Personal bankruptcy

What is personal bankruptcy?

Personal bankruptcy is a legal process, governed by federal law. The law is designed to permit an honest but unfortunate debtor to obtain relief from his or her debts while treating creditors equally and fairly.

Bankruptcy typically lasts 9 months. Some assets are not taken from you in bankruptcy. These are  “exemptions” that the government has determined you need to survive. The goal of personal bankruptcy is to give you a fresh start – not to punish or humiliate you. You will typically retain personal items.

Who can administer a personal bankruptcy?

A Licensed Insolvency Trustee is the only professional who can administer a bankruptcy in Canada. For example, someone like Murphy & Associates. Licensed Insolvency Trustees are federally licensed. Fees are regulated and moderate, so the cost of bankruptcy is reasonable.

Pros & Cons of Personal Bankruptcy

Pros

  • Creditor calls will stop. When you file for bankruptcy, creditors are no longer able to contact you for collection of the outstanding debt.
  • Bankruptcy stops most wages garnishments. When you claim bankruptcy, your trustee will notify your employer, the court and the creditor to stop the wage garnishment. 
  • Once you are discharged from bankruptcy, with certain exceptions of course, YOUR DEBTS ARE GONE. Debts that survive bankruptcy include student loans that are less than 7 years old, fines and child support.

Cons

  • Bankruptcy costs money. You have to make payments based on your income, and may have to pay an administrative charge. The more your make, the more your bankruptcy costs and the longer it lasts.
  • Bankruptcy negatively affects your credit rating. Filing for bankruptcy will stay on your record for 6 years after discharge for a first time bankruptcy and longer for a second time bankruptcy.
  • You will lose any non-exempt assets. This will include RESP’s and any contributions you made to your RRSP in the past year. If you have a house and it has equity, the equity needs to paid into your bankruptcy. 
  • You have duties to perform in a bankruptcy. You need to perform all of your duties in order to get discharged from your bankruptcy. These duties include reporting your monthly income, making payments, attending credit counselling and providing income tax information. 

We offer Personal Bankruptcy. Let us help you! Any questions?
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