I Need Money to Run My Household – Can I Go Bankrupt?
February 16th, 2016 by Wendy O.
“If I file for Bankruptcy, will I have the means to support my family?”
“I’ve heard it costs money to file for Bankruptcy, and I don’t have enough as it is – how can I afford it?”
It seems like a catch-22 – you have very little money, and the solution itself carries costs. These are common concerns among those facing insolvency problems. You aren’t alone in wondering about it!
It’s helpful as a first step to look at it this way: you probably have monthly payments you are struggling to meet. Things have been getting worse, and you are under a lot of stress, just trying to pay for the essentials.
What if, instead of juggling and trying to pay all your monthly payments, you had just one payment to make? – This, in short, is what happens during a personal Bankruptcy.
What Are the Costs of A Bankruptcy?
1. You will lose certain assets, outside of exemptions that vary by province (which may include tools of work, vehicle value, a percentage of home equity, etc.). A Licensed Insolvency Trustee (LIT) can explain the exemptions to you. Many people struggling with insolvency have few assets to lose. The Bankruptcy will not affect minor, non-luxury personal possessions and furnishings.
2. There are administrative costs to a Bankruptcy, payable to your Trustee according to federal regulations. These are divided into monthly payments over the course of your Bankruptcy (a minimum of nine months). A ballpark figure is $200 per month, but this can be more or less according to your province and your specific situation.
3. Surplus income payments. If your income exceeds the level set by the government as “basic living expenses,” you will be required to pay a portion of the excess into the Bankruptcy through your monthly payments. The income of other wage-earners in your household will influence this amount. If you have a significant monthly income, you may wish to explore Consumer Proposal as an alternative to Bankruptcy. A Trustee will be happy to advise.
What Do You Gain in A Bankruptcy?
First of all – peace of mind. As soon as you file for Bankruptcy, a “stay of proceedings” is enacted concerning your creditors – they may no longer pursue you. You will cease making payments, and any phone calls or letters will stop.
Next – better budgeting. Instead of all those credit payments you were struggling to make, you will now have one monthly payment, which may be lower than your former monthly obligations. You will make a monthly household income/expenses report to your Trustee for the purpose of calculating surplus income, and this process will increase your awareness of where your money goes.
And, most importantly, you gain freedom from your debts. A first Bankruptcy for a debtor with no surplus income will usually be completed in nine months. The usual course of a Bankruptcy with surplus income is 21 months. When you are released from Bankruptcy, the debts it has erased are indeed gone, and those creditors can no longer seek payment.
If you have very little income, and you don’t expect this situation to change (a common situation for retired pensioners, for example), you may be what is termed “creditor-proof,” meaning that your creditors can gain nothing from you, no matter how often they contact you. Proceeding with a Bankruptcy in such a case may not make sense – the costs would exceed the benefits. A Trustee will be happy to discuss such a situation, however, to determine the best course.
If you have a job with a significant income, the surplus income payments in a Bankruptcy may be quite high. If this is your situation, Consumer Proposal may be a better solution, and it offers a greater chance to retain your assets. Again, a Trustee is your best source of information and will be pleased to help.
Seeing A Trustee
For many struggling debtors, seeing a Licensed Insolvency Trustee is the first step to a better future:
- Seeing a Trustee is confidential.
- Your first appointment is free of charge.
- There is no risk – the Trustee cannot force you to take any particular course, but will simply provide information.
- You are also under no obligation to return to the same Trustee, if no paperwork has been drawn up (which typically begins at later appointments).
Only a Trustee can file a Bankruptcy or Consumer Proposal on your behalf, and he or she may advise on other potential insolvency solutions.
Most people who see a Trustee, wish they had done it sooner! Don’t hesitate to book your free, first appointment.