Effects of Claiming an Ontario Bankruptcy

Do you think that claiming bankruptcy might be the correct solution for your debt problems? If so, then learn all of the effects, positive and negative, of filing a bankruptcy in Ontario.

Learn the effects of an Ontario bankruptcy

The best and most desirable effect of claiming a bankruptcy in Ontario, is that it gives an individual with overwhelming debts the opportunity for a fresh financial start. It does this by absolving them of their debts, stopping collection calls and ending wage garnishment orders against them. However, not all debts can be absolved. It is very important to ensure that you know which of your debts will be absolved before deciding to file an Ontario bankruptcy. Bankruptcy is also not without some negative effects. This page will help give you a general overview on ALL of the effects that come from claiming an Ontario bankruptcy.

Seizure of Assets: Will you lose everything?

Once you are legally bankrupt you will be required to surrender your assets to a trustee. These assets will then be sold and the money earned will be distributed amongst your creditors. However, you will never be left with nothing! This is actually a very common misconception. Under Ontario law there is a list of items which are exempt from seizure, when claiming an Ontario bankruptcy.

Maximum of $ 5,650 in personal possessions (clothing, jewelry etc.)
Maximum of $5,650 for motor vehicles (cars, trucks, etc.)
Maximum of $11,300 for furnishings
Maximum of $11,300 for any tools of trade (equipment that is used to earn a living)
Certain types of life insurance and investments.

Will my home be seized?

This is a complicated question, as the specific answer will vary according to your individual circumstances.

If you don't have significant equity in your home, then claiming bankruptcy should not affect your house.

There is much to consider when looking at the question of what will happen to your house if you file bankruptcy To get the most accurate answer for your personal situation, be sure to fully discuss the disposition of your home with a licensed trustee.

Mark on your credit rating

Once a person files bankruptcy in Ontario, the Office of the Superintendent of Bankruptcy will notify the credit bureaus and the bankruptcy will be noted on your credit report. For a first time bankrupt, this mark will remain on your credit for a maximum of 7 years. For a second-time bankrupt, it will remain for a period of 14 years.

Having a bankruptcy noted on your credit report flags you to lenders as being high risk. This high risk status will make your ability to obtain future credit much more difficult and increase the interest rates that you will be charged, for any credit that you are able to obtain.

Obtain a secured credit card: A secured credit card is basically a prepaid credit card. You will be required to place a sum of money on deposit with a bank, in order to pledge it as security for a credit card containing the same spending limit as the security deposit. In the event that you don't make your required credit card payments, the bank will then withdraw the money from your deposit and reduce your available credit accordingly.
Borrow secured money. Secured debts are those that are backed up by some sort of asset or guarantee. Should you default on your payments, the creditor then sells the "security" in order to cover the debts. A variation on this method is to have someone co-sign, or guarantee, your debt. In this case, the lender will be granting credit to your co-signer, not you. However, if you repay the loan then your credit record will benefit and if you default, the co-signor will be required to pay.
Borrow for an RRSP. Banks view people with RRSPs a little differently as this demonstrates to them that you are looking towards your future. Then, once you receive your tax refund, you can use that money to help repay your RRSP loan, thereby paying off that debt more quickly then you were actually required. This will cause a marked improvement on your credit report.
Borrow money when you don't need to. Obtain a small line of credit and use it to pay bills only. Then, be sure to immediately pay off the line as you use it. Continue to repeat this process, and over time, it will have a marked improvement in your credit score.

Required duties of a bankrupt

Once your papers have been filed with the Official Receiver, you are legally bankrupt and this declaration cannot be reversed without an official court order. During this bankruptcy period, generally nine months for a first time bankrupt, you will be obligated to perform certain duties; outside of surrendering your assets. All of these duties will be fully explained to you by your bankruptcy trustee. However, below is a very general overview of what some of these duties are.

Some duties of a bankrupt will include:

Attending two mandatory financial counseling sessions;
Monthly Reporting of all income and expenses to your Trustee;
Monthly surplus income payments, depending upon your earning, size of family and individual circumstances.

Will my bankruptcy affect my spouse?

No. As long as all of your debts are solely yours, then claiming bankruptcy should have no affect on your spouse or their credit rating. However, there are some unique circumstances. You need to ensure you are fully aware of all of the details on how claiming bankruptcy affects your spouse, prior to deciding if an Ontario bankruptcy is the correct choice for you.

The act of filing bankruptcy in Ontario is not without some short and long term negative effects. Hopefully this page has helped to educate you regarding the many different effects that claiming an Ontario bankruptcy can have. However, it is important to realize that nothing can replace the advice of a licensed bankruptcy trustee and Hoyes Michalos & Associates are happy to offer everyone a FREE, no obligation, professional consultation. We will review the details of your individual situation and help you decide if claiming bankruptcy is indeed the correct debt management option for you. There is no reason to continue living in the downward spiral of overwhelming debts. You do have options, and we are here to help. Simply contact us today.