Alternatives to Bankruptcy
I honestly didn’t know what to do
I’m so grateful for the help of The Credit Counselling Society. I honestly didn’t know what to do. I got myself in debt way more than I could handle. And it’s nice to know that I’m paying off my debt with their help rather than claiming bankruptcy. Thank you so much everybody that spoke with me at credit counselling.
What Happens to Your Assets and Income
When you declare bankruptcy, all collection activity on your debts is stopped and your creditors will accept new payment terms according to the court approved bankruptcy agreement. However, this only works for unsecured debt, which is debt that you haven’t put up collateral for. Secured debts are not included in bankruptcy.
However, if you have a certain amount of equity in assets such as a vehicle or your home, your trustee will need to sell those assets and use the funds towards paying your creditors as part of your bankruptcy process. If you can afford it, you’re also able to “buy back” your assets, which means paying the value that’s above what you’re allowed to keep to your trustee.
Other assets that can be lost in bankruptcy include RESPs, tax refunds, RRSP contributions for the past 12 months, and other valuables. Every province has a list of bankruptcy exemptions, which are the things that you get to keep. These can include business tools and household effects up to a certain value.
Bankruptcy also restricts your income. Depending on your family size and makeup, 50% of all money you earn over a certain amount must be paid each month to your trustee, who will eventually disburse it to your creditors.
Debts That Bankruptcy Won’t Get Rid Of
Most people think that filing for bankruptcy will take care of all their debts, but that isn’t true for everyone. Beyond the difference between how secured and unsecured debts are treated, there are debts that are legally excluded from a filing. These include:
- Money you owe for child support
- Money you owe for spousal support
- Court-ordered fines
- Debts that arise due to fraudulent activity
- Government issued student loans less than 7 years old (with some exceptions)
- Certain government overpayments
If any of the debts you want to get rid of are on this list, bankruptcy might not be your best option. Review all the alternatives to bankruptcy with a non-profit credit counsellor to find the best path forward.
I was so relieved after our first conversation
Options for Bankruptcy
Here are 6 times when filing bankruptcy might not be right for you. Know what to expect.
There are many misconceptions about what bankruptcy is and isn’t. Here are 7 myths explained.
What is the OSB?
The Office of the Superintendent of Bankruptcy regulates insolvency in Canada. Learn more.