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If you’re struggling with debt you may consider whether declaring bankruptcy is a solution to help you get a financial fresh start. Read on to learn how to qualify for personal bankruptcy in BC, and get information about the number one alternative to bankruptcy in Canada – a Consumer Proposal.

How Do I Qualify for Bankruptcy Debt Relief?

Bankruptcy is a legal process intended to provide honest but unfortunate individuals relief from unmanageable debt and a financial fresh start. In Canada, there are few criteria that need to be met to qualify for the debt relief bankruptcy offers.

Whether bankruptcy is the best option will depend on the individual’s unique circumstances, but, in general, a person may be eligible to declare bankruptcy if they are insolvent and owe at least $1,000 of debt.

Insolvency VS. Bankruptcy – What Does it Mean to be Insolvent?

To file for bankruptcy a person or business needs to be insolvent, but being insolvent doesn’t mean you are bankrupt. Being insolvent means that a person or business is not bankrupt and:

  • For any reason isn’t able (or willing) to meet their debt obligations are they are generally due,
  • Who has stopped paying their current debt requirements, or
  • Where the total fair market value of your assets is worth less than the total of your debts.

If you think it seems simple to qualify for bankruptcy, you’re right; Canada’s bankruptcy legislation (the Bankruptcy and Insolvency Act) is intended to give straightforward, accessible relief to people who need it.

  • There is no requirement for you to be delinquent in your payments or to have a ‘low’ credit rating to consider bankruptcy for debt relief. In fact, most people who declare bankruptcy have never missed a payment and have a fair credit score.

Just because you meet the qualifiers for bankruptcy doesn’t mean this is your best – or only – option. For example, it usually wouldn’t make sense to file for bankruptcy if you only owed $1,000. When evaluating if bankruptcy is an appropriate solution, a Licensed Insolvency Trustee will take other factors into consideration too, including (but not limited to) your income, the amount of debt you have, and other specific challenges you may be facing.

In fact, most people who seek a Licensed Insolvency Trustee for bankruptcy services discover that making a Consumer Proposal to consolidate and cut their debts is actually a better option than filing for bankruptcy.

When is Filing for Personal Bankruptcy the Best Option?

How the Personal Bankruptcy Process Works in Canada

A person can be released from almost all their debts through bankruptcy and the vast majority of personal bankruptcies in Canada are ‘voluntary’ bankruptcies, which means that the person who is struggling with their debts seeks bankruptcy aid. It is extremely rare for an individual to be legally ‘forced’ into bankruptcy.

The first step in the process is to connect with a Licensed Insolvency Trustee local to your province. If, after having a confidential consultation together, it is determined that bankruptcy is the best option for you, your Licensed Insolvency Trustee will work with you to prepare a set of documents for you to sign to begin the official bankruptcy process.

From there, your Licensed Insolvency Trustee will contact your creditors to let them know about your bankruptcy. By law your creditors will be required to:

  • Freeze your debt balances and stop charging you interest.
  • Refrain from contacting you for payment, and collections and any legal actions will also stop – this includes bank account freezes and wage garnishments (even from creditors such as Canada Revenue Agency).

You’ll begin working on a few key duties that will allow you to successfully complete and receive an official discharge (release) from bankruptcy. In most cases this takes only nine months from start to finish. You can generally expect to:

  • Keep a monthly budget detailing the income and expenses of your household.
  • Provide your Licensed Insolvency Trustee the information and documents needed to file your taxes for the year your bankruptcy starts.
  • Have two private, one-on-one financial counselling sessions with a Qualified Insolvency Counsellor who works with your Licensed Insolvency Trustees.
    • These meetings are an opportunity for you to get support in a variety of financial areas like credit ratings, budgeting, savings and more.
  • Pay the bankruptcy administration fee.
    • In most cases you could expect this to total $2,700 and most Licensed Insolvency Trustees will allow you to pay this via affordable monthly payments.
  • Stay in contact with your Licensed Insolvency Trustee, letting them know if you move or your household experiences a significant change.

In most personal bankruptcies in Canada, you’ll receive a discharge from bankruptcy after nine months (or 21 months if your household income is beyond a government set low-income threshold), and this discharge releases you from the legal obligation of repaying the debts you had included in your bankruptcy, with just a few specific exceptions.

  • Some common debts that will survive bankruptcy include outstanding and ongoing child support and alimony payments, court ordered fines, and student loans if you stopped being a student within seven years of your bankruptcy (special hardship provisions may be available if you stopped school within five years).
  • If you had an ongoing mortgage or vehicle financing when you started your bankruptcy, you may have decided to continue making payments on these ‘secured’ debt(s) to keep the asset(s).
  • There are specific federal and provincial laws in place to safeguard key assets, and most people keep all their assets in bankruptcy.

