There’s no doubt about it—bankruptcy can be a confusing process. This general bankruptcy guide will help you understand information you need to be acquainted with when filing bankruptcy. Knowing the basics will help you understand each step in the process. It also helps you prepare the necessary information to present to your Licensed Insolvency Trustee.
Your Bankruptcy Does Not Eliminate All Debts
You might be surprised to learn that not all debts are forgiven when you are bankrupt. Unsecured debts, or debts that aren’t secured by some type of collateral, are eliminated through bankruptcy. Some examples of unsecured debts include:
- Personal loans
- Credit card debt
- Payday loans
- Student loans, if you have been out of school longer than 7 years
Secured debt, or debt that is secured by collateral like a car loan or mortgage, cannot be rolled into your bankruptcy. Certain other financial obligations, like child support, are also not included. Examples of secured debt or other debts that can’t be included are:
- Auto loans
- Home loans
- Spousal or child support payments
- Student loans if you have graduated within the last seven years
The Length of Bankruptcies Varies
The actual length of time you will be bankrupt depends on a few things. Bankruptcies can be automatically discharged after nine months if this is your first bankruptcy and you don’t have surplus income over $200. Your bankruptcy can be discharged after 21 months if this is your first bankruptcy and you have surplus income greater than $200.
Surplus income is money you earn which is over a set amount determined by the government each year. Where you live and the size of your family are factors that affect how much you can earn during bankruptcy.
If this is your second bankruptcy, you will likely remain bankrupt for 24 months if you have a surplus income less than $200. If you are required to make surplus income payments, your bankruptcy can be discharged after 36 months.
You Won’t Lose Everything
Although part of bankruptcy is surrendering your assets to your trustee to be sold to pay off your creditors, each province has exemptions that allow you to keep some of your assets. These exempted assets are things you need to continue earning a living and have a normal life.
Most people are worried about losing their home when they go bankrupt. Whether or not you lose your home depends on the amount of equity you have in it and whether you can afford the payments. A trustee will be able to tell you.
Your Bankruptcy Will Affect Your Credit
Your credit rating will be affected by your bankruptcy, and you probably won’t be able to qualify for a loan or credit while you are bankrupt. But chances are that the financial problems that led to your bankruptcy have already done significant damage to your score.
Bankruptcy is designed to allow you to start fresh with a clean slate. Once you are discharged you can begin rebuilding your credit. By avoiding debt and rebuilding your financial reserves, you can get yourself back onto a firm financial footing.
This bankruptcy guide can help you get a general idea of how bankruptcy works. If you have more questions, visit with a Licensed Insolvency Trustee.
Jillian Taylor-Mancusi, LIT
