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Should you file for bankruptcy?

Posted on 6 January 2023

Written by Ashvin Sharma

Should you file for bankruptcy?

If you are wondering ‘should you file for bankruptcy?’, chances are you are struggling with unmanageable debt and looking for a fast solution. Perhaps you cannot pay your bills on time, and the calls from creditors will not stop. Filing bankruptcy can be an intimidating thought, and is not something most of us go through often. Yet addressing a debt issue is the first step to finding support and beginning a fresh financial future. Although bankruptcy is not for everybody, there are situations when it is the most appropriate form of debt relief. The first step you should take is to speak to an experienced Licensed Insolvency Trustee. They will sit with you to review your unique financial circumstances and help you to evaluate your debt relief options, as well as bankruptcy. In this article, we address the fundamentals of bankruptcy and what you need to know before filing. So, should you file for bankruptcy?

Does bankruptcy clear my debts?

Typically, bankruptcy will clear all your unsecured debts. This includes any credit card debt, lines of credit, or payday loans you may have. In line with the Bankruptcy and Insolvency Act, however, some debts are not cleared in bankruptcy. These include some types of student loan debt, alimony, child support, fines imposed by the Court, and debts related to fraud. Equally, filing bankruptcy will not clear your secured debts. Secured debts relate to any debt secured by an asset, including a car loan or a mortgage. If you are able to maintain the payments on these debts, you can often keep them despite filing bankruptcy.

Can I keep my house if I file bankruptcy?

Contrary to popular belief, filing bankruptcy does not mean that you lose everything. In fact, provincial and federal laws mean that you can keep some assets, making them exempt from seizure by your Licensed Insolvency Trustee. Each province will have its own list of bankruptcy exemptions – see, for example, Ontario bankruptcy exemptions. An example of some assets you can keep include a vehicle valued below a certain threshold, RRSPs except for any contributions made in the past year, reasonable personal belongings and furniture, and any tools you need for work. If you have a home funded by a mortgage or a car through a car loan, you may be able to keep both assets if you are able to continue making your payments.

When should I file bankruptcy?

It is not always easy to know when the time is right to file bankruptcy. Typical signs include long term unemployment, and a struggle to make your payments each month. Warning signs that you may need to file bankruptcy include your paycheque being consumed by your debt payments. At this stage, bankruptcy may be the best solution for your debt issues. You may also be receiving collection calls and mail from your creditors. Perhaps they are even threatening to freeze your bank account, or to pursue a wage garnishment. Bankruptcy offers immediate protection from creditors via a stay of proceedings, which will put an end to these threats. Your Licensed Insolvency Trustee will also communicate with your creditors on your behalf. In bankruptcy, your unsecured debts are cleared as soon as you are discharged from bankruptcy. If you find yourself feeling overwhelmed by your debt, you should speak to a Licensed Insolvency Trustee as soon as you can to see if bankruptcy is the best option for you.

Is bankruptcy my best option for debt relief?

When you have overwhelming debt, you may not know that bankruptcy is just one debt relief option. Bankruptcy is typically the last resort when it comes to debt relief for Canadians. In fact, you should consider all your other options before you proceed with filing bankruptcy. Examples of bankruptcy alternatives include a debt management plan, a debt consolidation loan, and a consumer proposal. Each of these forms of debt relief are appropriate for different situations, and should be explored before filing bankruptcy. Sometimes, bankruptcy may indeed be your best, and sometimes, only option. Licensed Insolvency Trustees are the only professionals legally able to file all forms of debt relief, and they will review your financial circumstances. They will then share your debt relief options so that you can evaluate which may be best for you. They will also advise you on the pros and cons of each form of debt relief so that you can make a fully informed decision.

Considering ‘should you file for bankruptcy?’ Each individual’s financial situation is unique, so book a free consultation with Spergel to learn more about filing bankruptcy. Our experienced Licensed Insolvency Trustees will review your circumstances and explore any alternative debt relief options that may be suitable. We will help you to decide whether or not bankruptcy is the right choice for you. Reach out today – you owe it to yourself.

Ashvin Sharma

Ashvin Sharma

Ashvin Sharma is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) overseeing all of Spergel's offices in the Greater Vancouver Area and British Columbia. He is also our resident expert on homeownership debt and health debt. In his spare time, Ashvin loves to play sports, spend time with family and friends, and serves as a volunteer coordinator for "Free-Them", a Canadian organization committed to raising awareness about human trafficking.

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