According to Statistics Canada, 1 in 6 Canadians will file for personal bankruptcy at least once. Bankruptcy is a legal proceeding that offers an individual who is unable to pay off outstanding debts a chance to start fresh financially. This ensures that specific debts are forgiven and dismissed.
People often view bankruptcy as an easy way out of paying back debt. For someone who is going through a financial collapse, it’s an option that is extremely stressful, and it’s far from easy. If you’re thinking about declaring bankruptcy, here are three things you should keep in mind:
1) Not all of your debts will be eliminated
Filing for bankruptcy has been fabricated with the notion that every dollar of debt will be erased from an individual’s financial history. However, this isn’t the case. If you’re unable to pay back your loans, or can only make monthly payments by using more credit, bankruptcy can help with immediate relief from unsecured debt.
In order to file for bankruptcy, personal debt must be greater than $1,000. Credit cards, lines of credit, bank loans, payday loans and income tax debts are all examples of unsecured debt. After a person declares bankruptcy, unsecured loans are handed over to a Licensed Insolvency Trustee (LIT). The trustee, who professionally administers the bankruptcy process, turns assets into cash and distributes the money back to the creditors.
2) You won’t lose everything you own
The myth that you will lose everything if you file for bankruptcy often prevents people from considering it as an option for help. Although bankruptcy exemptions are complicated and can vary depending on how much debt you owe, necessities like food, clothing, your house and your car can often be excluded from the list of things that you must hand over to an LIT.
3) The process is long
Once a person files for bankruptcy, all financial information is examined, discussed and administered through an LIT. Although there are multiple factors that will affect when you will be discharged from bankruptcy, it typically occurs once the creditors have canceled your unsecured debts.
Eligibility for being discharged usually happens after the minimum period of nine months, however specific conditions could extend the overall period. Changes in the law, if a person fails to meet with a credit counselor, or if someone has filed more than once are all factors that could prolong the process. Even though the minimum length of time before someone is considered for a discharge is less than a year, bankruptcy stays on your credit report for up to 7 years.
The negative stigma that is attached with bankruptcy can make someone feel ashamed and embarrassed to file for it. However, any step towards being freed from unmanageable debt, whether it is credit counseling or bankruptcy, is a decision that will push you closer to a debt-free and healthier life, regardless of what the sacrifices are.