From Ontario to Nova Scotia, the past half-decade has not been kind to average Canadians. The disastrous chain of events that began with the collapse of the American housing market in the late 2000s continues to devastate the finances of countless families across the country.
The market for Canada’s exports, which are the lifeblood of the country’s economy, has yet to recover to pre-recession levels. From the busy ports of New Brunswick to the rich forests of British Columbia, thousands of workers remain idle.
Meanwhile, prices for food and fuel maintain an unbroken upward trajectory. As incomes stagnate and living costs continue to rise, countless Canadians are choosing to take on massive amounts of debt simply to feed and clothe their loved ones. For the first time, many prudent folks are spending more than they earn.
If you’re one of them, you’re probably feeling overwhelmed. Debt has a way of building slowly over time, drawing little notice until it’s suddenly impossible to ignore. Once it’s become difficult to make your minimum monthly payments and each credit card bill seems like it’s bigger than the last, you need to take action before things get much worse.
Depending on the depth of your debt problem, you may be feeling a great deal of pressure from your creditors. It’s not uncommon for Canadian borrowers who fall behind on their payments to receive phone calls or e-mails that threaten legal action in lieu of prompt repayment.
Don’t let their hardball tactics drive you to take drastic measures. Declaring bankruptcy in Canada is a complicated process that may do you more harm than good, especially if your debt situation isn’t yet dire.
Before you file, you’ll need to go over your financial situation in great detail with a licensed trustee. He or she will pore over your bank statements, tax records, and even sales receipts for durable goods to determine your exact net worth.
While the laws governing the bankruptcy process differ from province to province, you should expect to lose a substantial amount of your assets to your creditors no matter where you live. Although you’re legally permitted to retain certain “exempt” assets through the bankruptcy process, these allowances typically are not generous.
In Ontario, you’re allowed to keep your car if it’s worth less than $5,650 as well as work-related tools worth less than $11,300 in the aggregate. Apart from certain home furnishings and clothing items, most other assets are fair game for seizure. Similar rules apply in Saskatchewan: You can keep a car worth less than $10,000 and clothing items worth not more than $7,500.
There are a few upsides to declaring bankruptcy. Once your bankruptcy trustee has approached your creditors and begun to determine how best to divide your non-exempt assets among them, they’ll stop harassing you in short order. After all, they have nothing to gain from doing so when you’re no longer in control of your own possessions.
Declaring bankruptcy may also work to your advantage if you have few assets of any value. Losing an expensive car or the equity in your family home to bankruptcy can be a traumatic experience. Without major assets like these, you have little to lose but your sense of dignity.
However, the road back from the financial abyss can be arduous even if your creditors aren’t able to take much of what you own. Depending upon the quality of your credit history, filing for bankruptcy will ruin your financial reputation for anywhere from six to 14 years.
During this period, you’ll find it next to impossible to obtain credit, consigning you to use cash and debit for virtually every purchase that you make. News of your bankruptcy filing will become publicly available, showing up on credit reports and background checks, and may affect your ability to find a job for years.
There are plenty of alternatives to declaring bankruptcy in Canada. One of the most popular is debt settlement, a process that produces similar results without long-lasting repercussions.
Debt settlement providers negotiate with creditors on behalf of their clients to reduce the size of the principal on their debts. Results vary by case, but it’s not uncommon for Canadian debt settlement firms to obtain savings of 40 or even 60 percent for their customers.
What’s more, the debt settlement process typically lasts just 12 to 48 months. That’s positively speedy in comparison to the decade-long hangover that follows a bankruptcy filing.
If your debt situation is becoming unmanageable, resist the urge to wave it away with a desperate decision that could have devastating consequences for your future. Instead, carefully consider your options and determine whether it’s necessary to consign yourself to a decade or more of financial pain by declaring bankruptcy in Canada.
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