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What are the exclusions when filing for bankruptcy

Many Countries are struggling with debts of all kinds. Some people can handle their small amount of debt, while others accumulate so much that they simply cannot cope with it.

Many of these options will help you pay off debt, negotiate a lower rate, or just educate you more about your finances. However, in extreme cases, the most common debt relief options may not be enough. In these situations, a person will have to consider bankruptcy. While some people have a basic understanding of what bankruptcy is, most don’t know the full story. 

In order to educate yourself and find the debt relief help you need, this article will not only look at what bankruptcy is, and the process and costs involved, but also clarify what debts and liabilities are. assets that are exempt from filing for bankruptcy in Canada.

What is bankruptcy?

The bankruptcy process is put in place to help people who have no way out of their debts and therefore need help. When filing for bankruptcy, you will need to hire a Licensed Insolvency Trustee, who will work with you to eliminate your debts. As long as your debts exceed $ 1,000, you can technically file for bankruptcy, under the Bankruptcy and Insolvency Act of 1985, which governs bankruptcy.

There are many advantages and disadvantages that accompany filing for bankruptcy. In terms of the benefits, the most important thing is that you can start over financially and you will be out of debt (in most cases). In addition, it is not possible to file for bankruptcy without first agreeing to participate in a financial counseling program. This program will help you become more educated and hopefully prevent you from the same situation in the future. 

However, there are many negative aspects to bankruptcy that you should consider before deciding to apply. The first is that your credit will suffer for about 7 years for a first bankruptcy and 14 years for a second. This means that it will be very difficult to get a mortgage, take out new loans, or participate in other financial situations that use your credit report or credit score. It can be a long journey to bring your credit back to an appropriate level. In addition, bankruptcy will often require you to give up certain equity, including your house, vehicle, household items and tools. Later, we’ll look at some bankruptcy exemptions (assets you will keep ownership of when you file).

How much does bankruptcy cost?

Most people will pay at least $ 1,800 for their bankruptcy. The fees are set by the government and will be the same regardless of which trustee you work with. However, the overall costs of bankruptcy will depend on your regular income, your family size, your assets, and more.

In total, there are three main costs associated with bankruptcy, which are base contribution, excess income, and of course, the costs of assets that you could lose. The base contribution is the $ 1,800 we mentioned above, the assets you lose are pretty self-explanatory, but the cost of “excess income” can be confusing.

If your income exceeds the bankruptcy excess income threshold set by the government, you must make what are known as “excess income payments”. This means that those who make a lot of money will, more often than not, have to pay more for their bankruptcy than those with a lower income.

How does the bankruptcy process work?

The idea of ​​filing for bankruptcy can be a little daunting, but that shouldn’t stop you from doing it if you (and your advisor) have decided it is the best bet for you. However, knowing a little about the process and what to expect can make it a little less scary.

The first step is to find a Licensed Insolvency Trustee who will help you with your bankruptcy. Chances are there are many organizations that offer such services in or around your city.

The trustee should probably be someone close to you and you should feel comfortable working with them. You will be working closely with these people for a while, so make sure you are confident that they are the right choice. These trustees will provide you with all the information you need and you can ask them any questions you have about the bankruptcy process, costs or anything else that comes to your mind.

What debts can and cannot be discharged?

While most people believe that bankruptcy gets rid of all of your debt, it doesn’t. There are some debts that cannot be discharged even if you file for bankruptcy. These include secured loans / liens, child support and allowance and, student loan debt (unless you can prove you will never be able to pay it), tickets, other legal fines. and, of course, debts that you forgot to mention in your bankruptcy application. 

On the flip side, bankruptcy will get rid of most of the debt you find yourself in, like credit card debt and other unsecured debt. On top of that, bankruptcy will make your creditors stop harassing you. Even some liens can be waived due to bankruptcy, but it will depend.

Unfortunately, as you can see, there are many types of debt that bankruptcy cannot help you with. So if you were expecting it to give you a 100% clean slate back, anyway, it might not be.

What Assets Are Bankruptcy Exemptions?

A lot of people may think that you lose all of your assets when you file for bankruptcy, but that is not entirely true. Bankruptcy involves you handing over your assets to the trustee, who then turns them into cash, which they use to pay your creditors. However, it would be inhumane to take absolutely everything that a person owns during bankruptcy. So there are some essential assets (or bankruptcy exemptions) that will not be taken away from you once you file for bankruptcy. 

Limited quantities of the following items are considered “essential”:

  • Food
  • Clothing
  • Furniture
  • Vehicles
  • Tools
  • Goods
  • Principal residence

Sentimental objects

Others (each province has its own rules and inclusions here).

However, do not keep too many hopes; there are limits to all of these exemptions. The limits will depend on your financial situation and where you live. It is imperative that you speak to an insolvency trustee about your situation so that you know exactly what you can keep and what would be lost.

In conclusion

There are indeed some debts that do not go away when you file for bankruptcy, and some of your assets will be exempt during the process.

However, the rules and regulations will vary from province to province and can be extremely difficult to understand (and change frequently), so you should definitely contact a professional in your area for more information. This way you will know exactly what debts can be discharged and the bankruptcy exemptions in your area. We hope this article has helped you understand (and feel better) about bankruptcy and its various intricacies.