Declaring bankruptcy is a big decision, but it isn’t one that you should shy away from. Life is notorious for coming up with the unexpected; a promotion, an illness, a pregnancy or a break-up.
Sometimes the unexpected gives us hope, sometimes it throws us into turmoil. And sometimes it can send our finances into a tailspin.
If you are struggling with overwhelming debt, bankruptcy might be the right next-step for you.
Bankruptcy gets a bad rep, but for certain debt situations, it can be a godsend. Declaring bankruptcy will wipe away most of your debts in exchange for your extra assets and surplus income.
It gives you immediate protection from your creditors, known as a ‘Stay of Proceedings.’ This means that:
- Creditors and collection agencies can no longer contact you
- All legal proceedings that creditors have against you must stop and
- Wage garnishment will stop
Additionally, every debtor who declares bankruptcy is required to complete two credit counseling sessions. These sessions will identify the root of your debt problems and provide you with the tools you need to keep yourself out of debt.
If there are no special circumstances, most first-time bankruptcies will be discharged in just nine months.
There are a few things to keep in mind before you declare bankruptcy.
- A bankruptcy will be marked on your credit score for six years after discharge.
- Some of your assets may be seized to repay your creditors. However, you are allowed to keep your basic assets. This may include your home, your car, clothing, and tools you need for work.
- Your surplus income may be seized (and)
- A bankruptcy does not relieve you of some student loan debts, fines, child support payments and alimony payments.
There are alternatives to bankruptcy
There are a few other insolvency options that may fit your financial situation better than bankruptcy.
Consider a consumer proposal. You may qualify if you are less than $250,000 in debt. This insolvency solution can reduce your debt by 50-80%.
Your Trustee negotiates with your creditors to come to an agreement on a sum that you will repay. Once the agreement is made, it is legally binding.
A consumer proposal does not affect your credit score for as long as a bankruptcy does and it allows you to keep your assets.
In order to find out which solution is best for you, you need to first contact a Licensed Insolvency Trustee (LIT).