The Facts about Bankruptcy

If you have got into debt it can quickly spiral out of control, interest rates shoot up so you can’t actually make any headway and you end up borrowing money to pay off other debts. A few unexpected bills, time off work or even loosing your job can lead to you missing payments and from here things can look very grim. The options of bankruptcy and Consumer Proposals exist to ensure people don’t get so in debt that they have no way out.

Many people wont even consider bankruptcy as an option, they may be so lost in debt they see no way out yet think that bankruptcy still isn’t an option for them. Many people don’t realize that they can declare bankruptcy or go for a consumer proposal.

You may need to look at the value of your assets and the value of your debts to see which is higher: if it is the debts this is the first step to bankruptcy being an option. The other thing to consider is whether you can actually hope to pay off debts within a reasonable amount of time: and this will be based on you still having basic living expenses. If the answer is yes then you may need to continue with your debts as they are, if though you are already struggling to make payments or have long term debts which you are not making progress with you can look at the two options mentioned. If you think you can pay off your debts but only if you are given longer and pay less interest then a Consumer Proposal is the option for you. Your debt will be restructured in a way so that you only have to pay an amount each month based on what you can afford; a plan to pay off either the full amount or part of what you owe in full and final settlement will be drawn up between you and your creditors. It is to the benefit of your creditors to go along with a Consumer Proposal as they stand to get money from you for much longer and not just whatever assets you have. If you do have more assets though they may decide to not agree to such a solution and allow you to declare bankruptcy.

With bankruptcy the majority of your assets will be liquidated to pay creditors and you will be left with the basics including (in British Columbia) $4000 of household items, a vehicle worth up to $5000, equity in a home of $9000 ($12,000 in Vancouver or Victoria) and work tools and equipment worth up to $10,000 so you can continue in your trade and support yourself.

Your bankruptcy if it is your first will automatically be discharged after 9 months; during these 9 months any excess income will go to creditors but leave you enough to live on. After your bankruptcy is discharged you will probably notice you have a lot more money spare so that you shouldn’t end up in a spiral of debt again where you may have taken out loans to pay off other loans and allow you to pay interest. You can still get credit if needed though and after only 6 years your bankruptcy will no longer be recorded by which time you may well have built up an excellent credit rating.

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