcy, such as, what happens to their debt after they file for bankruptcy? Does bankruptcy free them of all their debts? The answers to these questions are complex and vary based on the debt you have when you filed for bankruptcy. There are certain debts that do not get discharged after filing for bankruptcy.
Understanding the Basics of Bankruptcy in Your Region
Filing for bankruptcy in Ontario, for example, is straightforward. You are surrendering your assets and in return your debts are being discharged. There are some exemptions that can protect your assets. There are also exemptions that limit which of your debts can be discharged.
For example, debts held with secured creditors get treated differently. If you financed your vehicle, it’s likely that the finance company is secured on your car. Another example is that of a mortgage payment. The finance company that financed your home is secured on your home.
A Licensed Insolvency Trustee should be able to explain how these unique creditors are dealt with when you file for bankruptcy and whether you can continue making payments to secured creditors.
There are many types of unsecured debt that disappear with bankruptcy. These could include:
- Credit card balances
- Unsecured personal loans
- Unpaid utility bills
- Past due insurance premiums
- Payday loans
- Medical bills
Even with unsecured debt, the law makes some exceptions. For example, if you have an apprentice or student loan that is less than seven years old, you will probably have to repay it. Child support payments, court awarded damages for harming another person, debt that came because of fraud, and court-ordered restitution payments do not go away after filing for bankruptcy.
Do You Qualify for Bankruptcy?
To qualify for bankruptcy in Canada, you must be classified as insolvent. This means that the following is true.
- You cannot pay your debts when they are due
- Your debts are higher than the value of the assets you own
- You have property in, do business in, or reside in Canada
- Your unsecured debt is at least $1,000
Canadian citizenship is not required to file for bankruptcy. Permanent residents, even those who live outside of Canada but have property in Canada, can file for bankruptcy.
Do You Lose All of Your Assets after Filing for Bankruptcy?
Bankruptcy has consequences. But do not lose everything. Bankruptcy is not designed to be punitive but to help you restart financially.
There are some slight variances in provincial laws, but normally you will be able to keep things like household furnishings, tools used to earn income, personal belongings, and your personal vehicle if its value is less than the established limit.
Secured creditors, like those who own the mortgage to your house or your car loan, are not affected by bankruptcy. They still own the rights for the assets that are used as collateral against the loan. If you are behind on your payments, they have every right to repossess your home or vehicle.
Your trustee will not seize your wages. However, bankruptcy in Canada is based on the idea that the more money you make, the more you will have to pay. If your income is more than the government-mandated threshold based on the size of your family, you may avoid surplus income payments by filing a consumer proposal.
How Long Will You Be Considered Bankrupt?
There are two factors that will determine the length of time of your bankruptcy. The first is whether you have declared bankruptcy in the past. The second is your income level. If you don’t have surplus income, you have complied with all your duties, and if your creditors agree, you might be able to start a debt-free life in just nine months.
However, if you do have surplus income or if you have filed for bankruptcy multiple times, your bankruptcy could be extended 21 months or longer. A condition of the bankruptcy process is attending credit counseling sessions that can teach you how to rebuild your credit by better managing your money.
Your credit rating will take a hit when you file for bankruptcy. However, this is a temporary hit. Some creditors may even offer credit to you while you are in bankruptcy. This may be an excellent way to restore damaged credit.