While there are dozens of questions that people may ask when they are thinking of filing personal bankruptcy, the three most common are those that directly affect their day to day lives. Most want to know what happens to their car if they file bankruptcy because they need transportation to get back and forth to work. Those who own a house (as almost one-third of all insolvent debtors in Canada do) want to know what happens to their home. For everyone, the top of mind question is what will this cost?
Here are the answers to those 3 popular questions.
Can I keep my car if I file for bankruptcy?
If you want to keep your car then certainly you can. In all honesty, I can’t remember the last time someone that wanted to keep their car lost it when they filed for bankruptcy.
If your car is leased or financed then in order to keep your car you have to continue to make all your payments. If you don’t make your payments then the leasing and/or finance company has the right to come and take your car.
If you own your car outright you may still keep it as long as it is worth less than the government threshold for cars in your province. If you don’t owe any money on your car and it is worth that amount or less it cannot be taken from you if you file for bankruptcy. If you own your car and it is worth more than the allowable amount you may have to pay an amount equal to the excess into your bankruptcy in order to keep your car.
Can I keep my house if I file for bankruptcy?
This one get’s a bit more complicated. To answer this we will look at what happens if you file for bankruptcy as well talk about a consumer proposal, which is a popular choice for many homeowners who are experiencing financial problems.
If you file bankruptcy and want to keep a home that has value above the mortgage owing on your home and any equity limits set by provincial legislation, then you certainly can, but you would have to make extra payments into your bankruptcy in order to do so. When you file for bankruptcy your creditors are legally entitled to the amount of equity you have in your home above any provincial exemptions. While you can choose to let the trustee sell your home, you don’t have to if you can afford to ‘buy out’ that equity from your trustee from your family income.
If you don’t have any equity in your house when you file for bankruptcy then your house won’t be involved in the process at all. You will still have to pay your mortgage, your property taxes and all of the other expenses that go with owning a home, but no one can make you sell your house simply because you filed for bankruptcy.
As mentioned, if you do have equity in your home then you will be required to pay an amount equal to your share of the equity into your bankruptcy in order to keep your home. Depending on the amount you have to pay, it might make more sense to consider filing a consumer proposal to repay the equity over a longer period of time, but regardless, as long as your share of the equity is paid into your bankruptcy then no one can force you to sell your house.
One out of every three people that file either bankruptcy or a consumer proposal own a home. By filing bankruptcy to deal with all of your other debts it usually makes it easier to make all of the payments needed to keep your home. Think about it – if you didn’t have to pay off your credit cards and lines of credit you could use that money to pay your mortgage, heat and hydro.
How much does it cost to file for bankruptcy?
There is a basic cost to file bankruptcy in Canada, usually in the $1,800 range. This covers the actual costs to complete a bankruptcy on your behalf. Usually you will be able to make monthly payments during the period of your bankruptcy to deal with this.
Additional costs might include the equity in your house, or the excess value of your car if it is over the provincial threshold for where you live. There may also be monthly payments based on the number of people in your household and the total income coming into the household. This is called Surplus Income and you should read about it before you decide to file. Briefly, the government has set thresholds for different sized families – if your household income is over the government threshold then you may be required to make additional payments into your bankruptcy.
Those are the top three most asked bankruptcy questions. There are literally thousands of other questions that you can ask your trustee and you should.
Filing for bankruptcy may seem like a complicated process, but it doesn’t have to be. Find a trustee that you are comfortable dealing with and they will walk you through the process one step at a time. Only after you’ve had all of your questions answered and you are confident you understand the process should you file for bankruptcy or a consumer proposal. If you ever feel like someone is “pushing” you to make a decision, well, that’s a good sign you should go and speak to someone else.