The Pros and Cons of Canadian Bankruptcy

Pros and cons of bankruptcy in canadaIf you are thinking about filing for bankruptcy in Canada, it is important to know the pros and cons of bankruptcy before you file.

Pros:

  1. The creditor calls will stop. When you file for bankruptcy, your creditors are no longer able to contact you for collection of the debt.
  2. 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. However, bankruptcy does not stop the garnishment of your wages by the Family Responsibility Office.
  3. Once you are discharged from bankruptcy, with certain exceptions, YOUR DEBTS ARE GONE. Debts that survive a bankruptcy include student loans that are less than 7 years old, fines and child support.
  4. Filing for bankruptcy will give you a target date for a clean credit report. If you have missed payments on your debt, your credit rating already are marks on it. Doing nothing just extends the time your credit rating is bad.

Cons:

  1. 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.
  2. Bankruptcy negatively affects your credit rating. Filing for bankruptcy will give you a R9 record on your rating and it will stay there for 6 years after discharge for a first time bankruptcy and longer for a second time bankruptcy.
  3. You will lose any non-exempt assets. This would 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 also lose you tax refund for the year of bankruptcy and any prior year's refunds that are outstanding. You also lose your HST cheque.
  4. 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. If you do not perform all of your duties you are not discharged and your debts do not go away.

For most people the pros far outweigh the cons, after all, once their bankruptcy is done, they are debt free and have the fresh start they need to move forward.

If one of the cons for you is that your cost is high because you have surplus income or you have assets you need to protect, a consumer proposal, another procedure under the Bankruptcy and Insolvency Act may be a good alternate solution.

Stressed about your debt? Give us a call at 1-866-747-0660 to talk about the benefits, and costs, of filing bankruptcy.

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