Filing for bankruptcy in Canada is a significant decision that comes with both advantages and disadvantages. Understanding both sides of the process can help you decide if it’s the right option for your financial situation.
Bankruptcy pros
One of the main advantages of filing for bankruptcy is the immediate protection it offers. Once you file, creditors are legally required to stop collection efforts, including wage garnishments, lawsuits, and harassing phone calls. Bankruptcy also eliminates most unsecured debts, such as credit card debt, payday loans, and overdue bills, giving you a chance to reset your finances.
Unlike a consumer proposal or settlement the creditors cannot refuse your protection.
While a bankruptcy stays on your credit report for up to seven years (or longer for a second bankruptcy), many people find they can begin rebuilding their credit sooner than expected by making responsible financial decisions.
Bankruptcy cons
On the downside, bankruptcy may require you to surrender certain assets that exceed both a certain value, depending on your province’s exemption limits, and any loans secured by that asset. This might include non-essential property, investments, or luxury items. You may also be required to make surplus income contribution requirement payments if your earnings exceed a government-set threshold.
In addition, not all debts are dischargeable in bankruptcy. Child support, spousal support, and court fines must still be paid, and bankruptcy may not affect some student loans.