“Bankruptcy” is a word no wants to hear in regard to their financial situation. It tends to bring with it mixed feelings. Filing for bankruptcy, like most things in life, comes with both pros and cons. The good outweighs the bad for those who find themselves needing debt relief through bankruptcy, but it is important to look at both sides.
Pros of Filing for Bankruptcy
Debt is Eliminated
This if the most obvious benefit of filing for bankruptcy. After you are discharged, you are released of your unsecured debts (except those falling under Section 178 of the Bankruptcy and Insolvency Act which we will discuss later). Credit cards, lines of credits, deficiency on car loans or foreclosures, income tax debt, and some student loans – these are types of debt that bankruptcy can help with. The debt relief offered by filing an Assignment in bankruptcy is an opportunity to get a fresh start.
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Garnishees and Legal Actions are Stopped
When someone files for bankruptcy, creditors can no longer garnishee wages and any Court proceedings are stopped. A “Stay of Proceedings” goes into effect immediately upon the filing of an Assignment in Bankruptcy. The Licensed Insolvency Trustee will notify the creditor that they can longer garnishee your wages. If there is a freeze on your bank accounts, that is also lifted by the Stay of Proceedings. This does not apply to garnishees for support payments or arrears. Nova Scotia Maintenance Enforcement orders are not affected by a bankruptcy.
Collection Calls Stop
Collection agencies and creditors cannot call you after you after you file for bankruptcy. They are required to deal with trustee, not you.
Reduced Stress / Ability to meet living expenses
Unfortunately for many people, prior to filing for bankruptcy, they simply do not have enough money to pay their bills and living expenses. Utilities start to fall behind. Required medication is not purchased. Food is reduced. All of this is extremely stressful. In many cases, once the bill payments are eliminated, people can meet their regular living expense costs. Having a budget that works reduces stress immensely
Credit Counselling / Learning to Budget
Some people already have great budgeting skills and credit knowledge before seeing us, but for many, they look forward to getting some help with
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budgeting. There are two credit counselling meetings you are required to attend with us when you file for bankruptcy. We talk about budgeting and also about future credit use and re-establishing your credit. There is valuable information to be learned during this process.
Fresh Start
Bankruptcy gives you a fresh start free from the crushing burden of your debts. You can makes plans for a positive financial future. This future can include things such as savings for an emergency fund, retirement and even making plans for a future home purchase.
Cons of Filing for Bankruptcy
Credit Rating is Affected
The degree to which your credit rating is affected really depends on the current status of your credit. There are cases where bankruptcy does not make the credit worse because things are already in a poor state due to being in collections. It is a fact that bankruptcy is reported on the your credit bureau. In Nova Scotia, bankruptcy is reported on your credit report for a period of 6 years from discharge in a first bankruptcy. This does not mean that you cannot get credit for this period of time, just that it is reported there. The debts included in the bankruptcy will show as an R9 with a $0.00 balance.
Duties Required Under the Bankruptcy and Insolvency Act
There are duties you must complete in order to be eligible for a discharge of your debts. They are not difficult – but they are required. The Licensed Insolvency Trustee will explain these to you in detail at your free consultation before you make any decisions about filing for bankruptcy.
Canadian Bankruptcy and Insolvency Act
Non-Dischargeable Debts
Not all debts can be released by bankruptcy. Support payments, fines, debts as a result of fraud and student loan debts where less seven years has passed since you ceased to be a student are all types of non-dischargeable debts. The Licensed Insolvency Trustee will advise if you have any debts that fall under this category
Cost of Bankruptcy
When you file for bankruptcy, you make payments according to your income and household size. Directive 11R3 of the Bankruptcy and Insolvency Act provides the annual “Superintendents Standards”. Our bankruptcy calculator can help you understand these costs. If your income is below these Standards the trustee will work with you to find a manageable monthly payment to cover the costs of filing for bankruptcy.
Non-Exempt Assets
Many assets are protected by federal and provincial laws and are exempt from seizure in a bankruptcy in Nova Scotia. However, some are not exempt or are over the exemption limit. In this case either the assets are surrendered or arrangements are made for the bankrupt to buy-back their interest in the assets in order to keep them
Bankruptcy has both pros and cons. It is not the right answer for everyone. We always look at all the options and can often find alternatives to bankruptcy. Sometimes a consumer proposal may be used as an option when there are significant assets involved or high Superintendents Standards. As a professional Licensed Insolvency Trustee we always strive to help the individual understand both sides of all options so they can make an informed decision on what the best solution is.
We are happy to meet with you in Halifax or Kentville to discuss your situation and what applies to it and what does not. Call us at 1-855-733-3032 or email us to get the answers to any questions you have.