The goal of bankruptcy is to give individuals and businesses a fresh start by eliminating or reducing their debts while ensuring that creditors are treated fairly.
In Canada, bankruptcy is governed by federal laws, primarily the Bankruptcy and Insolvency Act and are administered by Licensed Insolvency Trustees (LITs). LITs are regulated by the Office of the Superintendent of Bankruptcy and adhere to a strict code of professional ethics. It’s also very important to note that Licensed Insolvency Trustees are the only professionals in Canada who can legally file bankruptcies and consumer proposals.
Here are the key aspects of bankruptcy in Canada:
Insolvency
Bankruptcy is typically considered when a person or business becomes insolvent, meaning they cannot meet their financial obligations and debts as they come due. Insolvency can result from various factors, such as excessive debt, unemployment, or a drop in income.
Licensed Insolvency Trustee
To file for bankruptcy in Victoria, BC, you must work with a Licensed Insolvency Trustee (LIT). LITs are professionals licensed by the government to administer bankruptcies and consumer proposals. They will assess your financial situation and help you through the bankruptcy process.
Filing for Bankruptcy
When you decide to file for bankruptcy, you will assign your assets and property to the LIT. These assets may be sold to repay your creditors. In return, your eligible debts are discharged, meaning you are released from your obligation to repay them.
Stay of Proceedings
A stay of proceedings provides immediate relief from the constant pressure of debt collection efforts, including lawsuits, wage garnishments, repossession of assets, and foreclosure proceedings. It offers a chance to regain financial footing and work through the bankruptcy process without these ongoing disruptions.
Bankruptcy Exemptions
Certain assets may be exempt from the bankruptcy process, meaning they are not sold to pay off creditors. These exemptions vary by province and territory, but typically include basic necessities such as clothing, household items, and tools of the trade. Your Licensed Insolvency Trustee will clearly explain to you which of your assets are exempt.
Length of Bankruptcy
The length of a bankruptcy varies, but it generally lasts for a minimum of nine months for first-time bankrupts in Canada. If you have surplus income, you may be required to make monthly payments for a longer period.
Surplus Income
Surplus income is designed to ensure that individuals who declare bankruptcy contribute a fair portion of their disposable income to repay their debts. The specific calculation for surplus income is based on guidelines set by the Office of the Superintendent of Bankruptcy Canada and considers factors like family size and the individual’s income. Essentially, it is the amount of income that exceeds what is considered necessary to cover basic living expenses.
Credit Impact
Filing for bankruptcy will have a significant negative impact on your credit rating, and this information will remain on your credit report for up to seven years after you are discharged from your bankruptcy.
Bankruptcy Alternatives
Before considering bankruptcy, it’s a good idea to explore alternative options to bankruptcy, such as a consumer proposal, which is a negotiated settlement with your creditors. It has less of an impact on your credit than bankruptcy and allows you to keep all of your assets.
The Pros and Cons of Filing for Bankruptcy BC
Filing for bankruptcy in British Columbia is a significant financial decision with both advantages and disadvantages. Here are some of the pros and cons of filing for bankruptcy in BC:
Pros of a Bankruptcy
Debt Relief
Bankruptcy can provide immediate relief from overwhelming debt, allowing you to discharge most unsecured debts, such as credit card debt, tax debt, and payday loans.
Legal Protection
Once you file for bankruptcy, you are protected from creditor harassment, wage garnishments, and legal actions taken against you to collect debts.
Fresh Start
Bankruptcy can offer a fresh financial start by eliminating or reducing your debt burden, allowing you to rebuild your financial life with a clean slate.
Counselling & Support
As part of the bankruptcy process, you will receive financial counseling and education to help you manage your finances better in the future.
Cons of a Bankruptcy
Asset Loss
Depending on the value and equity in your assets, you may be required to surrender some of them to pay off creditors. This can include selling a home or other valuable possessions.
Credit Score Impact
Bankruptcy has a negative impact on your credit score. It will stay on your credit report for up to 7 years, making it challenging to obtain credit during that time.
Public Record
Bankruptcy is a matter of public record, and your financial difficulties will be made public. This can affect your personal and professional reputation.
Restricted Financial Options
During and after bankruptcy, you may find it difficult to access credit, secure loans, or obtain a mortgage. Even when you do, the terms may be less favorable.
Possible Surplus Income Payment
Depending on your income and expenses, you may be required to make surplus income payments during your bankruptcy, which could limit your disposable income.
Impact on Co-signers
If you had co-signers on your debts, they may become responsible for the full debt if you file for bankruptcy.
It’s important to note that bankruptcy is not the only debt relief option in BC. There are alternatives like consumer proposals, which are less damaging to your credit and may allow you to retain more of your assets. It’s crucial to consult with a Licensed Insolvency Trustee in Victoria BC to explore all your options and make an informed decision based on your specific financial situation and provide guidance on which debt solution is most suitable for your circumstances.