According to Statistics Canada, the average Canadian household carries almost $1.80 in debt for every $1.00 of spendable income. This debt-to-income ratio puts many at risk for foreclosures, repossessions, collections, and other severe financial problems.
Bankruptcy stands as a drastic but necessary option for many. You may qualify for the financial benefits of bankruptcy if you owe at least $1,000 in debt or have more in debt than assets and you can’t regularly pay debts when they become due.
Eliminate Many of Your Debts
With bankruptcy comes a discharge of most unsecured debt. You don’t have to repay these creditors, and they cannot pursue you further. Bankruptcy discharges most unsecured debts, which include the following:
- Bills for prescriptions, dental services, and other medical debt
- Personal loans
- Credit cards
- Student loans (more than seven years after completion of school)
- Taxes upon which there exists no lien
Don’t rely upon bankruptcy to eliminate support payments for spouses, ex-spouses, children, or “common law partners,” Other nondischargeable debts include those that arise from fraud, embezzlement, breach of fiduciary duty, or intentionally causing physical harm, sexual assaults, or deaths from such acts.
Generally, first-time bankrupt debtors can obtain a discharge nine months after filing the bankruptcy petition. If your income exceeds a certain level, you will have to repay some of the debts. In that case, the proceeding lasts up to 21 months.
More Income to Pay the Mortgage
Higher mortgage payments stress the budgets of homeowners. In Ottawa, the rates of borrowers at least three months behind in mortgage payments more than doubled from the third quarter of 2023 to the fourth quarter of that year.
With a bankruptcy discharge, you can devote more of your resources to the mortgage. In Canada, bankruptcy does not automatically trigger a foreclosure that could take your home. At the same time, you do not obtain a discharge of the mortgage. Bankruptcy only eliminates unsecured debt. Your home secures the mortgage debt.
If you face the risk of foreclosure, consider a “consumer proposal.” In this approach, you pay a portion of the unsecured and secured debts over a period of time. After you complete the plan, you have the debt treated as satisfied.
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Keep Your Property
A “fresh start” includes keeping at least some of what you own even as you discharge debts. The trustee will sell only what you cannot exempt or protect to pay toward unsecured debts. The allowed exemptions depend on the particular province in which you live or file for bankruptcy. In Ontario, you may exempt the equity in your main residence, presently up to $10,783. Other exemptions include those for the following:
- Household appliances and furniture
- Tools and equipment used in employment or business
- Retirement savings plans, deferred profit sharing plans, and deferred retirement income plans, except for contributions made by you within twelve months before filing bankruptcy
Turning to bankruptcy can start your path to a new financial beginning. You can emerge from the process free from the weight of heavy debts. Along the way, you will become equipped to better manage money.
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