Are You Considering Bankruptcy?
Do you think that claiming bankruptcy might be the correct solution for your debt problems?
If so, then learn all of the effects, both positive and negative, of filing a bankruptcy in Ontario. Here are some of the most commonly asked questions and concerns about bankruptcy expressed by people we help.
Pros and Cons of Claiming 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 eliminating debt, stopping collection calls and ending wage garnishment orders.
However, not all debts can be eliminated. It is very important to ensure that you know which of your debts will be absolved before declaring bankruptcy.
Bankruptcy is also not without some consequences. While the pros of claiming bankruptcy means that your debts will be eliminated, you need to balance this against any cons of bankruptcy including any assets you may lose and the effect on your credit score.
What Happens to Assets in Bankruptcy? Will I Lose Everything?
Bankruptcy offers you a fresh start. You are able to keep basic possessions and there are options to keep other assets.
Once you are legally bankrupt, bankruptcy law requires you to surrender your assets to a Licensed Insolvency Trustee. These assets will then be sold and the money earned will be distributed among your creditors.
You don’t lose everything. Under Ontario bankruptcy law there is a list of items which are exempt from seizure, when going bankrupt in Ontario. These bankruptcy exempt assets include most of your personal and household belongings and tools used to earn a living and protection in the event your home equity falls below the set threshold ($10,000 in 2015).
Bankruptcy Exemptions: What You Keep
Under Ontario law, certain assets are exempt from seizure by a bankruptcy trustee in an Ontario bankruptcy. The rules regulating bankruptcy exemptions in Ontario say that in an event of a personal bankruptcy you are permitted to keep the following:
- unlimited clothing
- $6,600 for a motor vehicle (car, truck, etc.);
- $13,150 worth of furnishings and appliances;
- $11,300 worth of tools of the trade (equipment that you use to earn a living);
- Most pension plans, certain types of life insurance policies, and RRSPs (excluding recent contributions).
At Hoyes, Michalos & Associates Inc., prior to filing your Bankruptcy we will ask you to make a list of all items in your house, and to assign a fair value to each item.
We define fair value as the amount you would get if you were to sell that item at a garage sale. Therefore, even though you may have paid $300 for your television, if it is a few years old it is probably not worth more than $50 or $100 at a garage sale. This helps us determine your exempt assets and non-exempt assets.
In truth, most people keep all of their assets in bankruptcy. There are alternatives to bankruptcy like a consumer proposal if you have property valued above the exemption limits that must be realized by your licensed insolvency trustee during bankruptcy.
Will the bankruptcy trustee take my home?
This is a complicated question, as the specific answer will vary according to your individual circumstances and the amount of equity in your home.
However, generally the answer is: If you don’t have significant equity in your home, then claiming bankruptcy should not affect your house.
Will the bankruptcy trustee take my car?
In most cases the answer to this question is no, you can keep your car.
Historically, Hoyes Michalos has only repossessed a vehicle in less than 1% of all bankruptcies filed. If your car is leased or fully secured by a car loan, you can usually just continue to make your monthly payments. If you own your car outright or it is mostly paid off, Ontario legislation allows you to keep up to one vehicle worth up to $6,600. Even if your car is worth more than that, we can still provide you with alternatives.
More detailed information is available in our article about how a house and car are treated in a bankruptcy.
How Does Going Bankrupt Affect my 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. This will impact your report for 6 years after discharge. 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 charged on any credit that you are able to obtain. However, there are ways to successfully rebuild your credit after bankruptcy.
Will Bankruptcy Affect my Spouse?
The general answer to this very commonly asked question is:
No. As long as all of your debts are solely yours, then claiming bankruptcy should have no effect 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.
How To Claim Bankruptcy In Ontario
Bankruptcy in Ontario can only be filed through a Licensed Insolvency Trustee. The process is not difficult:
- Book a consultation with a trustee.
- Meet with the trustee to review your debts, assets and budget.
- Review the costs of claiming bankruptcy.
- Compare bankruptcy with your other options.
- Complete all necessary forms.
- The trustee will file these with the government.
- Your creditor protection begins.
The act of filing bankruptcy in Ontario is not without some short and long term negative effects. Hoyes, Michalos & Associates trustees 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.