If you’re overwhelmed by debt in Manitoba, bankruptcy might be a solution you’re considering, but understanding the process is essential. Bankruptcy provides an opportunity to eliminate most unsecured debts and start fresh, but it comes with important considerations, such as the potential loss of assets and a negative impact on your credit.
In this article, we’ll guide you through the steps involved in declaring bankruptcy, what debts are covered, and how bankruptcy affects your credit and assets. By the end, you’ll have a clearer picture of whether bankruptcy is the right choice for your financial situation.
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What is bankruptcy?
Bankruptcy is a legal process designed to help individuals who are unable to repay their debts. Filing for bankruptcy provides financial relief by eliminating most unsecured debts, giving individuals a chance to start fresh.
Governed by the Bankruptcy and Insolvency Act, the bankruptcy process in Canada is administered by a Licensed Insolvency Trustee (LIT), a certified debt professional who ensures all legal requirements are met throughout.
Declaring bankruptcy can offer debt relief and stop legal actions from creditors, but it will be listed on your credit report and may require surrendering certain assets. Before declaring bankruptcy, it’s important to explore all available debt relief options to determine if there’s a better solution available.
How do you declare bankruptcy in Manitoba?
Declaring bankruptcy can help people with unmanageable debt find financial relief. Here’s a more detailed overview of the steps involved in the process:
Free confidential consultation with a Licensed Insolvency Trustee
The first step in the bankruptcy process is to seek professional advice from a Licensed Insolvency Trustee (LIT). Most LITs offer a free consultation where they’ll assess your financial situation.
During this meeting, you’ll discuss details about your debts, income, assets, and any potential liabilities. The LIT will determine whether bankruptcy is the best option for you or if other alternatives like a consumer proposal might be more appropriate.
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Officially file for bankruptcy
If you and your LIT decide that bankruptcy is the best solution for you, the next step is to file officially for bankruptcy. Your LIT will submit the necessary documents to the court, and upon filing, you will be afforded legal protection from your unsecured creditors.
Have your LIT notify your creditors
After the official filing, your LIT will notify all your unsecured creditors about your bankruptcy. This ensures that your creditors are informed, and it halts further collection activities. Your LIT may negotiate with creditors to reduce any outstanding balances or stop legal proceedings.
Fulfil the conditions of your bankruptcy
Throughout the bankruptcy process, you’ll be required to meet certain conditions, including attending financial counselling sessions. These sessions will help you understand better money management practices and provide valuable tools to avoid falling back into debt.
You may also need to make surplus income payments, depending on your income level. The bankruptcy process can take anywhere from nine months to 21 months to complete.
Discharge from bankruptcy
After fulfilling the necessary conditions, you will be granted a discharge from bankruptcy. This process typically takes 9 to 21 months, depending on your specific case. A discharge releases you from most of your unsecured debts, providing a fresh start. However, some debts like student loans (if less than seven years old), child support, or alimony may not be discharged.
What debts are covered by bankruptcy?
Bankruptcy typically covers most unsecured debts, such as credit card debt, personal loans, payday loans, and other consumer debts. These debts can be either eliminated or significantly reduced through the bankruptcy process, offering you a fresh financial start.
It’s important to note that some debts are not covered by bankruptcy, meaning you will still be required to pay them. Secured debts like mortgages or car loans are excluded, as well as child support or alimony payments.
Student loans may also not be discharged if it has been seven or more years since you were last a student. Make sure you ask your Licensed Insolvency Trustee for full clarity.
Do debt solutions like bankruptcy impact your credit score?
Yes, bankruptcy can significantly impact your credit score. Once you file for bankruptcy, it will be recorded on your credit report for several years—typically up to six or seven years after your discharge.
During this time, your credit score will be negatively affected, making it more difficult to access credit or loans. However, bankruptcy offers a fresh start by eliminating most unsecured debts, allowing you to rebuild your credit score over time with responsible financial habits.
What happens to my assets if I file for bankruptcy?
When you file for bankruptcy in Manitoba, the fate of your assets largely depends on the type of property you own, as well as its value. In general, some of your assets may be seized and sold to repay creditors, while others may be protected by specific exemptions.
Certain assets such as real estate, vehicles, and high-value items are typically considered by the Licensed Insolvency Trustee (LIT). If the asset has significant value and isn’t protected under provincial exemptions, it may be sold to help cover your debts.
That said, there are items which will be granted protection from bankruptcy, including essentials like household furnishings, health aids, and assets related to your job. If you work in agricultural operations in Manitoba, there are also a few exceptions:
- Farm equipment
- Farm machinery
- Farm land (in certain cases)
- Agricultural operations (if needed for your livelihood)
These agricultural assets are often exempt from being sold during the bankruptcy process, as long as they are necessary for you to continue operating your farming business.
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Are there other debt relief options available?
Bankruptcy isn’t the only option for people struggling with debt. There are several debt relief alternatives that can help you regain financial control without going through the bankruptcy process:
Consumer proposal
A consumer proposal is a formal agreement between you and your creditors that allows you to repay a portion of your debt over time. It’s a legally binding contract facilitated by a Licensed Insolvency Trustee (LIT).
You will propose a reduced payment amount that is more affordable, and your creditors will vote on the proposal. If accepted, you’ll make monthly payments over a period of up to five years, and any debts remaining at the end of your payment term will be written off.
Debt consolidation
Debt consolidation involves combining multiple debts into one loan, making it easier to manage repayments, and often reducing your interest rates.
With debt consolidation, you typically make one monthly payment to a single creditor, rather than juggling different amounts to different creditors. This can streamline the repayment process. The goal is to pay off the loan in full within a reasonable timeframe, but if you have poor credit, this option may be more expensive.
Credit counselling
Credit counselling is another option that can help you manage your unsecured debts. With the help of a certified credit counsellor, you’ll gain a better understanding of your finances and be able to develop a sustainable budget.
The counsellor may also negotiate with creditors to reduce interest rates on what you owe, or set up a debt management plan to help you pay off your debts at an affordable rate. This option is often the first step before considering more drastic measures like bankruptcy.
Is bankruptcy the best solution to my debt problems?
Bankruptcy can provide a fresh financial start by eliminating most unsecured debts and offering relief from creditor pressure. However, it’s not the best solution for everyone.
If you have significant assets or secured debts like a mortgage or car loan, bankruptcy might not be suitable for you. Bankruptcy negatively impacts your credit score and can’t make it difficult to borrow money in future.
It’s important to explore other debt relief options, such as consumer proposals, debt consolidation, or credit counselling, before deciding if bankruptcy is the right choice for your situation. Consulting a Licensed Insolvency Trustee can help you make an informed decision.
