Bankruptcy has implications, both good and bad. There are four major effects of filing bankruptcy in Canada you should consider if you are thinking of filing personal bankruptcy as a way to get out of debt:
1 You will lose your “non-exempt” assets.
The rules vary from province to province, but in all provinces you are allowed to keep your basic household assets, like your clothes, furniture and other personal items. However, if you have valuable assets, like a brand new car with no loans against it, or a house that is worth considerably more than what is owing on the mortgage, you may lose the equity in those assets.
You will also lose any contributions you have made to your RRSP in the past 12 months.
You also lose your tax refund for the year of bankruptcy, and your any prior years that you have not yet received.
So, if you have significant assets, it may be wise to consider selling them and repaying your debts to avoid bankruptcy, or filing a consumer proposal so that you can keep your assets.
2 There will be a note on your credit report.
Equifax, the largest credit reporting agency in Canada, will put a note on your credit reporting stating that you filed bankruptcy, and that note will remain on your credit report for six years from the date you are discharged from a first bankruptcy. A second bankruptcy remains on your credit report for 14 years.
3 You will have certain duties & payments.
During your bankruptcy in Canada you are required to perform certain bankruptcy duties, including reporting your income to your trustee each month. If your earnings go above the level set by the government, you are required to pay more. This is called surplus income. So, one of the effects of filing bankruptcy is that if you have high income, your bankruptcy may be expensive (which is another reason for considering filing a consumer proposal).
The first three effects discussed above are negative; there is of course one major positive effect of filing in Canada:
4 Your debts are eliminated.
That’s right, your debts are gone which is the ultimate objective of declaring bankruptcy.
NOTE: Not all debts are eliminated. If you owe child support or alimony, or court fines, those obligations survive your bankruptcy. Secured debts, such as the mortgage on your house, or a car loan, also don’t go away, provided you decide to keep your house or car and continue paying your secured loan.
All other unsecured debts are eliminated, including credit cards, bank loan, payday loans, and even income taxes owed to Canada Revenue Agency.
So even though bankruptcy requires you to complete your duties, for most people eliminating their debts and not having to worry about legal action or a wage garnishment is worth it.
To find out more about eliminating your debts, please contact a licensed bankruptcy trustee for a no charge initial consultation.