Is bankruptcy the right solution to your debt load?

What you need to know about when and how to declare bankruptcy.

It’s often possible to come to some agreement with your creditors before going through bankruptcy proceedings where you can lose some of your property and assets.

When you declare bankruptcy, you must disclose all of your assets. A judge can order these assets to be sold and the proceeds to go to creditors. Each province does have a list of exemptions. These are items that can’t be seized and that you will continue to own.

Although the exemption list does change from province to province, they have many items in common. They include most of your personal and household belongings. They also include the tools that you need to earn a living.

To declare bankruptcy you must file all of the paperwork and disclose all of your assets with a bankruptcy trustee. The trustee will then sell your assets and notify your creditors that you’ve declared bankruptcy. You must agree on the exemptions with your trustee.

Will I lose my home? Your home is only an asset if there is equity in it. If you owe as much as the property is worth, you will be able to keep your home and continue paying off the mortgage.

Will I lose my car? It depends on the province, but generally you can keep a car if it’s needed to earn a living. In Ontario, the car exemption from bankruptcy is $5,650 so you can keep your car up to that amount.

Will my spouse or partner be bankrupt too? Not if the debts are in your name only. If your spouse co-signed the original debt agreement, then they will be responsible for paying the full amount when you are bankrupt.

How long will my credit rating be affected? Your credit rating will be affected for six years after being discharged from bankruptcy. For those six years, you’ll be considered high risk. If it’s your second bankruptcy, it stays on your credit rating for 14 years. There are a number of ways to re-build your credit rating after six years.

Most people whose debts are out of control think that bankruptcy might be the best way to solve the problem, but often there are other ways to fix the issue without losing almost all of your possessions.

If you do have equity in your home, and don’t want to lose it, then perhaps a consumer proposal will be the best solution. Speak to a credit counsellor, a financial advisor or a lawyer to best understand your alternatives.