Most people don’t like the word ‘bankruptcy’ because they don’t like the idea of going bankrupt. In many cases, that is quite understandable. If you incurred debt, you are responsible for paying for it. If you can’t pay for all of it, you should at least pay part of it. The problem is: life happens. You can’t always control the outcomes. You may have taken on debt with the genuine intention of repaying it, but sometimes that just isn’t possible.
COVID-19 has provided plenty of examples of that situation. Businesses have closed, employees have been laid off or forced to work reduced hours. But even outside of the pandemic, we can’t overlook other common causes of bankruptcy.
Marital strife and relationship breakdowns, for example, are frequent occurrences. We’re never prepared for a marriage or other relationship to fall apart, but when it does a person can quickly go from one set of household expenses and two incomes to an equivalent set of household expenses with only one income. When you factor in spousal and/or child support, the expenses can be crippling.
There are always options, of course, including bankruptcy, consumer proposals, or an informal settlement. (In rare cases, you may be judgement proof, meaning you don’t have to take any action).
When Should I Choose Bankruptcy?
When a debtor has little excess income, no assets available to be realized upon, and no access to cash, bankruptcy can be a good solution. Bankruptcy will stop creditors from harassing you. It will put an end to their ability to secure judgement against you and further pursue your debts (other than secured debts). A bankruptcy can provide quick relief and offer the time you need to rebuild and restructure. If your circumstances change during bankruptcy – for example, if you experience marital reconciliation or find a new job or return to work – you can always reverse the effects of the bankruptcy by filing a consumer proposal. If the proposal is accepted, your bankruptcy filing will be annulled.
Of course, there are certain disadvantages to filing for bankruptcy. Let’s do a quick revie of the pros and cons:
|Generally shorter time frame than proposal||Lose income tax and GST refunds|
|Don’t have to wait for a vote or acceptance, creditors cannot refuse||You will lose or will have to buy back unencumbered assets or they will be sold by the Trustee|
|If you have no assets and low income the overall cost should be less than a proposal||Need to report income and expenses to the trustee every month|
|You still receive financial counselling||You may have to give up a professional designation (e.g. CPA)|
|You can work on rebuilding your credit immediately after discharge (in as little as 9 months)||You may not be able to sponsor family members into Canada|
|Forces you to keep track of your monthly spending||Need to pay monthly surplus to the trustee|
This list is not meant to be exhaustive, but merely an example of some of the common elements that are often considered.
Contact Caplan Debt Solutions
If you would like further information on the bankruptcy process, don’t hesitate to call Caplan Debt Solutions to arrange a free, no-obligation consultation. We’d like to help you “Get Debt Off Your Mind.”