There are several reasons you may find yourself facing bankruptcy. You may experience a reduction in income, lose your job, go through a divorce, or have poor financial management. Whatever the cause of your financial situation, when your combined minimum debt payments exceed your monthly income, filing for bankruptcy may be the best choice.

What Happens If I Declare Bankruptcy?

When you file for bankruptcy, you must surrender your assets. As a result:

  • You will receive an automatic stay, which means that creditors can no longer pursue you for debt payments.
  • When you discharge your debts, you no longer have to repay all or some of your financial obligations.
  • You will be assigned a bankruptcy trustee to manage your assets and pay off your debts.

Depending on the type of debt you have, you may discharge most of your debts through the bankruptcy process.

Unsecured Debts

Unsecured debts include credit card balances, personal loans, some student loans and medical bills. You can discharge these types of debts through bankruptcy.

Secured Debt

You cannot discharge any type of loan that is secured with another asset. This is called collateral. In the case of a mortgage, the collateral is the home. If the homeowner defaults on the mortgage payment, the mortgage lender could repossess the house. The same is true for a car loan for a new vehicle purchase. These types of loans are not protected from bankruptcy.

Other Bankruptcy Exemptions

Bankruptcy proceedings won’t discharge you of responsibilities such as child support payments, spousal support payments, court-ordered fines, or restitution payments.

Do I Have to Give Away All of My Assets?

While you are expected to surrender the bulk of your assets to the trustee, the government has included exemptions within the Bankruptcy and Insolvency Act that are considered reasonable living expenses. The provincial legislation sets these exemptions and varies by province. Some general bankruptcy exemptions include:

  • Personal items and clothing
  • Household furniture, food, and equipment in your home
  • Tools that are necessary for your work
  • A motor vehicle
  • Certain farm equipment necessary for regular maintenance and farm work

There is usually a dollar value assigned to all of these items, and in Alberta, bankruptcy exemption includes:

  • Personal items – Clothing up to a value of $4000
  • Transport – One motor vehicle up to $5000
  • Household items – Furniture and appliances up to $4000
  • Work-related items – Tools of your trade up to $10,000
  • Health Aids
  • Food for a 12-month period
  • Contributions to RRSPs, RESPs, and pensions (not including payments made within the last 12 months)

Despite how it may seem, bankruptcy is not a punitive process, and it should help you clear your financial debts and start over with a clean slate.

Alternatives to Filing for Bankruptcy

While bankruptcy will help relieve you of the pressure of financial burden, it should not be your first solution. 

Apply For a Debt Consolidation Loan

A debt consolidation loan is ideal when you have multiple debt sources from several creditors. This type of loan allows you to pay off your smaller debts. By consolidating all of your debt, debt repayment is more manageable. You are now dealing with only one loan, from one source, with one interest rate and just a single payment date. 

Submit a Consumer Proposal

Alternatively, you may decide to pursue a consumer proposal. This is best suited when you have a poor credit rating and may not qualify for a debt consolidation loan.

As part of the process, an Insolvency Trustee will negotiate on your behalf to reduce your debts with your creditors. After renegotiating, you might reduce your debt by up to 80%.

Problems Caused By Filing For Bankruptcy

Either applying for a debt consolidation loan or submitting a consumer proposal is preferable to filing for bankruptcy for several reasons:

  • If you are required to sell off assets such as a home or a car to repay your debts, you may lose significant equity value due to a quick sale.
  • Your credit rating will take a hit.
  • Bankruptcy gets listed on your credit history.
  • It will be difficult to apply for credit and take out loans.

Your Edmonton Insolvency Specialists

Call us if you have reached a point where you simply can’t handle your debts and are considering filing for bankruptcy. With over 35 years of experience, our Bankruptcy trustee at Fox-Miles & Associates will help you to navigate your options and find a solution that is right for you. We offer a free consultation, so call us today!