If you’re reading this article, you’re likely feeling overwhelmed by significant debt.
You also probably believe your money troubles have gotten so out of control that bankruptcy is your only viable option.
As a Licensed Insolvency Trustee with decades of experience helping Canadians resolve their debt problems, I can appreciate what you’re going through.
Not only do you have to deal with financial pressure, you’re also anxious about the prospect of filing for bankruptcy. You may be feeling guilty, embarrassed, or concerned about how bankruptcy will affect you and your family.
If this sounds familiar, you’re not alone. We see it time and again in our offices.
Debtors like yourself coming in with loads of personal bankruptcy questions.
You first need to understand…
Bankruptcy is simply a way for honest, hard-working debtors to achieve relief from financial pressures.
In an effort to help you learn more about the process, here are three of the top bankruptcy questions we receive – and our answers.
1. Will I lose my home?
This is perhaps one of the greatest fears for debtors when it comes to bankruptcy.
The answer depends on how much equity you have in your home.
Equity is calculated by subtracting the mortgage and property taxes you owe on your home, from the home’s value.
If you have little to no equity, you can renew your mortgage and keep your house. You needn’t worry that your home will be seized as part of the bankruptcy. In BC there is an exemption for equity in a principle residence in the amount of $9,000 (or $12,000 in Vancouver and Victoria).
If you have a lot of equity in your home, however, you won’t be able to keep it. This makes sense. After all, how fair is it to your creditors if you get to keep money while the debts you owe them are discharged.
In such a case, your home would be sold by the Trustee for the benefit of your creditors. Alternately, you could make an arrangement with the Trustee to keep the home and pay that equity into the bankruptcy – either by way of second mortgage (if possible) or borrowing money from friends or family.
I note here that a better option, if you do have a lot of equity in your home, would be to submit a consumer proposal – instead of filing for bankruptcy.
2. Will I ever be able to repair my credit post-bankruptcy?
Most if not all of us are aware that bankruptcy has a negative effect on our credit rating.
While it’s true your bankruptcy will show up on your credit report for six years after discharge.
There is life after bankruptcy. And you can begin the process of rebuilding your credit immediately upon filing.
Here are a few tips on how to do just that.
a. Complete your bankruptcy as quickly as you can.
It typically takes 9 months for a first-time bankrupt to be discharged, assuming you meet your duties and obligations during the process. (This includes filing your monthly reports, making your payments and attending two mandatory credit counselling sessions.) By finishing as quickly as possible, the clock will start ticking on the six years that your bankruptcy shows up on your credit report.
b. Set aside money in an emergency fund.
After your bankruptcy, prospective lenders will want to see that you know how to manage your finances – and that you will repay any loan given to you. Obtaining a small secured car loan and paying it regularly is perhaps the best way to demonstrate this. Another important way is to have cash savings. You want to have cash on hand so you don’t end up relying on credit to get you through life’s unexpected emergencies. After your bankruptcy is discharged, consider taking the same amount of your monthly bankruptcy payments and putting it directly into your savings.
c. Apply for a secured credit card – and use it wisely.
A secured credit card is basically a card you put down a cash deposit for. The limit on the card is the amount of the deposit. It’s a start to rebuilding your credit. We suggest you use this card only for bills that you already have in your budget, such as a cell phone bill. This way, you have the cash ready to top up the deposit at the end of each month.
d. Get a copy of your credit report.
Ensure your credit report is accurate. Have any errors immediately rectified with the credit bureaus.
3. How do I choose the best Licensed Insolvency Trustee?
If you are considering filing for bankruptcy, you will need the assistance of a Licensed Insolvency Trustee (LIT).
These are the only professionals authorized by the Canadian government to assist debtors with submitting consumer proposals and filing bankruptcies.
LITs are federally licensed and regulated. They undergo years of education and practical experience, and are required to take continuing education during the life of their profession. What’s more, LITs must adhere to strict ethical rules and regulations.
You can expect solid, unbiased advice and trust that your LIT will follow all rules while administering your bankruptcy.
But not all LITs are created equal. Here are some tips to finding the best LIT for you.
a. Make sure you choose an LIT that is local or easily accessible to you.
You will be seeing your LIT a few times – in person – throughout the bankruptcy process. You should choose one that is easy for you to get to.
b. Ask colleagues, friends, or family for a recommendation.
If you have a personal contact that has filed for bankruptcy before, you can ask them who they went to, as well as what to expect.
c. Do your research.
Check out the LIT’s website. Are there resources and information there that are helpful? Is the blog current? Does the LIT appear credible and knowledgeable?
d. Confirm the LIT you choose is indeed licensed.
You can confirm this on the Government of Canada’s Licensed Insolvency Trustee registry, here.
e. At your free initial consultation, be mindful of how you and the LIT communicate.
Do you feel comfortable asking questions? Do you understand the responses the LIT gives you? The bankruptcy process will last at least 9 months, so you want to be sure that you feel comfortable communicating with this person and trust that they can do the job. If the answer is negative, then seek out another LIT – and find one that you feel comfortable with.
Do you have more bankruptcy questions in Canada?
For more common bankruptcy questions, click here. Better yet, pick up the phone and schedule your initial free consultation with us. Our mission is to help you find the debt relief you seek. We look forward to hearing from you.
Photo by Robert Wiedemann on Unsplash