Many people are reluctant to consider bankruptcy because of the stigma around it, but it may be the most sensible option you have to get out of debt. If you are stressed out by debt collectors, high-interest rates, late fees on your credit cards, or the impossibility of paying back your debt, bankruptcy could be your best option. You just need more information about the process so you know when you should file for bankruptcy.
There is no single answer if you want to know when to claim personal bankruptcy, but there are some circumstances in which it makes sense. A bankruptcy trustee, now known as a Licensed Insolvency Trustee, will take a closer look at your debts, income, assets, and your complete financial situation. Some of the situations in which bankruptcy may make sense include these:
1) You Don’t Own Many Assets
Consumer proposals make more sense when you own a number of non-exempt assets. Otherwise, bankruptcy can make more sense. Rather than consistently paying back your debt in fixed payments for the next five years, you can be forgiven for a large amount of your debts after selling those assets you do have and contributing to any surplus income payments you may have to pay.
2) Personal Bankruptcy Is Your Last Resort
At David Sklar & Associates, we encourage people facing high levels of debt to come in sooner than later. The earlier you talk to a bankruptcy trustee, the more options you will have available to you. If you wait too long, your creditors may not accept a consumer proposal. To find out more about the process for filing a consumer proposal, check our consumer proposal FAQs or talk to a bankruptcy trustee directly.
The Consequences of Filing for Bankruptcy
There are consequences to filing for bankruptcy, but compared to giving up more and more of your income to debt repayments, they’re often worth the debt relief. Aside from losing assets such as property or investments, you will have trouble borrowing again after your bankruptcy due to your credit report.
Bankruptcy is reported on your credit report for six years after your date of discharge on your first bankruptcy and fourteen years after your second bankruptcy. However, this is less time than a consumer proposal would remain on your credit report since a consumer proposal can last up to five years and remain on your report for up to three years after you complete it.
You can spend this time rebuilding your credit using tools like secured credit cards and paying your bills, car loan payments, and mortgage payments on time. When your bankruptcy is removed from your credit report, you will be in better standing. Part of the bankruptcy process also involves credit counselling with David Sklar & Associates, and we will tailor our credit counselling to your financial situation.
The Benefits of Filing for Bankruptcy
Filing for bankruptcy isn’t all negative. There’s a reason people file for bankruptcy and it’s because they may have no other way of getting out of debt. Becoming insolvent means your assets and income are not enough to pay back your debt. Interest rates and late charges will only accumulate while you struggle to make minimum payments.
Debt collection calls and even wage garnishments can hamper your ability to keep up with basic expenses while your creditors claim your paycheque. You don’t have to stay stuck in debt. Talk to a bankruptcy trustee about getting debt relief through filing for bankruptcy.