The thought of filing for bankruptcy can be scary, overwhelming, and embarrassing. You may have heard horror stories from people in Victoria about filing bankruptcy and “losing it all.” In reality, bankruptcy isn’t anything to be feared. In fact, most people who meet with our experienced trustee or administrators state they feel as if a weight has been lifted off their shoulders, after just one meeting.
If you feel like your debts are out of control, and you are wondering what filing bankruptcy would mean for you, let us walk you through the process.
What Is Bankruptcy?
When you file for bankruptcy, you are claiming that you are insolvent, which means that you are unable to pay your debts. If you say you are insolvent, a Licensed Insolvency Trustee will take a look at your income, your assets and your expenses to ensure this is truly the case – that you have no way to pay your debts back.
What to Expect in Your First Appointment
When you meet with a trustee for the first time, they will assess your current financial situation and explain the options available to you. This way, you leave knowing exactly where you stand financially, and what you can, and cannot do. It is important that you understand all of your options, so that you can make an educated decision on what is right for you and your family. There is no cost for your appointment.
How Long Does Bankruptcy Take to File?
Is your phone ringing off the hook with collection calls demanding payments? Has your employer just notified you that your paycheque is being garnished by your creditors? Are you constantly robbing Peter to pay Paul? If any of these situations feel familiar, you may be wondering how quickly you can file bankruptcy to make it all stop.
If bankruptcy is an option for you, you can file it immediately with your trustee. Once filed, you will stop making payments directly to your unsecured creditors. Unsecured creditors are debts without assets tied to them, such as a house or a car. As well, any garnishments against your salary, and any lawsuits against you by your creditors will also be stopped.
How Long Will I Be in Bankruptcy For?
The length of time you will be in bankruptcy depends on your income. During bankruptcy, you must report your income from all sources to the trustee. The Office of the Superintendent of Bankruptcy Canada sets a standard level of income based on the number of dependents in your household. If you earn more than this amount, you will have what is considered “surplus income”, and a portion of it will be required to pay to the trustee during your bankruptcy.
If you are a first time bankrupt, you will be discharged from your bankruptcy in either 9 months if you have no surplus income, or after 21 months if you do have surplus income.
For second time bankrupts, an automatic discharge will take place after 24 months if you have no surplus income, or after 36 months if you do have surplus income.
What Happens to My Home, Car and Other Belongings?
Things of value that are owned by you are called your assets. You can file bankruptcy and still be permitted to keep some assets. In B.C., federal and provincial laws say that you can file bankruptcy and keep your assets as long as they are within these guidelines:
- $4,000 worth of household goods.
- $10,000 worth of Tools of the Trade.
- A motor vehicle worth $5,000 (and $2,000 for maintenance debtors).
- Equity in a home valued at $9,000 ($12,000 in the Capital Regional District)
- All necessary clothing and all required medical aids (of a debtor or a dependent)
- Registered homestead to a value of $2,500.
- Certain insurance investments, where the designated beneficiary is a spouse, child, grandchild, or parent of the person whose life is insured.
- RRSP investments except for amounts invested in the year prior to bankruptcy.
Don’t panic if your assets are valued at more than the guidelines. For example, if you know your vehicle is worth more than $5,000 or you know you have more equity in your home than $9,000, there are often arrangements that can be made so that you may keep possession of the asset.
However, you have to think of it this way. If you are claiming to be insolvent and can’t pay your debts, but you have a vehicle you could sell for $15,000 or a home you could sell and receive enough equity to pay all or a good portion of your debts back, then are you truly insolvent? The trustee will walk you through your specific situation and advise you on what the best course of action may be.
What Debts Can Be Included in My Bankruptcy?
Once you have completed your bankruptcy and are discharged, all of your debts are extinguished. This can include credit cards, lines of credit, overdraft accounts, unsecured loans, payday loans, and many more. However, there are a few debts that will not be released by bankruptcy:
- Child support payments or alimony (spousal support)
- Fines or penalties imposed by the court (i.e. traffic tickets)
- Debts obtained by fraudulent means or fraudulent misrepresentations
- Debts you did not declare that would have the effect of defrauding creditors
- Court awards for damages for bodily harm intentionally inflicted
- Student loans, if you attended the school in the last seven years prior to bankruptcy
How Will My Credit Rating Be Affected?
A first time bankruptcy will appear on your credit report for 6 years after you are discharged. If you were in bankruptcy for 9 months, then your bankruptcy will appear on your credit report for 9 months plus 6 years, or almost 7 years in total.
For second time bankrupts, your bankruptcy will appear on your credit report for 14 years after your date of discharge.
Does this mean that you can’t buy a home, rent an apartment, or get a loan for a vehicle during this time? No, not necessarily. Different leasing agencies, banks, and other lenders have different lending criteria. Your trustee can answer any questions you have about what your future would look like.
I’ve Decided I Want to File Bankruptcy – Now What?
If you decide bankruptcy is what you would like to do, you will complete an application form which will provide the trustee with more detailed information about your financial affairs. This will include a list of your typical monthly expenses, to ensure they are reasonable and that you truly cannot pay back your debts.
The trustee will then prepare various bankruptcy documents which you will sign in order to become bankrupt. This can all be completed by the second appointment with your trustee.
Filing Bankruptcy in Victoria May Be the Fresh Start You’re Looking For
Are you constantly awake at night, worrying about how to pay your bills? Is your voicemail full of collectors demanding payments you just can’t afford to make? Are you feeling embarrassed that your employer has found out you are owing money and aren’t paying it back?
What would a financial fresh start mean to you? If you dream of a life where you can sleep soundly at night, live on the income you earn and learn to manage your money wisely, then call our Licensed Insolvency Trustee in Victoria to start making that dream become your new reality.