“Going Bankrupt and Rebuilding Credit in Canada” is a series written by Common Cents Mom (Hollie Pollard) who, in her own words, “really had no sense when she was young but she is a fast study and is learning that you can recover from financial mishaps.” Hollie shares what she is learning and doing on her blog Common Cents Mom.
Bankruptcy Defined
In Part 1 we looked at what can lead you down the road to bankruptcy and in Part 2 we looked at the ways you might want to try to avoid Bankruptcy by consolidating or by using other means. Today we are going to talk about the actual bankruptcy.
As defined by Wikipedia:
“Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay its creditors. Creditors may file a bankruptcy petition against a debtor in an effort to recoup a portion of what they are owed or initiate a restructuring. In the majority of cases, however, bankruptcy is initiated by the debtor that is filed by the insolvent individual or organization.”
To go bankrupt in Canada you have to owe at least $1,000 and not be able to pay your debt. I owed just over $40,000
I filed bankruptcy just a few days ago. When I went to my first appointment at my local trustee’s office I was nervous and well to be honest filled with dread.
I first met with a credit counselor and we went over my debt load, my income and my options. In this case there was only one path that was viable and that was bankruptcy.
My monthly budget was looked at. Because of me being a single parent of one child earning less then $2,300 a month I do not have to make monthly payments. How much you will be required to pay will be determined by a number of factors: income, family size and ability to pay. Your assets are also looked at.
You are allowed to keep:
- your primary residence (if you are a home owner, you will want to seek out separate representation because if your home has equity you may be required to sell the home, as well rules vary province to province so do ask. In most cases though with representation and a plan the residence can be kept.)
- tools of your trade
- sometimes a vehicle
- pensions
- food
- household furniture
For more information on your own personal situation I recommend Bankruptcy Canada. Remember every situation is unique and you will want to ask lots of questions about the process and what you get to keep and what exactly applies in yours.
Basically if you have funds available after there set thresholds then you will have to make regular payments.If you have items of value you may be required to liquidate them depending on value. Again ask questions.
You will have to go back to sign the papers and make your first payment. For me this was $250. At this meeting you will actually meet the trustee who will ask you some basic questions to make sure you understand what you are doing
If your creditors request a meeting you have to attend that. Most of the time time these are not requested.
Basically from then till the time you are discharged the trustee is responsible for making sure you follow the rules.
The rules for me for the next 9 months:
- File a monthly budget; basically I have to account for income and how I am spending it.
- Attend 2 money management sessions
- Take on no new debt
- Allow the trustee to file tax returns on my behalf
- Make my monthly payments on time.
- Surrender all credit cards
If I do all of this then for me I will be discharged (how long you will be bankrupt depend on certain factors relevant to your case) and I will have that 2nd chance in a mere 9 months. Once those 9 months are done then it will be time to rebuild. Next week we will conclude the series with how to rebuild your credit.
Thanks again Hollie for sharing your story so far. We look forward to the last installment tomorrow…
I’m concerned about the accuracy of some of the information in this post. For example, it’s not necessarily true that “you are allowed to keep your primary residence.” Whether or not you can keep your residence depends on (a) whether you can afford to pay the trustee the amount of equity in your house, and, if you have a mortgage, (b) the agreement of your mortgage company. Even if you’ve never missed a payment, your mortgage company has the option to cancel your contract, forcing you to either refinance or sell the house.
if you have an asset like a home you should seek out competent advice. The Trustee in Bankruptcy is required to represent the interests of your creditors. He can tell you about the process but can’t tell you how to protect yourself.
In most cases you can keep the home but as I said, you should be represented.
With competent representation most people can keep their homes. The Trustee in Bankruptcy is required to represent the interest of the creditors. They can tell you how the process works but can’t advise on what a person can do to protect their assets. There are numerous factors involved with a home in bankruptcy which is another reason to have representation.
You are correct if you have a lot of equity in the house you will either be required to pay the trustee the value of the equity so that is can be given to creditors or you could have the home seized. If your house has little or no equity, you can usually make an arrangement with the mortgage company to keep paying your mortgage, and keep your house after filing bankruptcy.Either way you will want to consult legal representation. In most cases there are ways to keep the house. The laws are slightly different in each province.
I am going to have Preet edit the post to include a correction. For me as a non home owner this was not an issue.