Have you been wondering what it will cost to go bankrupt? Most people hear the word “bankrupt” and immediately think of losing everything. Although bankruptcy costs may seem high, you won’t lose everything. The law was written to give you a chance to start over: exemptions and allowances make it possible for you to keep enough to build a strong, new financial foundation.
These are some of the costs—some monetary and some not—you can expect when you file bankruptcy.
Cost of Services and Legally Required Payments
The Bankruptcy and Insolvency Act (BIA) requires you to be represented by a licensed insolvency trustee. Trustees are financial specialists that help you navigate the bankruptcy process. You will meet with your trustee several times: for a consultation, to sign paperwork, and to receive counseling. Trustees will prepare and transmit several forms on your behalf. Fees for these services can vary. In addition, there are trustee fees, administrative costs, filing fees, and postage. A typical bankruptcy filing known as a Summary Estate will cost around $1800. It’s unusual that a trustee charges this up front.
Surplus income payments can also add to your bankruptcy costs. Surplus income is money you earn or receive that exceeds the amount set by the government each year. Your family size determines the surplus income threshold. If you earn more money than is allowed, you will be required to pay a portion of that amount to your trustee each month.
You may also be able to buy back assets that you would otherwise need to sign over to the trustee for liquidation. Retirement fund contributions you have made within the last year are an example of assets you may lose but can be bought back. Your trustee will figure the cost and can set up a monthly payment amount.
Cost of Lost Assets
Losing personal possessions to bankruptcy is the cost most Canadians dread. Although you will be required to sign over many of your possessions, each province and territory sets laws that define how much you can keep. These exemptions vary from province to province and can mean the difference between keeping your home and losing it. Some comparative examples include:
- Household goods: In Ontario, you may keep $11,300 worth; in Alberta, the limit is $4,000
- Clothing: In Ontario, you may keep clothing valued up to $5,600; in Alberta, the limit is $4,000
- Automobile: In Ontario, you may keep a car worth no more than $5,650; in Alberta, the limit is $5,000
The best way to determine what you will lose during bankruptcy is to meet with a trustee in your province. Your licensed insolvency trustee will also explain how the asset exemptions will affect you and your family.
The Cost to Your Credit Report
This bankruptcy cost won’t hit your pocketbook, but it will hurt your credit history. Bankruptcies are reported to the major credit reporting agencies and stay on your credit for six years after your discharge. However, most filers have already damaged their credit report, and bankruptcy can be the way to start over with a clean slate.
While bankruptcy has many advantages, there are costs that go along with it. Your bankruptcy costs will be determined by your trustee, who will help you take the first steps back to a healthy budget and financial standing.