To understand bankruptcy in Canada, you need to be aware of these three key points:
First, the main reason for declaring bankruptcy in Canada is to protect yourself from your creditors. Many people mistakenly believe that you go bankrupt if you have too much debt. That’s true, but debt alone is not a reason to file. You may have a lot of debt that you can’t pay, but if you are not working, and don’t own anything, there is very little your creditors can do to you, other than phoning you and threatening legal action. Debt alone does not lead to bankruptcy in Canada.
However, if you are working and they sue you, they could garnishee your wages, so filing becomes a way to protect yourself from your creditors. That’s the key point: if you are afraid of being sued, or having your wages garnisheed, this may be an option to consider. As the expression goes “you can’t get blood from a stone”, so if there is nothing to take, doing nothing may be an option for you.
Second, bankruptcy in Canada is not the only option for dealing with your debts. There are lots of ways to avoid bankruptcy in Canada, so research your options before you decide. Start by reading our article on the top five alternatives to bankruptcy in Canada. You could consider a debt consolidation loan, a debt management plan, or a consumer proposal as a good alternative for dealing with your debts.
Third, many people believe bankruptcy is free, or that it’s a government program. Bankruptcy in Canada is governed by federal law, but the process is not free. Be sure you understand the cost of bankruptcy in Canada before you decide to file. The trustee gets paid, but you also lose your tax refund, and you may got caught in the surplus income trap, so there are lots of costs to consider.
The final decision is up to you. You may decide to try to deal with your debts on your own, or to get help from family or friends. If you do decide to file, be sure to meet with a licensed trustee first, and be sure that all of your questions are answered before you sign any paperwork. Don’t ever be pressured into making a decision. Ask all of your questions, and get answers before you make any decisions.