So, you’ve decided that the best way to solve your financial problems is to file for bankruptcy. It was a tough decision, but you don’t see any other way out…
Before declaring bankruptcy in Canada here are 5 things that you should do:
- Change your bank accounts. This is something we recommend all of our clients do before bankruptcy. The reasons are straightforward – if you have any debt or credit (loans or overdrafts) with your current bank they may close your bank account a soon as they receive notice of your bankruptcy. It is far better for you to make the decision and plan for the new account, than to find out your old bank is no longer honouring your payments for your mortgage, rent, car, insurance, etc. Even if you don’t have any outstanding amounts owing with your bank, the other people you owe money to may have been authorized to make automatic withdrawals from your account. These withdrawals should stop once you file bankruptcy, but if they don’t you may suddenly find yourself with no cash in the bank.
- Double check all of your automatic payments. When you change banks you need to contact all of the people that have been taking automatic payments and provide them with your new account information, otherwise they’ll try and access your old account and your payment may bounce. This is particularly important if you are trying to negotiate with your lender to keep a car or house during your bankruptcy (or consumer proposal).
- Cancel any contracts before you file for bankruptcy. Seriously consider all of your monthly expenses and contracts with a mind towards reducing your living expenses. If you have a 3 year cell phone contract that you don’t really need or want then you may break the contract by declaring bankruptcy, but you need to make the decision to break it before you file so that the company can be included in your bankruptcy. This goes for any contract you have, including car loans and leases. You are filing bankruptcy in order to clean up your money problems – if you can’t afford your car lease you can surrender the car as part of the bankruptcy and obtain relief from the payment.
- Make sure you can live without credit. It is not uncommon for us to suggest that a person wait 30, 60 or even 90 days before declaring bankruptcy, just to make certain they can live on their income. If you have $2000 a month coming in and it costs you $2500 a month to live, well, declaring bankruptcy won’t solve all of your money problems. You need to know that if you have $2000 a month coming in you can live on $2000 a month or less. Finding out you can’t afford to live on your income after you’ve filed may actually make your situation worse. Take a good hard look at your living expenses and find ways to live within your means after your bankruptcy.
- Do a final review of your other options just before you file. I am sure you’ve already considered whether a debt consolidation loan might work, or a debt management plan, or even a consumer proposal. There is nothing wrong with going over all of your options with your bankruptcy trustee again before declaring bankruptcy. You can’t be a little bit bankrupt – once you declare bankruptcy you need to complete the procedure.
If you do these five things before you file for bankruptcy, your bankruptcy is much more likely to go smoothly. Your goal when declaring bankruptcy is to clean up your financial problems. The last thing anyone wants is for any legal procedure, including bankruptcy, to become complicated and expensive because you failed to take the time to prepare for it properly.
If you need help understanding what contracts you can cancel, how you car or home is affected by a bankruptcy – talk to a bankruptcy canada trustee in your area today.