If you are having trouble paying all your bills and feel like you’re falling farther behind each month, the possibility of filing for bankruptcy might sound like a good idea. Before you run off to find a bankruptcy trustee, there are some things to consider to make sure that’s your only option.
1. Talk to a Consumer Credit Counsellor
The very first thing you should do is talk to a consumer credit counsellor. Most cities have at least one for you to meet with. Choose a non-profit organization that charges little or zero fee for their services. If you can’t find one close by, you may be able to deal with one online. They’ll help you go over your finances and give you some options.
2. Do a Means Test
Just because a person has a lot of debt or is having trouble paying their bills doesn’t mean they automatically qualify for bankruptcy. Before you file, do a means test to see what a bankruptcy judge will do. Determine your province’s median income; if yours is below it, you should be able to file a Chapter 7 bankruptcy without a problem. If, however, you make more than the median, you have to do some more calculations and see if you have enough income left to repay at least part of what you owe. If this is the case, you probably will not qualify for a bankruptcy.
3. Make a List of Income and Debts
Write out a list of all of your sources of income and all of your debts. If your monthly debt is 35 percent or less than your monthly income, you might not qualify for a bankruptcy.
Please note that child support, alimony, and secured loans are not included in a bankruptcy, so if you have to pay any of these before your bankruptcy, you will still have to pay these if you declare bankruptcy.
4. Investigate Your Options
There are other options available besides bankruptcy. These include debt consolidation loans, debt management plans, and debt consolidation through debt settlement. One of these other options might be a better choice than filing for bankruptcy, which will negatively affect your credit report for six to 14 years depending on if it is your first or second bankruptcy.
5. Talk to a Trustee
Many bankruptcy trustees offer a free consultation. If you find one who does, sit down and talk about your situation to learn more about the process, and to help you make your decision.
6. Different Types of Bankruptcy
There are two different types of bankruptcy in Canada: personal and business. There are two types of personal bankruptcy under the Bankruptcy and Insolvency Act (BIA): a Summary Administration and an Ordinary Administration Bankruptcy. A summary administration bankruptcy applies when your realizable assets are under $15,000. This includes investments, assets, and equity in your home. An ordinary administration bankruptcy applies when your realizable assets are over $15,000.
7. Dangers of Filing for Bankruptcy
Not all debts can be eliminated through a bankruptcy. You need to speak with a trustee to find out if you have any debts that will remain after your bankruptcy. Other consequences mean you might lose some assets and your credit report will show you have filed for bankruptcy. This could affect your ability to obtain a loan, mortgage, or other type of credit. Your HST credits and some tax refunds will likely be affected, as well.
8. Filing for Bankruptcy is Not Free
The cost of bankruptcy in Ontario include government filing fees, court fees, and other administrative fees. The average bankruptcy will cost around $200 a month to cover these costs. Furthermore, you might have to pay surplus income, which is when you have to pay to your trustee 50 percent of your net income over a set minimum threshold. Always talk to your trustee about the likelihood of you having to pay surplus payments.
