Filing for bankruptcy shouldn’t be taken lightly, but it also shouldn’t be feared. Whenever we see someone file for bankruptcy in movies or television, it’s seen as an incredibly serious and sombre situation. In the media, bankruptcy has become synonymous with financial ruin and it’s often a major low point in a character’s storyline.
Real life isn’t like the movies, however. What bankruptcy really is and what it really looks like is not the same as the sad montages we’ve come to associate with the process. Do you know anyone in your family or in your social circle who has filed for bankruptcy? Chances are that they might not talk openly about it since the process carries a certain amount of stigma. However, if you were to get an honest account of their bankruptcy experience, you’d probably hear them say words like “relieved,” “second chance,” and “fresh start.”
You’re Thinking of Filing for Bankruptcy
Are you someone who is considering declaring bankruptcy as the solution to what you can only perceive as insurmountable debt? Living with some debt can be quite normal and it’s actually becoming more and more commonplace as interest rates across the country creep up higher and higher. According to one financial professional, the rising levels of debt in Canadian households poses a serious threat to the emotional wellbeing and financial stability of a whole generation.
Says one expert, “Debt levels have never been higher than they are now [in 2019] … there’s no wiggle room.” Even though difficult financial times leave us wanting to make quick improvements to get back on our feet as quickly as possible, there’s nothing to be gained from rushing into making a serious decision like choosing to file for bankruptcy in Ontario.
If you’re thinking of filing for bankruptcy, then you’re probably in a difficult position with your finances and you don’t know what to do. You probably have creditors contacting you at all hours, you’re probably struggling to make bill payments on time, and you might be making only the minimum payments on your credit card bills.
You Need to Stop Wage Garnishment
In cases where the debtor owes an amount of unsecured debt that they cannot repay an have defaulted numerous times, the creditor is entitled to secure a warrant to garnish the debtor’s wages in order to get that money. Wage garnishment is usually a last resort for creditors who have not been able to get their money through collection calls and reminders.
The process of getting a warrant for a wage garnishment isn’t easy, but once it is in place, the creditor is entitled to garnishing up to 50% of the debtor’s wages. While an employer cannot legally terminate or demote an employee whose wages are being garnished at their shared workplace, being the subject of this kind of credit proceeding can damage your reputation with your employer, supervisor, and coworkers.
When you declare bankruptcy, you put an immediate freeze on any wage garnishment. This is also true for filing a consumer proposal, which in some cases can be the more reasonable method of debt relief. Depending on how much an individual owes and what assets are owned, bankruptcy may or may be the best option for debt relief. For those who are in unpleasant financial situations where wage garnishment is involved, filing bankruptcy features a “stay of proceedings” that puts an immediate stop to any garnishment, collection calls, or legal action from your creditors.
Work with a Licensed Insolvency Trustee You Trust
When you’re not sure of the best way to handle your debt but you know that something must be done, you need to visit a financial firm that specializes in debt reduction and has a reliable staff of Licensed Insolvency Trustees (formerly known as bankruptcy trustees) and credit counselling professionals. Bankruptcy trustees understand the intricacies of the Canadian government’s Bankruptcy and Insolvency Act and can tell you whether bankruptcy, a consumer proposal, or even possibly a Division 1 proposal makes sense for your situation.
Bankruptcy trustees will take into consideration the assets that you have, the timeline of your savings contributions such as those for your RRSP, what your current financial situation looks like, and what sort of financial commitment you can make to your creditors. If you do end up following through with a legal debt relief process, then you should be comfortable and happy with the bankruptcy trustee you’ve teamed up with.
They need to be trustworthy and empathetic and you need to have good communication with each other. After all, they’ll be working with you until you fulfil all the requirements of your bankruptcy or consumer proposal, so it’s important that you find someone who you can see yourself working and corresponding with for up to nine months or even a few years.
A consumer proposal in Ontario makes sense for individuals who have a steady source of income can commit to regular payments, but don’t have the means of paying back their unsecured debt in full. While it’s often most desirable for an individual to avoid filing for bankruptcy altogether, it is sometimes the best way for an insolvent party to clear their debts and get a clean slate.
What Is Bankruptcy, Really?
While everyone’s case is unique, filing for bankruptcy or negotiating a consumer credit proposal can reduce someone’s debt and give them the chance they need to clear their debt once and for all. Your bankruptcy trustee will give you the advice you need to decide on which form of debt relief suits you best and allows you to keep as many of your assets as possible.
To put it simply, bankruptcy in Canada is a process in which someone who is insolvent (that is, they cannot fulfil their financial obligations) assigns the responsibility of their assets to a qualified bankruptcy trustee in exchange for eliminating their debts. There are certain rules and regulations that are specific according to the province in which the bankruptcy occurs, and these regulations are mainly focused on outlining the assets that the debtor can keep.
