When looking at the reasons people file bankruptcy in Canada, similarities begin to emerge. Job loss, income reduction, illness and divorce are some of the most often cited reasons. But did you know that who you owe and how you accumulate debt can be a risk factor as well? We know this because we see a similarity in the types of debts that happen in the average personal bankruptcy.
Recognizing the kind of debt that is included in a bankruptcy and comparing them to your own debts can be the first step towards obtaining your fresh start.
Most common debts included in a personal bankruptcy:
|Type of Debt|
|Tax debt||50% of people filing for bankruptcy have some kind of tax debt. Self-employed persons and small business owners are at higher risk of accumulating more tax debts than they can pay. Debts owing to Canada Revenue Agency can be eliminated by bankruptcy or a consumer proposal.|
|Credit card debt||The majority of filers have credit card and line of credit debt. The average number of credit cards held is 4. The more cards you have the more at risk you are for borrowing more than you can repay.|
|Car loan shortfalls||When a car is surrendered to a secured creditor, the loan does not simply disappear. The lender will continue to collect on this debt until the loan is paid in full. Any shortfall owing on any secured loan is eliminated by bankruptcy.|
|Cell phone debt||This debt could be connected to a remaining balance on a contract or everyday phone usage. An important thing to remember is that cell phone companies have the ability to report to the credit bureau and place this debt on your credit report, affecting your overall credit score. If you are unable to keep up with your every day bills and expenses due to credit card debts, it may be time to talk to a bankruptcy trustee about dealing with all your debts.|
|Consolidation debt||These debts are ones where a lender has rolled all of your debts into one and you now have one large, high interest monthly payment. Sadly, many times debt consolidation doesn’t work. If you don’t take care of all of your debts, or continue to use your credit card, debt consolidation is not a good option. If your debts have been consolidated through an unsecured loan, these amounts can be included in a bankruptcy.|
|Payday loan debt||Borrowing from payday loan companies tends to be a cycle that many consumers cannot break. On average, an individual filing for bankruptcy with payday loans listed as a creditor, tends to owe multiple payday loan companies. Payday loans can be included in a bankruptcy or consumer proposal.|
|Student Debt||More than 1 in 10 bankruptcies include student loan debts. If you have been out of school for more than 7 years and are still struggling with your student loan payments, talking to a bankruptcy trustee may be a good option.|
Another similarity between bankruptcy files is the reason behind the debt. Most filers are employed but making less money than they did when they qualified for the original credit or loan. When faced with this reality, it is common for debtors to make only their minimum payments and to use more credit to help make ends meet. The end result is that their debts just keep growing.
If you can relate to any of these situations and just can’t seem to get ahead of these debts, book a free consultation with a local bankruptcy trustee to discuss all of your options.