Canada Bankruptcy

There’s a good chance that your family has been affected by the recent recession. Even if you and your spouse have held onto your jobs through the slowdown, there’s a good chance that neither of you have seen a meaningful uptick in your take-home pay since 2008. Worse, your employers’ finances may be considerably more precarious than in the past. With the threat of layoffs or work-hour reductions looming over your household, it’s no wonder that you’re worried about the future.

Like hundreds of thousands of well-meaning Canadian families, you’ve probably been spending uncomfortable amounts of money on your credit cards and other credit lines. You’re making a simple calculation: Borrow now to keep your family healthy and solvent or risk making unpleasant sacrifices to keep your head above water.

Unfortunately, you can only borrow so much before your debt chickens come home to roost. As your unsecured debt balances continue to grow unchecked and your interest rates balloon out of control, you’ll quickly find yourself at an inflection point. If you’re close to exceeding your credit limits or no longer able to make the minimum monthly payments on your outstanding debts, you may be considering taking drastic measures to turn your situation around.

Filing for bankruptcy is likely to be one of these measures. While most financial experts recommend using bankruptcy only after exhausting all other debt-management and debt relief options, there are plenty of situations in which it may be your best course of action.

Filing for bankruptcy in Canada can be a confusing and contradictory process. The federal Bankruptcy and Insolvency Act governs all personal bankruptcy filings within Canada’s provinces and territories. The law requires bankruptcy filers to be legally insolvent, meaning that they must have more than $1,000 worth of debt in arrears on a constant basis.

It also sets forth qualifications for the “trustee in bankruptcy” who must legally oversee the disposal of your assets. Once you file for bankruptcy, this trustee is the only party with whom you will deal. In fact, your filing renders your creditors and their collection-agency partners legally unable to seek further payment on your outstanding balances or garnish your wages in lieu of direct compensation. This is called a “stay of proceedings,” and it virtually guarantees that you’ll never have to deal directly with your unsecured creditors again.

The bankruptcy process deals mainly with unsecured forms of debt. In addition to credit cards and personal lines of credit, these can include medical bills, certain types of business loans, unpaid income taxes and even accrued overdraft fees. Since your lender can simply repossess the physical assets underlying your secured credit facilities, bankruptcy does not absolve you of secured debts like your mortgage or vehicle loan.

Since your debts won’t completely disappear as a result of your Canada bankruptcy filing, you’ll need to take advantage of your province’s property exemption law and shield some of your belongings from your creditors. Depending upon the rules in your home province, you may be able to protect certain essential assets. In Saskatchewan, for instance, you can exempt clothing items with a cumulative value of $7,500 and a vehicle worth up to $10,000. In Ontario, vehicles worth up to about $6,000 may be exempted.

While this can be painful, the upshot tends to be a fast discharge that enables you to get back on your financial feet before long. If you’re not forthcoming with this part of the deal, your bankruptcy proceedings may drag on for months longer than they should. In addition, you may lengthen the process by failing to attend required meetings with your creditors, willfully hiding non-exempt assets from your trustee, or missing one of the two credit counseling meetings required by a typical Canada bankruptcy.

If the bankruptcy process seems alienating and unpleasant, don’t despair. Even if your debt situation is worsening rapidly, you may have several alternatives to filing for bankruptcy.

One of these is debt settlement. Like bankruptcy, debt settlement forgives most of your outstanding unsecured obligations and saves you thousands of dollars in future principal and interest payments. It’s also expedient: Unlike comprehensive credit counseling, the debt settlement process may take as little as 12 months from start to finish. While every case is different, Canadian debt settlement providers routinely reduce their clients’ outstanding debt loads by as much as 40 to 60 percent.

Don’t file for bankruptcy in Canada without first considering all of your debt relief options. Remember, debt settlement offers many of bankruptcy’s advantages with few of its attendant drawbacks.