When considering debt-relief options, you may wonder if there would be advantages to filing for bankruptcy in Canada. Since we were recently licensed to be able to help those living in Alberta and Saskatchewan, in addition to those we could already help who lived in Manitoba and the Northwest Territories, we can tell you the answer is a definite ‘yes. A few of the advantages are outlined for you below:
Bankruptcy Advantage #1: No more phone calls from creditors
Did you know that if you file a bankruptcy in Canada, your creditors are no longer able to call, email, text, or contact you in any way regarding your debt. This is called a legal “Stay of Proceedings” and once your creditors have been notified, the only way they can contact you is if you’ve chosen to keep a secured asset through the bankruptcy process (you can read more on that here). Otherwise, if your creditors continue to call you, remind them you are in bankruptcy and obtain their contact details (phone number, email address etc.) You can alert your Trustee to the fact that you are still receiving calls and being contacted by your creditors. Your Trustee can contact the creditor directly, and remind them of the bankruptcy, and of the law that states they must stop contacting you. It is important to note, however, that if you choose to file bankruptcy in Canada, anyone else who may be co-signed on the debt will be held responsible. Your bankruptcy does not protect your co-signors.
Bankruptcy Advantage #2: A simple, straightforward process to follow
The Bankruptcy and Insolvency Act lays out the duties of a bankrupt, and you must complete all your duties within the applicable time period, in order to be considered for your discharge. If you choose to file bankruptcy in Canada, your duties will be explained to you, and you will be required to follow the instructions outlined for you by your Trustee and their staff. Most first-time bankruptcies in Canada are a 9-month process, with some extending to 21 months, if certain income thresholds are exceeded.
During bankruptcy, you might wonder who pays for the bankruptcy? Since every case is different, your Trustee will be able to explain the costs, and it may be that your assets, if any, will pay for the bankruptcy.
In Canada, there are only 2 types of bankruptcy. They are called a “Summary Administration” and an “Ordinary Administration”. Although it may not make a significant difference to you, your Trustee will be able to explain the differences to you. In most cases, Ordinary Administration bankruptcies are less common and reserved for those files where a person has over $15,000.00 of assets that are not ‘encumbered’, or secured to a loan. In Canada, there is no such thing as a Chapter 7 bankruptcy or a Chapter 11 bankruptcy, as those terms describe the American bankruptcy process. The bankruptcy process in Canada is somewhat similar to the American Chapter 7 process, however, in Canada, bankruptcies are filed and administered by Licensed Insolvency Trustees. In the United States, the process is generally completed by lawyers.
Bankruptcy Advantage #3: A discharge from your debts
Debts that are discharged upon completion of the bankruptcy include personal loans, credit card debt, and even debts to the Canada Revenue Agency, for amounts such as income tax and GST owed. There are a list of debts that are not discharged in bankruptcy, however, and include such debts as a child and spousal support, Court fines and penalties, and debts relating to fraud and/or misrepresentation (fraud). Please note this list is not exclusive, and if you have concerns that your debt might not be discharged in bankruptcy, discuss your concerns with your Trustee.
Bankruptcy Advantage #4: A fresh start
By far, the biggest advantage of filing Bankruptcy in Canada is a ‘fresh start’. The spirit of the Bankruptcy and Insolvency Act allows an honest but unfortunate debtor a fresh start, unburdened by the debts that they included in the bankruptcy. In many cases, this ‘fresh start’ concept is a significant relief for the bankrupt and is one of the main reasons people consider bankruptcy. In many cases, without a fresh start, health and families suffer, and people lose motivation and find they are vulnerable to depression. The process of Bankruptcy in Canada ensures that there is a financial ‘reset’ button, albeit at a cost. Bankruptcy will show on a credit bureau or report for a period of 6 years following discharge, in the case of a first time bankrupt. In many cases, this is a shorter period of time than a credit report would be impacted by continually missing payments, and having accounts go to collections.
Although there are advantages of filing for bankruptcy in Canada, you might be wondering what are the alternatives to filing bankruptcy? In Canada, if you are unable to qualify for a consolidation loan at a reasonable rate, you might consider a Consumer Proposal as a means to avoid bankruptcy. Working together with a Licensed Insolvency Trustee, you will be able to determine if a Consumer Proposal works for you, and how much you should pay. Generally, a Consumer Proposal will cost more in the long run than a bankruptcy would, but you have a longer period of time to make payments. A Licensed Insolvency Trustee can explain the proposal process to you, including whether or not you qualify to file a Proposal.