Debt Forgiveness with Personal Bankruptcy: Step-by-Step

Bankruptcy Alternatives – Learn About Making a Consumer Proposal

If you owe $1,000 or more and want to get out of debt, bankruptcy could be one solution, but there may be others to consider. The same legislation (the Bankruptcy and Insolvency Act) that sets out how bankruptcy works also provides for another legal debt solution – a Consumer Proposal, the top bankruptcy alternative in Canada.

Consumer Proposals can be a great option over bankruptcy and consolidation loans, especially where a person can contribute some repayment towards their debts but is perhaps unable to repay their entire debt plus the ongoing interest charges. Here’s how a Consumer Proposal works:

During a free, confidential consultation with a Licensed Insolvency Trustee in your province, you’ll work together to discuss your personal circumstances and come up with a customized repayment plan that is affordable for you.

  • A Consumer Proposal can consolidate virtually all types of debt, from credit cards to payday loans, lines of credit, overdrafts, and government debts like income tax balances, business GST, credit overpayments and more.
    • You can continue making payments on your car or mortgage outside of your Consumer Proposal if you wish to do so.
  • You’ll offer to repay a portion of your debt that’s affordable for you over a period of up to five years, and your creditors will agree to forgive the unpaid balance and stop all future interest charges. You may be able to cut your debts by up to 50-80%, interest-free.
    • For example, if you owe $25,000 of debt your Consumer Proposal might be to pay $7,500 (30%) by way of monthly payments of around $210 for 36 months.
  • Most people will repay the 20-50% of their debts by making monthly payments, and the entire Consumer Proposal will be coordinated and administered directly by your Licensed Insolvency Trustee.
    • Like in bankruptcy, your creditors will no longer be able to contact you for payment or continue collection actions including wage garnishments.
  • You’ll have the opportunity for two private credit counselling sessions focused on credit building, budgeting, etc. and your Licensed Insolvency Trustee will be available for ongoing support throughout the Consumer Proposal process.

What Debts Can a Consumer Proposal Consolidate? Learn More

Qualifying for a Consumer Proposal is also very easy – you’ll need to owe between $1,000 and $250,000 (not including mortgage debts) and be insolvent.

  • If you’re filing a joint Consumer Proposal (together with your spouse for example), this limit doubles to $500,000.
    • For people who owe more than this a different type of Proposal is available, with some slight differences to the overall process.
  • A Consumer Proposal is not a new loan or financing, so there is no credit check and your credit rating is not a factor at all. This is especially welcome news for people seeking consolidation options who may be otherwise hindered by a low credit score.

There are no administration fees payable on top of what you’re offering to your creditors in a Consumer Proposal. Your Licensed Insolvency Trustee’s administration fees are set by a government tariff and simply paid out of the funds your creditors receive.

  • With no interest, no added fees AND a substantially reduced balance, Consumer Proposal payments are among the lowest and often the most efficient when it comes to options for consolidating debt.
  • You can also pay off your Consumer Proposal early at any time without penalty.

Learn More About Consumer Proposal Costs

Get More Information About Your Debt Relief Options

If you’re facing financial challenges, the best thing to do is to talk with a Licensed Insolvency Trustee. During a non-judgmental, confidential, one-on-one meeting we’ll help you evaluate your situation and all possible debt solutions including but not limited to Consumer Proposals, bankruptcy, credit counselling and more. You’ll learn the ins and outs and decide on the course of action you feel is best for your circumstances.

  • It’s important for consumers and business owners to understand that Canada has only one government-qualified and endorsed debt help professional – Licensed Insolvency Trustees, and the solutions we can help you access are the only options that can allow you to have your debts legally reduced and forgiven.
  • You do not need a referral to speak with a Licensed Insolvency Trustee, and Licensed Insolvency Trustees across the country will offer you a free consultation to talk about your options. It should never cost you to money to talk about your debt solutions.

If you have been offered debt advice or even advised against a Consumer Proposal or bankruptcy by anyone other than a Licensed Insolvency Trustee, it is highly recommended to get a second opinion from a Licensed Insolvency Trustee. Laws and resources around consumer debts and debt solutions are ever-changing and it’s important you have the opportunity to find out the facts from a qualified debt expert.

Discover your debt solution and move forward with your life – book your confidential, free debt consultation with Sands & Associates today.