What are the consequences of personal bankruptcy?

There are four major things that will happen when you declare bankruptcy.

What are the consequences of personal bankruptcy?

If you’ve been struggling to pay off your debt for years, and it seems like there is no hope left for you to pay it all back, you might consider personal bankruptcy.

When you declare bankruptcy, you surrender your assets in return for a fresh start.

Talk to a financial advisor

For some people, this is the only way to get back on their feet. In most cases, talking to a financial advisor can help you create a plan to pay back the debt without declaring bankruptcy.

Other options

Other options like a debt consolidation loan can help as well.

A debt consolidation loan will let you pay off all of your debts to all creditors with a single manageable monthly payment.

To be eligible for a debt consolidation loan, you must have a reasonable credit score and collateral for the loan, such as a car or boat.

Declaring bankruptcy

If you are left with no other options, or you have been advised by a financial advisor to declare bankruptcy, it will affect you in a number of ways.

1. You will lose some of your assets

In Canada, when you declare bankruptcy, you will lose many of your assets.

If you have a valuable car, it will likely need to be surrendered to help pay back the creditors you owe.

You will also lose any RSP contributions that you have made in the 12 months before bankruptcy.

You will however be able to keep personal items such as clothes and furniture. If your house is worth more than what is owing on your mortgage, in most cases you will lose equity.

2. There will be payments you will need to make

Each month, your income will need to be reported to a federal trustee.

If your earnings are more than what is expected, you will need to pay more.

Bankruptcy can be expensive, especially for higher income individuals.

3. It will affect your credit report

For six years, a note on your credit report will tell creditors that you declared bankruptcy.

This will make it very difficult to secure a loan or borrow money during that period.

It’s a good time to start looking at your finances and be careful to never spend more than you make.

4. Your debts will be gone

The biggest advantage to bankruptcy is being debt-free.

For some people, this fresh start is an opportunity for them to be smarter with their finances and begin saving for the future.

If you owe child support or court fees, they will still need to be paid and they can not be eliminated by bankruptcy.

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