Last year, a study by the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) made headlines warning that bankruptcy rates would start rising in 2019. Now that we halfway through the year, has that report been accurate?
Well, the most recent data from the Office of the Superintendent of Bankruptcy Canada show that the number of insolvencies has surged nearly six percent in March 2019 from the same time a year ago.
With many households living paycheque to paycheque, the average credit card debt in the thousands of dollars, and a large number of Canadians hardly keeping their heads above water, it is no surprise that bankruptcy rates would be on the rise. Consumers are desperate, and they will do anything to be debt-free, even if that means filing for bankruptcy.
Are you someone interested in this process? Well, there are steps you need for how to file bankruptcy. Here are five steps for filing for bankruptcy:
1. Receive a Free Debt Assessment
Once you are interested in initiating the bankruptcy process, you will need to get in touch with a licensed insolvency/bankruptcy trustee. This professional will take a look at your financial situation, list the various options available to you, and go through the entire process from start to finish.
It is important that the firm will not always recommend bankruptcy. Oftentimes, after assessing your pecuniary troubles, the licensed professional might suggest alternatives to bankruptcy.
In the end, it is up to you if you wish to move ahead with bankruptcy or work it out with a credit counseling service.
2. Complete Paperwork to Declare Bankruptcy
If you want to file bankruptcy in Canada, there are two primary forms you will need to sign: an Assignment and a State of Affairs.
The first is a document that states you are handing over your property to the bankruptcy trustee for the benefit of your creditors. The second is a list of your assets, expenses, income, and expenses.
Moreover, you will fill in other legal documents and answer several related questions, including your employment situation, the state of your household, the disposition of assets, and so on.
It might be common sense, but it is your responsibility to ensure that this paperwork is accurate and up to date. It is also your obligation to fully understand what these papers mean and that you maintain copies of these notices.
As soon as these documents are prepared, completed, and submitted with the Official Receiver, you are now legally bankruptcy, which also means that you cannot reverse the insolvency declaration without a court order.
3. Perform Your Bankruptcy Duties
For the duration of your bankruptcy, you are required to perform a laundry list of bankruptcy duties.
Here is a list of only a few of these duties:
- Make your bankruptcy payments.
- Attend two credit counseling sessions.
- Notify the trustee of any changes to your situation.
- Provide information about your monthly budget.
- Meet creditors to discuss your insolvency.
- Appear before the Official Receiver to review your case.
These might seem tedious, but they are mandated under Appendix I of the Bankruptcy and Insolvency Act.
4. Get Your Certificate of Discharge
Nine months after filing for bankruptcy, you will receive an automatic bankruptcy discharge. There are caveats:
- You are not a first-time offender.
- A trustee recommends discharge under one or more conditions.
- A creditor or the Superintendent of Bankruptcy opposes the discharge.
- You have a surplus income of more than $200 a month, which extends it by 21 months.
Once your time is up, you will receive a Certificate of Discharge and you will begin to rebuild your credit.
5. Stay Out of Debt
The main thing about completing bankruptcy is to stay out of debt. You do not want to return to insolvency and face an ocean of red ink. So, you need to:
- Establish a budget.
- Spend within your means.
- Use cash for most transactions.
- Remove unnecessary expenses from your budget (gym memberships, cable, data, etc.)
- Get an extra job to pay off any unexpected debts.
Now, there are many myths pertaining to bankruptcy. It is time to debunk them. Here are three myths you need to know:
6. You Will Lose Everything
This isn’t the 1940s anymore. If you bought something on credit and you can’t pay it off, repo men are not going to come to your home and start taking all your belongings. Although you might lose assets if you have a lot of them, you will not lose everything, whether it is an automobile without too much value or a moderate amount of furniture or clothing.
7. Your Credit Rating Will Never Recover
Arranging a consumer proposal and filing for bankruptcy will remain on your credit report for three years. This notation will eventually be gone, but that doesn’t mean you can’t start rebuilding your credit after you have been discharged after nine months. By paying your bills on time, not taking out too much credit, and being fiscally responsible, you can get a head start on your rating.
8. Bankruptcy Will Erase All Your Debt
Sorry, bankruptcy will not erase all your debt. Secured debts, mortgages, student loans, alimony, child support payments, or and court fees, will never be discharged in a bankruptcy filing.
Depending on your situation, bankruptcy is either a good solution or one that will do more harm than good. You can either work hard to pay off your debts or take the easy way out and file a bankruptcy claim. It is up to you. You just need to be aware of the process and what the key myths are.
