Bankruptcy is a legal process governed by the Bankruptcy and Insolvency Act that allows individuals to claim bankruptcy and discharge their debts, however, it’s important to understand the implications before deciding to file for bankruptcy.
What is bankruptcy?Bankruptcy is a legal process that provides individuals with debt relief by legally eliminating the financial obligations to pay unsecured creditors.
It is governed by the federal Bankruptcy and Insolvency Act and can be initiated through a Licensed Insolvency Trustee.
By declaring bankruptcy, individuals are released from most unsecured debts and are provided with an opportunity to rebuild their financial lives.
What debts can be included in a personal bankruptcy?In a personal bankruptcy, most unsecured debts can be included. The debts covered by bankruptcy include credit card debts, personal loans, lines of credit, taxes, and other unsecured debts.
However, it’s important to note that certain debts are not covered by bankruptcy, such as court-imposed fines and penalties.
While some may wonder about student loan debt, it is generally covered by bankruptcy, with specific exceptions based on your circumstances.
What debts can’t be included in a bankruptcy?While bankruptcy covers a wide range of debts, there are certain obligations that cannot be discharged through this process.
Court-imposed fines, penalties, and restitution orders resulting from criminal activities are not eligible for discharge in bankruptcy.
It’s crucial to consult with a Licensed Insolvency Trustee to determine which debts can and cannot be included in the arrangement, and whether personal bankruptcy is the best solution in your specific situation.
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What’s the process for declaring bankruptcy in Ontario?Declaring bankruptcy in Ontario involves several key steps. You’ll be given help to navigate the process and ensure compliance with the legal requirements.
The bankruptcy process typically unfolds as follows:
Consultation with a Licensed Insolvency TrusteeThe first step in declaring bankruptcy is to consult with a licensed insolvency trustee (LIT). Licensed Insolvency
Trustees are professionals authorized by the government to administer bankruptcy proceedings.
They will assess your financial situation, explain the bankruptcy process, and help you understand all your options.
Share supporting documents with your bankruptcy trusteeOnce you decide to proceed with bankruptcy, you will be required to provide relevant documentation to your LIT or bankruptcy trustee.
The necessary bankruptcy documents typically include proof of income, a list of assets and liabilities, and full details of your debts.
Notify your creditorsAfter engaging with your LIT, they will notify your creditors about your bankruptcy filing.
This communication serves to inform creditors that they should no longer contact you directly regarding debt repayment.
Make your monthly paymentsThroughout the bankruptcy process, you will be required to make monthly payments to the bankruptcy estate.
The amount of these payments is determined based on your income, expenses, and specific circumstances.
These payments are intended to provide some financial relief to your creditors.
Financial counselling sessionsAs part of the bankruptcy process, you are required to attend two financial counselling sessions.
These credit counselling sessions aim to provide you with valuable financial education and guidance to help you make better financial decisions in the future.
Given that they’re mandatory financial counselling sessions, you will be expected to attend both, and failure to do so could put your bankruptcy at risk.
Discharge from bankruptcyOnce you have fulfilled all the necessary requirements and obligations, you will receive a discharge from bankruptcy.
This discharge signifies the end of your bankruptcy proceedings and releases you from the legal obligation to repay the discharged debts.
In most cases, an automatic discharge occurs after a specified period, typically nine months for a first-time bankruptcy.
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Who is eligible for personal bankruptcy?Personal bankruptcy is available to individuals who are insolvent and unable to meet their financial obligations.
To be eligible for personal bankruptcy in Ontario, you must meet the following criteria:
Residency: You must be a resident of Ontario, or have a significant connection to the province, such as owning property or operating a business in Ontario.
Insolvency: You must be unable to pay your debts as they become due. This means that your liabilities exceed your assets, and you are experiencing financial hardship.
Minimum Debt Threshold: The minimum debt threshold to file for bankruptcy in Ontario is $1,000. Whether you owe a small or substantial amount, bankruptcy can be an option if you are unable to repay your debts.
It is important to consult with a Licensed Insolvency Trustee who can assess your specific situation and determine if bankruptcy is the right choice for you.
How much does filing bankruptcy cost in Ontario?When filing for bankruptcy in Ontario, there are fees involved. These fees cover the administrative costs of the bankruptcy process and the services provided by the Licensed Insolvency Trustee. The fees vary depending on your income and the complexity of your case.
