Five Things You Need to Know Before Declaring Bankruptcy

  • By Jillian Taylor-Mancusi


Money problems can keep you up at night, making you wonder how you will ever pay back what you owe. When debt problems force you to consider bankruptcy, it’s important to learn as much as you can about how it works. Before you decide, take a moment to review these five facts about declaring bankruptcy.

Fact #1:  Not all debts are discharged.

Bankruptcy offers you a way to start over when you no longer have the resources to pay back your creditors. Most unsecured debt are discharged; however, you will still be responsible for certain debts even after bankruptcy, including:

  • Payments you make for child support or alimony.
  • Student loan commitments if it has been less than seven years since you graduated or stopped attending.
  • Fines, fees, or penalties resulting from a court order.
  • Debts incurred by fraudulent activity.

A Licensed Insolvency Trustee can help you determine which of your debts will be discharged.

Fact #2: You may have other options.

Declaring bankruptcy isn’t the only way to handle debt problems. If you have a regular income and your debts fall within set limits, you may be able to:

  • Talk with your creditors, negotiating different terms such as a lower monthly payment or interest rate. You may also request fee waivers or forgiveness.
  • Qualify for a debt consolidation loan which will pay off your debts and allow you to make only one payment each month.
  • Make a consumer proposal. A consumer proposal is the other legal option provided for by the Bankruptcy and Insolvency Act (BIA). If accepted, it allows you to pay less than you owe on qualifying, unsecured debt.

Fact #3: You may lose your belongings.

Like most people, you may be worried about losing your home if you go bankrupt. Assigning your possessions to a licensed insolvency trustee for liquidation is part of the process, but you won’t lose everything. Exemptions, or the things you get to keep, are determined by laws passed in each province or territory. Your licensed insolvency trustee is familiar with local laws and will help you understand which of your possessions you can keep.

Fact#4: Your credit will be affected.

Bankruptcy lowers your credit score and makes it difficult to obtain new loans, especially in the beginning. Your filing will stay on your report for seven years after your discharge from bankruptcy. You don’t have to wait for your discharge to begin rebuilding your credit. You can improve your score by keeping secured loans current.

Fact #5: Bankruptcy can be a long process.

If this is your first bankruptcy and you are not required to make surplus income payments, you will be automatically discharged after nine months. Although that may seem like forever, it provides you with enough time to practice new money management skills and to set new financial goals for the future.

There are a number of things to consider before declaring bankruptcy. A licensed insolvency trustee is a trained financial advisor that can help you decide whether it is the best option for you.


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