If you are facing mounting debt and have started to consider personal bankruptcy, it’s very likely you’ve got big questions to ask. As a Licensed Insolvency Trustee, we often have clients coming in and expressing their fears and concerns around bankruptcy.
While bankruptcy is a last resort to help hardworking individuals get out from under debt, it does carry consequences. Below are our answers to the top five bankruptcy questions we get asked.
Will I lose my house?
Most people declaring bankruptcy that own a house will have a mortgage on that house. The answer to this question depends on how much your house is worth, and the amount you owe on your mortgage.
In British Columbia, if you live in Vancouver or Victoria, your primary residence is exempt from seizure if the equity in your home does not exceed $12,000. Elsewhere in the province, the amount of home equity that is exempt from bankruptcy is $9,000.
If the equity you have in your home exceeds the allowable amount, then your principal residence is subject to seizure and sale. Your creditors are legally entitled to that equity.
You have two options on how to proceed:
- Let the trustee sell your home; or
- Make extra payments from your family income into your bankruptcy to “buy out” that equity.
If you don’t have any equity in your home, your house will not be involved in the bankruptcy at all. You will be responsible for paying your mortgage, property taxes, and all other expenses associated with your home ownership, but you won’t be forced to sell your house just because you filed for bankruptcy.
Will I lose my car?
If you go bankrupt in British Columbia, you’re allowed to keep one motor vehicle worth less than $5,000. (If you’re behind on child support payments, the amount drops to $2,000.) If the car you own is worth more than the amount allowable, and you want to keep it, you may have to pay an amount equal to the excess into your bankruptcy.
If your car is leased or has a loan against it, in order to keep it, you have to make all your payments on it. Otherwise, the leasing or finance company can take it away from you.
Will I ever qualify for a credit card, mortgage, or car loan again?
Yes, and it can happen much sooner than you might think.
First off, your credit rating will definitely be negatively affected when you file for bankruptcy. But consider this: If you’re months behind in paying your bills, missing mortgage payments, getting calls from debt collection agencies, or your wages are being garnished, it’s very likely that your credit rating has already taken a beating.
In British Columbia, a bankruptcy remains on your credit report for six years after you’re discharged (which can happen in as little as nine months after filing). Every creditor during this period will see your bankruptcy on your credit report. But after those six years have passed, there will be nothing on your report to show a bankruptcy.
Your best strategy once you file for bankruptcy is to take steps to slowly rebuild your credit rating over time. Lenders just want to be sure that you are able to repay your loan. If you’re too much of a risk, you won’t qualify. If you’re a high risk, you’ll get a high interest rate and likely have to make a good-sized down payment. The point is, you need to show lenders that you are able to manage your credit more wisely now.
You should be able to get at least a secured credit card immediately after discharge. So get a new credit card, use it to establish a history, and make timely payments on it. Avoid having any debt go into collections. Within two years or so, if you maintain a clean record, your credit score will rise so you can get back to better, and even excellent, credit rates.
Will my family, friends, and colleagues know that I’ve filed for bankruptcy?
The chances are pretty good that they won’t find out about your filing unless you tell them directly. While bankruptcy filings are a matter of public record, any individual looking to search those records must register and pay a nominal fee to do so. It’s unlikely that these personal contacts would go to such lengths.
And if you’re concerned about those legal bankruptcy notices in newspapers, these are really reserved for larger bankruptcies, to put potential creditors on notice. If your assets are minimal, your trustee notifies your creditors by mail and there’s generally no notice in the paper.
Is bankruptcy my only option?
This depends on your particular circumstances. In an initial consultation with a trustee, your trustee will review your financial situation and advise you of the options available to you. Possible alternatives to bankruptcy include:
These are appropriate for debtors who owe less than $250,000 (excluding mortgages), cannot pay their debts in full, have a stable source of income, wish to keep their assets, and seek protection from creditors.
Debt management plans
Debt management plans may be the right solution for those who owe less than $15,000 on just a few credit cards, cannot pay their debts in full, and seek relief from growing interest and penalties.
Debt consolidation loans
These are suitable for debtors who cannot pay their debts in full, have a stable source of income, need to lower their monthly payment, and have good credit and collateral to offer as security.
Implementation of a repayment strategy
This works well for debtors who can budget to find savings, and have very few, small debts that they can repay within a reasonable period of time.
If you are experiencing money problems and realize that you need assistance to get out from under them, contact us today to get your free initial consultation. We’ll help you understand your available options, and the pros and cons of each before you decide how best to proceed.