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Ontario|Debt and BankruptcyDebt and Personal Bankruptcy 249 Effects of bankruptcy Filing for personal bankruptcy results in a number of significant consequences. In particular, you may have to give up some of your personal belongings, you will have to fulfil a number of obligations to your trustee in bankruptcy, you will remain responsible for certain debts that are not cleared by bankruptcy, and your credit rating will be damaged.
- Will I lose everything if I file for bankruptcy?
Although some of your personal assets and belongings could be sold by your trustee to partially satisfy your debts, usually personal items and household goods are not affected. You are allowed to keep any necessary and ordinary clothes up to a value of $1000, household furniture, utensils, equipment, and food up to a value of $2000, and any items that you need for your employment including things such as tools, equipment, books, and a car, up to a value of $2000. Also, you can keep things owned entirely by your spouse. If you and your spouse own things jointly, you may have to sell the portion that you own. It is a good idea to discuss these issues with your trustee before you file for bankruptcy.
- Duties of bankruptcy under the Bankruptcy and Insolvency Act
The second important consequence of bankruptcy is that you will have to fulfil certain duties set out in the Bankruptcy and Insolvency Act. To begin, when you meet with a trustee in bankruptcy, you must provide a complete list of all of your assets and debts. You must also give the trustee all of your credit cards, and advise the trustee of property that you have sold or given away in the last 5 years, and whether you have paid relatives or non-arms length persons within the last year. If you have done any non-arms length transferring of assets or payments, it may be a good idea to see a bankruptcy lawyer before going to see a trustee.
Once you have filed for bankruptcy, you also have a duty to keep the trustee informed of any changes in your financial or personal situation, such as becoming employed or changing your address. You are required to attend a meeting with your creditors if one is held, and to assist the trustee in handling your estate. You may also have to pay a portion of your regular income to the trustee to pay your creditors. Once you are discharged, which occurs about nine months after filing, these obligations end.
- Will bankruptcy remove all debts?
A third consequence of declaring bankruptcy is that it will eliminate most, but not all, of your debts. The following five debts are not cleared by bankruptcy. First, secured debts are not significantly affected by bankruptcy. A secured debt is one where the creditor secured one or more of your assets as collateral as a requirement of the loan made to you. For example, you may promise to give a creditor, such as a bank, your car or your home if you do not repay a loan. A secured creditor may seize these assets, but, once they are sold, any outstanding balance will be discharged.
The second type of debt that will not be eliminated by bankruptcy is child and spousal support payments. Third, court fines and penalties are not cleared by bankruptcy. Fourth, any debts that you obtained by committing a fraud or by causing bodily harm to another, are not cleared by bankruptcy. And finally, student loans are not cleared by bankruptcy unless you graduated from school at least ten years prior to the date that you filed for bankruptcy.
If you have surplus income as determined by government guidelines, you may also be required to pay some amount to your trustee at the time you are discharged or for a period of time after your discharge.
- What will happen to my credit rating?
The fourth consequence of bankruptcy is its effect on your credit rating. Your credit rating is a record of your credit history maintained by credit bureaus such as Equifax and Trans Union Credit Information. These credit bureaus track how you handle credit generally and whether you make regular payments on time. Based on this ongoing information, you are given a credit rating, ranging on a scale from R1, which is the best rating, to R10, which is the poorest rating. Your credit rating tells banks and other lenders how good you are at handling credit, and is usually checked by lenders before they decide whether to give you a credit card or a loan. Bankruptcy gives you the lowest possible credit rating of R10, and the fact that you went bankrupt stays on your credit record for seven years after you are discharged from bankruptcy. As a result, lenders may be reluctant to give you loans or credit cards for quite some time.
Once you have been discharged from bankruptcy, make sure you send a copy of your discharge order to the credit bureaus so that your credit record can be updated. As time goes by, you can gradually work towards rebuilding a good credit rating. It may be difficult to get credit for a while, and it will generally depend on whether you have a steady income and how well you are able to convince lenders that you have become more financially responsible.
Filing for bankruptcy can be a detailed and complicated process. For further assistance, you should speak with a lawyer or a trustee in bankruptcy.
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