While it may sound intense and quite possibly excessive to surrender control of your assets to a bankruptcy trustee in Ontario, this is simply a technicality that is part of the process of enabling an insolvent person to get a clean slate on their debt.
Bankruptcy is not meant to be punitive. The government has outlined the process so that it is a viable and helpful option for a debtor who is looking to obtain relief and can’t do so on their own. Honest, hardworking, but unfortunate individuals can find themselves in situations that call for bankruptcy, but the law is there to protect them and to honour the rights of both the debtor and the creditor.
Frequently Asked Questions About Bankruptcy
You surely have plenty of questions about what it’s like to file for bankruptcy and what it’s like to recover from the process and rebuild yourself back up after going through this type of procedure. While there really is no substitute for the in-person consultation and counsel that you get from a licensed credit professional, there are plenty of resources available online that can help someone wrap their head around bankruptcy. Just check out this guide to bankruptcy recovery and continue reading for some answers to FAQs about what it’s like to experience bankruptcy in Canada.
How long does bankruptcy last?
In most cases, it will take nine months until you are discharged from your bankruptcy. You should be aware, however, that a note about your bankruptcy will remain on your credit report for at least six years after the date of discharge. This means that it may take only nine months to cancel your debts with bankruptcy and that you can get started right away on rebuilding your credit.
Are tax debts included in bankruptcy?
It’s recommended that you talk to your bankruptcy trustee about this one since the answer can vary, but as a general answer, you are able to include income tax debts in bankruptcy.
How does separation or divorce affect everything?
Marital stress and financial stress are unfortunately tightly intertwined. If you are considering separation and divorce around the time of your bankruptcy, then you need to talk to a divorce lawyer to fully understand your rights. If you are recently separated, it is recommended that you open up your own bank account as soon as you can in order to make it easier to separate your debts.
What’s a consumer proposal?
Consumer proposals in Ontario and elsewhere across the country are negotiations between a debtor and creditor in which the debtor agrees to pay back a portion of their debts in regular instalments. Essentially, it’s an arrangement that is less severe than declaring bankruptcy in which both parties acknowledge the debtor’s insolvency.
What to Expect During Bankruptcy
If you’ve weighed all your options and found that bankruptcy is the best way for you to recover from insolvency, you are likely wondering: what happens after you file for bankruptcy? First of all, you should be proud of yourself for acknowledging your debt issues and taking the steps to get the help you need to recover from overwhelming financial stress.
Once bankruptcy is filed and the creditors receive their bankruptcy paperwork, the debtor will have to fulfil the obligations of the bankruptcy. This means that you’ll have to include a monthly income statement and attend mandatory credit counselling sessions. The counselling sessions are where you and a credit professional work together to identify the circumstances that led to your bankruptcy in the first place and assess your income stream and how you are going to keep up with our payments and regular living expenses.
You are required to attend two credit counselling sessions as part of a bankruptcy or consumer proposal. These sessions are, in truth, an excellent opportunity for individuals to fill in the gaps in their financial education. Who knows, you may even appreciate the guidance so much that you’ll be ready to start visiting a life coach or financial planner outside of the requirements of your bankruptcy.
In a bankruptcy or consumer proposal’s mandatory credit counselling session, you can identify both your short- and long-term financial goals and get a professional’s input on how to take action to realize those dreams.
If you like the sound of credit counselling and maybe you know that your financial situation is not to the point where you would be required to undergo bankruptcy of a consumer proposal, then you can simply call an associate today and schedule a credit counselling session. You can learn how to best use credit and how to spend your money wisely while also saving for the future.
Life After Bankruptcy
When you’ve fulfilled all the obligations of your bankruptcy, you will be discharged from your debts. Bankruptcy can be an emotional time in someone’s life, so it’s important to leave the process and to develop new financial habits and mentalities that will set you on the right path for financial freedom.
After bankruptcy, you may want to start automating your savings through your bank and open up a new savings account. You might want to put a lump sum away in an RRSP or you might want to adopt a new cash-only approach to everyday spending. You might be wary of succumbing to the pitfalls of credit cards, which is why it’s a good idea to start with a secured credit card which limits your risk of falling back into old habits.
Secured credit cards work on the principles of secured debt, which means that you get revolving credit that you can access again and again so long as you maintain your payments. Use your secured credit card as if it were a gift card and always pay the balance in full. You’ll start to rebuild your credit score and your financial reputation, which can help you down the line when the time comes to seek out a mortgage or car financing plan.
After bankruptcy, you’ll want to focus on saving money, and an RRSP is one of the best ways to do so. As you make contributions, you also establish positive credit while increasing your financial cushion and building up an income tax deduction for next year. If debt is keeping you down and you are living with the constant pressure of financial stress, it’s time to take control with the help of a bankruptcy trustee and your own commitment to financial improvement. There’s no need to fear bankruptcy. When carefully and thoughtfully carried out, it can be a blessing in disguise that lets you focus your attention back on how to accomplish your long-term financial goals.