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Collins Barrow Brown Blog

Should I Declare Bankruptcy?

There are many pros and cons that you will want to consider.

PROS

Immediate budget assistance

Prior to going bankrupt you will obtain a full understanding of your finances and options. We will prepare a monthly budget with you. You will learn how to set spending priorities.

Protection from creditors

Upon going bankrupt you will be protected from your creditors. They will be stopped from taking collection actions. Bank account seizures, wage garnishments and harassing letters and telephone calls will stop. Collection lawsuits will also end.

Better health and relationships

With creditors prevented from contacting and suing you, and having a clear action plan in place, your health and relationships will dramatically improve!

Debt balances frozen

Unsecured debts will be frozen at the amounts owed. Interest and penalties will stop accruing.

Credit rating improvement

The perpetual aging of unpaid debts and collections on your credit report will be stopped. You will begin the process of eventually having bad debts and poor payment histories taken off of your credit report.

Credit counselling and assistance

During bankruptcy, with the assistance of the Trustee and their counsellors, you will receive coaching and help in money management and budgeting.

Debts terminated forever

With a few exceptions, once you have completed your bankruptcy, your debts will be permanently extinguished and discharged.

CONS

Full disclosure of finances

You must make full disclosure of all of your assets, liabilities and your income.

Emotional and personal feelings

There are emotional and personal feelings about having gone bankrupt. Some individuals find it very hard to declare bankruptcy.

Loss of credit cards / credit

The Trustee will take possession of your credit cards and your unsecured credit will be cancelled.

Assets that are kept

The Trustee must take your assets, unless the law forbids seizure. Assets that are exempt from seizure in Ontario include: all necessary clothing; furniture and appliances to a value of $13,150; $6,600 of equity in a vehicle; $11,300 of equity in tools and equipment used to earn a living; RRSP contributions made over a year prior to bankruptcy; and, in some circumstances, $10,000 of equity in a principal residence.

Assets not kept

Assets the Trustee must seize and sell include: cash; non-registered investments; for a principal residence, all of the equity if it exceeds the exemption of $10,000; tax refunds; business assets; and, windfalls and inheritances you become entitled to prior to being discharged from bankruptcy.

In some cases, the Trustee may sell the equity in assets back to you.

Payments to Trustee from bankruptcy income

You will give full particulars of your gross and net income to the Trustee. From this income you may have to pay a required statutory amount to the Trustee. If your income is below a government monthly cost of living you will not have to make a statutory payment.

Cost of bankruptcy

There is a cost to go bankrupt. The Trustee must pay taxes to the federal and Ontario governments. The Trustee is also paid a fee. If there are no receipts in the bankruptcy from the sale of assets, income tax refunds, or required monthly payments from your income, the Trustee will ask you to pay a minimum fee. Monthly payments are usually acceptable.

Credit rating reporting

If you are a first time bankrupt, the bankruptcy will remain on your credit report for 6 years after you obtain your discharge.

If you have had more than one bankruptcy, the current bankruptcy will remain on your credit report for 14 years post discharge.

Post-bankruptcy, you are not prohibited from applying for credit, but the record of bankruptcy will make it more difficult to get credit and it will probably increase the interest rates you will have to pay.

Summary

Going bankrupt can provide many significant benefits. Your finances and health related to debt stress will dramatically improve. On the other hand, there are a number of duties to perform and a cost to go bankrupt.

I hope this blog has introduced you to some of the factors that should be considered prior to going bankrupt.

We would be pleased to answer any questions you may have.

COLLINS BARROW BROWN INC.
David Brown, CPA, CA, Trustee in Insolvency and Proposal Administrator
President

Ottawa, Ontario

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