Bankruptcy – Taking on More Debt than You Can Reasonably Handle
Staying current on your budget and avoiding overspending can assist you in averting a future bankruptcy. However, if you are already overwhelmed by debt, then bankruptcy may be the only viable solution. Before you resort to this measure though, you need to take a look at your total financial picture.
Reasons for Bankruptcy
In Canada alone, around 100,000 people file for bankruptcy each year. Common reasons for filing include an unexpected job loss, the failure of a business, too much student loan debt, or a debt incurred as the result of an illness or accident.
Signs that You are in Financial Trouble
You need to obtain financial help if you have missed more than a couple payments on your mortgage loan. Also, if your credit cards are maxed out and you are making monthly payments with credit card advances, you need to talk to a credit advisor. Accounts that have been referred for collection or notices of legal action are also foreboding signs that bankruptcy is on the horizon.
Alternatives to Bankruptcy
Understanding Bankruptcy and its Ramifications
Before filing for bankruptcy though, Canadians should investigate such alternatives as the following
–Obtaining a debt consolidation loan to pay off credit card balances and make bill payment easier.
–Drafting a consumer proposal to one’s creditors.
–Establishing a debt management plan and arranging for credit counseling.
Filing Bankruptcy – Some of the Advantages
If you don’t feel you can obtain financial relief by any of the foregoing solutions, then bankruptcy is the last available remedy. However, that being said, there are some advantages associated with choosing bankruptcy. For example, filing quickly gets rid of your unsecured debts and is often inexpensive when compared to other solutions. Filing also safeguards the filer from further legal actions or wage garnishment.
Some of the Disadvantages
Again, filing should be a last resort as the activity is also attached to a number of disadvantages as well, namely the following:
–Filing bankruptcy can be very hard on a credit history.
–Filing may require the filer to surrender certain possessions to the bankruptcy trustee.
–Detailed recordkeeping must remain in force during the bankruptcy period.
However, that all being said, you don’t necessarily have to consider recordkeeping as a disadvantage as it, no doubt, can teach you to better budget your money and avoid a future bankruptcy. Also, people who do file bankruptcy usually do not possess a glowing credit score. So, even if filing may negatively affect your credit standing, that rating is probably pretty bad in the first place.
Bankruptcy Debt – The Legal Minimum
Usually, debtors find it necessary to file bankruptcy when they no longer can pay their bills and have attempted every type of method to improve their situation financially. Any Canadian who owes over $1,000 and needs to make a new financial start in a relatively short timeframe is generally considered to be a good bankruptcy candidate.
Meeting the Criteria
Your eligibility to file bankruptcy then will be contingent on the guidelines established in Canada’s Bankruptcy and Insolvency Act. If your trustee determines that it is in your best interest to file and that you do meet the eligibility requirements, he will immediately start to prepare and submit your bankruptcy documentation.
The Bankruptcy Process
If you proceed with the bankruptcy process, you will need to fulfill a number of obligations. Not only will have to relinquish your credit cards, you will also have to provide any assets that are considered non-exempt to your trustee. In some instances, a creditors’ meeting may be held where creditors will ask you about your financial standing and the bankruptcy. This meeting is requested by either the creditors or is scheduled upon the order of the Superintendent of Bankruptcy.
During the bankruptcy filing, you will also need to provide your trustee with your tax T-4 slips and any details needed to finalize or complete tax returns that are outstanding. As soon as you submit the required paperwork, the date of the bankruptcy filing is considered to be the end of the tax year. As a result, you will have to file two tax returns (one previous to the bankruptcy and another one afterwards). Any money that is refunded is treated as an asset and is used to pay outstanding debts.
During the bankruptcy process, you must report your income and associated living expenses to the trustee, and provide him or her with copies of pay stubs. This information is used to see if you have any income that is considered “surplus.” If so, that money is directed to your estate in order to pay off specific creditors.
In order to be automatically discharged from a bankruptcy in nine months, participants must sign up for two credit counseling appointments. Counseling can be done in a group or one-on-one. The initial counseling session should be scheduled ten days to two months after bankruptcy begins while the second appointment should be planned for a time that is no more than 210 days from the initial bankruptcy date. Participants pay around $85 for each session. Scheduled sessions last about an hour and go over sound practices of budgeting. Counseling is designed to make it easier for filers to prepare their income and expense reports.
During the bankruptcy process, the filer must keep the trustee current on such details as his address and provide any type of paperwork or information that is requested of him. Also, if a filer tries to secure any loan over $500, he must notify the lender about his financial status, or the fact that he is bankrupt. Filers, during bankruptcy, are not allowed to serve as a director in an organization or company.
Stay on Track During the Bankruptcy Process
Timely completion of the above obligations is essential if you want to be discharged from the bankruptcy fairly fast. For instance, any payments that are missed will only postpone the date of discharge even further. As discharge makes it possible for you to rebuild your credit and erase the financial problems that have plagued you in the past, it’s essential that you make your payments as requested.
The Discharge of Bankruptcy – The Length of the Process
Once the aforementioned duties have been completed, you can finally obtain your discharge. The length of the bankruptcy is based on whether or not your have previously filed for the financial clemency. While first-time bankruptcies are usually discharged after nine months, second-time bankruptcies are generally extended to 24 months, or two years.
Patience is a Virtue
Also, proof that the filer’s income surpasses the government’s minimum income requirement will span out the length of the process. If your income is higher than the limitation set by law and you are filing for the first time, you typically have to wait 21 months for a discharge. Or, if your income is higher than the set limit and you are filing for a second time, then the discharge usually will not go into effect for another three years.