The purpose of the Bankruptcy and Insolvency Act is to allow an honest but unfortunate debtor, a fresh financial start. There is a lot of fear surrounding the word bankruptcy and what it means to you and your family. Bankruptcy is only one option available under the Bankruptcy and Insolvency Act, but sometimes it is the most practical solution to deal with your debt load.
Let’s look at some common misconceptions about bankruptcy:
All my assets will be seized!
Each province in Canada has provincial legislation which allows a person to keep their basic assets when filing for bankruptcy. In British Columbia, the Court Order Enforcement Act sets out the following assets may be kept when a person files for bankruptcy:
1. Household furniture up to $4,000
2. Clothing and Medical equipment
3. A vehicle up to $5,000*
4. Equity in a principal residence up to $12,000*
5. Tools used to earn a living up to $10,000
*some restrictions apply
Other Federal legislation allows you to keep your pension and RRSPs (except those contributions made in the previous 12 months).
This list is not exhaustive but gives you an idea that each province allows individuals sufficient assets to maintain their living and when applicable, to earn their living.
Everyone will know!
In most cases, the only people who know about your bankruptcy filing are those whom you choose to share the information with. A legal notice advertising the bankruptcy filing to alert potential creditors is only done where the realizable assets are $15,000 or more or if it is a corporate who’s filing the assignment in bankruptcy.
Bankruptcy filings are a matter of public record and will be reported on your credit bureau report and with the Office of the Superintendent of Bankruptcy.
It will take years to get credit again
Are you behind on payments to your creditors now? Are collection agencies calling you? You do not have sufficient assets to pay your debts in full? If you answered yes, your credit rating has already been negatively impacted and this will likely prohibit you from being able to consolidate your debt or be approved for other credit facilities.
For a first time bankrupt, bankruptcy will be noted on your credit report for 6 years from the date you are discharged, which can be in as little as nine months. A consumer proposal, which is often thought to be a better option, is noted on your credit for 3 years from the date you complete your payments which can be up to 5 years.
A first-time bankrupt will be eligible for discharge from bankruptcy either 9 or 21 months from the date of filing the assignment in bankruptcy. Once discharged, you are free to apply for credit and start rebuilding your credit rating which often means starting with a secured credit card which requires you to give the lender a security deposit.
After two years, Canada Mortgage and Housing will ensure a mortgage if you qualify, however, you need to have a sufficient down payment and a clean record with new credit for that two-year period.
You can obtain financing for a vehicle; however, it may mean paying a higher interest rate.
My partner’s credit rating will be ruined
Your bankruptcy is only noted on your credit bureau, not your partners. If your partner hasn’t co-signed or guaranteed your credit, they are in no way responsible for your debt.
When facing financial difficulties, it is always best to seek out options from a professional before making a decision.
Talking to a Licensed Insolvency Trustee at D. Thode & Associates Inc. is your first step. Licensed Insolvency Trustee’s are the only professionals who can assist with your bankruptcy or consumer proposal filing.
Contact us today for a free consultation.