Area of Law: Credit, Debt and Bankruptcy
Answer # 256
What is personal bankruptcy?Region: Ontario Answer # 256
Filing for personal bankruptcy is a legal process that allows a person facing overwhelming financial difficulties to clear their debts and make a fresh start.
Bankruptcy is not intended for people who intentionally or recklessly set out to defeat their creditors. Rather, it is intended for people who have unexpectedly become unable to repay their debts. For example, they may have genuinely made some poor spending or borrowing choices, or they may have suddenly lost their job or encountered health or marital problems.
Who can file for bankruptcy?
To be eligible to file for bankruptcy:
- you must owe at least $1,000,
- you must not be able to pay your debts as they become due, and
- you must be unable to pay off your debts even if most of your assets were to be sold. In law, this means that you are insolvent.
Advantages of bankruptcy
There are a number of important benefits to filing for bankruptcy and being officially declared bankrupt. These include:
- you are no longer responsible for your current debts and can stop making payments directly to your unsecured creditors,
- you will no longer have your wages garnished,
- you are protected from legal action and any lawsuits against you by your creditors will be stopped,
- you will not receive any harassing phone calls from your creditors,
- you can make a clean financial start, and
- it is a relatively quick and inexpensive process compared to other options.
Disadvantages of bankruptcy
There are, however, disadvantages to bankruptcy, the main one being that your bankruptcy stays on your credit record for six or seven years (depending on the policy of your credit reporting agency). Also, you may be required to surrender some possessions to your trustee, you are required to keep detailed records of your income and expenses while you remain bankrupt, and of course, it means that your creditors will not be able to collect the money that you owe them. As a result, you will have difficulty getting a credit card or a loan after you have filed for bankruptcy. It will take a while before people trust you enough to lend you money again. This may not be a bad thing. If bankruptcy is due to misbudgeting or poor credit choices, this will force you to learn to live within your budget.
Debts not cleared by bankruptcy
If you decide to file for bankruptcy, being discharged is the final step in the bankruptcy procedure. Being discharged means that you are out of bankruptcy and your debts are officially cleared. However, it is important to note that there are certain types of debts that are excluded from discharge (meaning they are not cleared and you are still responsible for them).
- spousal and child support payments,
- a fine or penalty imposed by the court,
- debt arising from fraud, and
- student loans, unless you ceased attending school for at least seven years after the date of discharge.
If you have a steady income and you discover that your credit rating is satisfactory, you may be in a manageable financial position. Rather than filing for bankruptcy, you may choose to manage your debts, perhaps by consolidating them and making monthly payments on time. In this case, you may want to consider some alternatives to bankruptcy.
A criminal record will affect your ability to get a loan, a mortgage, or a job. To erase your criminal record, call toll-free 1-877-219-1644 or learn more at Federal Pardon Waiver Services. It’s easier than you think.
When you are in a situation of financial difficulty, there are many options to consider before filing for bankruptcy. For easy-to-understand debt solutions on your terms, contact our preferred experts 4Pillars and rebuild your financial future. With 60 locations across Canada, they will help you design a debt repayment plan and guide you with compassionate advice. No judgment. For help, visit 4Pillars or call toll-free 1-844-888-0442 .
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