Surplus Income PaymentsIn addition to the trustee’s fees, individuals with higher income may be required to make Surplus Income Payments during their bankruptcy.
The level of your Surplus Income Payment will be calculated based on a formula set by the government, taking into account your family size and income level.
These payments are intended to ensure that individuals with higher incomes contribute a portion of their earnings towards their debts.
It is essential to discuss the specific costs and payment arrangements with your Licensed Insolvency Trustee during the consultation to have a clear understanding of the financial obligations associated with bankruptcy.
Will my bankruptcy affect my credit rating?If you declare bankruptcy, it will have a significant impact on your credit rating. Bankruptcy will leave a negative mark on your credit history and can remain on your credit report for several years, typically six to seven.
During this time, it may become challenging to obtain credit or secure favorable interest rates for loans and credit cards.
However, it’s important to remember that bankruptcy is often pursued when individuals are already facing severe financial difficulties and have a damaged credit rating.
While bankruptcy negatively affects credit in the short term, it also offers an opportunity for a fresh financial start.
With responsible financial management and rebuilding efforts, it is possible to rebuild your credit over time.
What happens to my assets after filing bankruptcy?
Ontario bankruptcy exemptionsAccording to Ontario bankruptcy law, certain assets are exempt from seizure and can be retained by the bankrupt individual.
These exemptions are intended to provide a basic level of support and ensure that individuals can maintain their essential possessions.
Exempt assets may include necessary clothing, household furnishings, tools of trade, and vehicles up to a specified value.
The bankruptcy trustee will assess the value of non-exempt assets. Arrangements can be made with the bankruptcy trustee that will allow you to keep non-exempt assets while compensating your estate for their value. The value of those assets will be distributed by the LIT to your creditors.
It’s important to discuss the specific implications for your assets with your Licensed Insolvency Trustee, as individual circumstances can vary.
Bankruptcy alternatives available in OntarioWhile bankruptcy is a viable option for individuals facing overwhelming debt, there are alternatives that may be worth considering.
These alternatives can provide debt relief while potentially having a less severe impact on your credit rating.
Some alternatives available in Ontario include:
Credit counsellingCredit counselling involves working with a credit counselling agency to develop a debt management plan.
Through this process, you make a single monthly payment to the agency, who then distributes the funds to your creditors.
Credit counselling can help consolidate your debts and negotiate with creditors to reduce interest rates and fees.
Debt consolidationDebt consolidation loans involve combining multiple debts into a single loan or payment. This can be achieved through a debt consolidation loan obtained from a bank, credit union, or online lender in Ontario.
With a debt consolidation loan, you can pay off your existing debts and focus on making a single monthly payment towards the consolidation loan.
This option simplifies your repayment process and may provide the benefit of a lower interest rate, potentially reducing your overall debt burden.
Debt settlementDebt settlement involves negotiating with your creditors to settle your debts for less than the full amount owed.
In this process, you typically work with a debt settlement company in Ontario that acts as an intermediary between you and your creditors.
The company negotiates with your creditors to reach a settlement agreement, allowing you to pay a reduced amount to satisfy your debts.
It’s important to note that debt settlement may have a negative impact on your credit rating, so you should seek debt advice before committing to anything.
Consumer proposalA consumer proposal is a legally binding agreement between you and your creditors. With the help of a Licensed Insolvency Trustee, you propose a repayment plan to your creditors, outlining how much you can afford to pay and over what period.
If the majority of your creditors accept the proposal, it becomes binding for all included debts. Consumer proposals offer an alternative to bankruptcy, allowing you to repay a portion of your debts while providing you with legal protection from your creditors.
Exploring these alternatives with the guidance of a Licensed Insolvency Trustee can help you determine the best course of action based on your specific financial circumstances and goals.
It is important to weigh the advantages and disadvantages of each option and consider their impact on your credit rating, overall debt reduction, and long-term financial stability.
Where can I get advice and support on my financial situation?Are you struggling to manage your finances and considering bankruptcy proceedings? It may be time to seek help from the professionals.
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Our expert advisors can help you make informed choices for your financial journey. Don’t hesitate—connect with us today.
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