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Bankruptcy Questions & Answers to Help You Understand the Process

Answers to Common Bankruptcy Questions

Most people have heard of the process of filing for bankruptcy. However, while the name of the process is well known, many of the details are not. In addition, many mistruths, rumors, and falsehoods exist. The result is a lot of people have bankruptcy questions. This makes sense. It can be tough to know what to believe and where to turn for answers. Here are some of the most common bankruptcy questions and their answers to help bring clarity to this process.

What Does Personal Bankruptcy Mean?

One of the most common bankruptcy questions refers to exactly what bankruptcy is. Bankruptcy is a legal process that gives people who are unable to meet their financial commitments a way to eliminate their debts and start fresh. What does that mean? It means that, when you file, your creditors are notified and your unsecured debts are eliminated through the process.

Bankruptcy is designed for “honest yet unfortunate debtors.” This means people who took on debt with the intent to pay it back but were unable to do so. The process is governed by the federal Bankruptcy and Insolvency Act.

Do I Need a Lawyer to File for Bankruptcy?

No. While other countries may require a bankruptcy lawyer to file, in Canada, the bankruptcy process can only be administered by a Licensed Insolvency Trustee. A trustee is a person who has received specific training and is licensed by the federal Office of the Superintendent of Bankruptcy.

If you are having trouble meeting your financial commitments, meeting with a trustee can be a good idea. They will review your situation, answer any bankruptcy questions you may have, and provide you with details on all the debt relief options that are available to you. If you determine that filing for bankruptcy makes sense, they will administrate the process.

What Debts Can Be Included in a Bankruptcy?

Another one of the most common bankruptcy questions is about which debts can be eliminated through the process. In general, unsecured debts can be included in a bankruptcy. These are debts that are not backed by an asset. Examples of unsecured debts are credit card debt, lines of credit, personal loans, tax debt, and other such debts. Student loan debt can be included in a bankruptcy if you have been out of school completely for at least seven years.

Mortgages and automobile loans cannot be included in bankruptcy. Spousal support payments, child support payments, fines, and other court-ordered payments, and debts that arose from fraud or other illegal activities cannot be included in bankruptcy either.

How Long Does Bankruptcy Take?

The length of a bankruptcy depends on several points, including whether you have filed for bankruptcy before, your income, and other factors. In general, if it is your first time filing for bankruptcy, you could be eligible for discharge after nine months. However, the federal government sets income limits for how much a person can earn while bankrupt. If you earn more than this amount, you will need to make surplus income payments and the length of your bankruptcy will be extended to 21 months.

In addition, if you have filed for bankruptcy in the past, it will be longer before you can be discharged.

How Much Does Bankruptcy Cost?

This is one of the most important and most common bankruptcy questions. The answer depends on several factors.

In general, it will cost at least $1800 to file for bankruptcy in Canada. This payment is usually made in nine installments of $200 each month. These payments are used to pay for the trustee’s time, government fees, filing costs, etc.

However, the federal government sets limits for how much a person can earn while they are bankrupt. These limits are based on family size. If you earn more than the amount for your family size, you will be required to make monthly payments to the trustee which will be distributed to your creditors. This will increase the overall cost of your bankruptcy.

In general, for every dollar you make over the limit, you must pay 50% of this money to your creditors. Therefore, if you earn $200 more than the limit for your family size, you must make a surplus income payment of $100.

Surplus income payments are calculated throughout the bankruptcy and they could change depending on what you earn. For this reason, you are required to keep the trustee updated by providing monthly income statements.

Will I Lose Everything I Own if I File for Bankruptcy?

One of the most common bankruptcy questions is also one of the most common myths surrounding the bankruptcy. Many people believe that you lose everything you own when you file. This is not true. The goal of the bankruptcy process is to provide people who are overwhelmed by debt with an option to start fresh. Punishing those who file and leaving them with nothing would not be helpful and would likely cause significant damage.

When you file for bankruptcy, you may lose some of your assets depending on what you own. However, individual provinces and territories in Canada allow people who file to keep certain assets. In general, you can keep assets that are required to live a basic lifestyle and to earn an income.

The Licensed Insolvency Trustee will let you know what will happen to your assets before you file and they will answer any other bankruptcy questions you may have as well.

Is My Spouse Affected by my Bankruptcy?

It’s understandable that one of the most frequent bankruptcy questions is about how the process affects spouses. The most important factor to remember is that bankruptcy only affects your individual debts. This means any personal debts that belong solely to you will be included. It also means that, if you only have debts that are solely your responsibility, your spouse’s financial situation and credit rating should not be affected by the bankruptcy.

However, many people share debts with their spouses. These are called joint debts. If a spouse guarantees or co-signs a loan, it is no longer one person’s sole responsibility. The same could be considered true for supplementary credit cards. Supplementary cards are a common situation where two spouses have the same account number, but separate physical credit cards with their own names on them. These cards are typically considered joint debt.

If two partners hold joint debt, and one person files for bankruptcy, the debts are not eliminated. The joint debts instead become the sole responsibility of the partner who did not file for bankruptcy. This is important because, if your spouse or partner is not able to pay these debts, creditors could come after them and, if they can’t make the required payments, this will likely hurt their credit score.

If you are married, it is important to ask these bankruptcy questions and determine what will happen to your debts when you file. The Licensed Insolvency Trustee can give you the answers you need.

What Happens to My Credit Score if I File for Bankruptcy?

When you file for bankruptcy, a note is placed on your credit report. This note will likely make it more difficult to get a loan since lenders will see you as a riskier person to lend money to. If it is your first bankruptcy, this note will likely remain on your credit report for six years after you have been discharged.

What happens to your credit report is one of the most frequent bankruptcy questions and with good reason. Your credit score is important. Not only do lenders check it before they give you a loan, but it can also affect other aspects of your life. In some situations and regions, your credit score is used on home rental agreements and even job applications.

However, while filing for bankruptcy does negatively affect your credit rating, it also puts you in a position to eliminate your debt and start fresh, which can be very beneficial for people in certain financial situations.

Are There Alternatives to Bankruptcy?

Yes, there are many alternatives to filing for bankruptcy. In fact, bankruptcy is usually the last option considered, and it is only chosen after all other options have been tried or dismissed. Meeting with a Licensed Insolvency Trustee can help you understand all the debt relief processes that could work for you. For example, in some situations, a consumer proposal may be a preferable choice.

It is always your decision as to how you will proceed. A trustee will give you details on every option, not just the ones they can administer. They will also answer whatever debt relief and bankruptcy questions you may have. It is then up to you to use this information to make the best decision for your financial life.

How Do I Know if Filing for Bankruptcy is the Right Choice?

Each person’s financial situation is unique, and that means there is no one debt relief option that works for everyone. For some people who are overwhelmed by debt and unable to keep up with their financial commitments, bankruptcy makes sense. However, for others, options such as a consumer proposal may be more suitable. Asking the right bankruptcy questions when speaking with a trustee can help you determine what solution is right for you.

How Can I Find Out More About Bankruptcy?

Most Licensed Insolvency Trustees offer a free consultation. During this meeting, they’ll review your situation and give you details on all the options that could help. This is your opportunity to ask whatever questions you may have, including consumer proposal and bankruptcy questions. Trustees are required to give information on all available options so you can learn about the different choices, then decide how you would like to proceed.


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