If you find yourself overwhelmed with debts and are considering filing a bankruptcy in Ontario, there are some things that you need to know first. Here are some of the most common questions that people ask us about this process.
What are the pros and cons of filing for bankruptcy?
Obviously, the biggest “pro” of bankruptcy is that you get to replace a pile of debts with a clean financial start. The collection calls stop, the debt goes away, and your wages stop suffering from garnishment. Not all debts go away, but the majority of them do. However, it is important to know how much of your individual debt will go away.
The other side of this coin is that you could lose a significant portion of your assets, and your credit score will take a major hit that will take the better part of a decade to go away.
Will I lose all of my assets?
Part of the bankruptcy process includes surrendering your assets to a Trustee. Ontario bankruptcy law provides a list of exempt items – which means that you won’t be left with absolutely nothing. Most of your household and personal belongings fall on that list, as well as the tools that you use to bring in income. There is also protection if your home equity falls below a certain level ($10,000 as of 2015).
What assets are exempt from seizure?
In Ontario, a person filing bankruptcy in 2017 is allowed to keep these items:
- All of your clothing
- $11,300 worth of tools that you use to earn income
- $13,150 worth of appliances and furnishings
- $6,600 for a car, truck or other motor vehicle
- Some life insurance policies, most pension plans and all RRSPs (although recent contributions may be forfeited)
When it comes to deciding how much your assets are worth, Ontario law provides for calculating the fair value, or how much you would get if you sold it at a yard sale. So that $600 flat screen would probably only bring in $100 or $150, and it is this “fair value” that goes to your exemption total. Most people keep all of their assets when they go through bankruptcy.
Will I lose my house?
Unless you have a significant amount of equity in your home, you usually get to keep it. However, if you do have a lot of equity, this is something you would want to discuss with your Trustee before declaring bankruptcy.
What about my car?
In most cases, you get to keep your car too. If you have a lease or a car loan, you just keep making your payments each month. If you own it free and clear, you can keep one vehicle with a value up to $6,600. If your car has a fair value above that, there are other alternatives that you can use to keep it.
What happens to my credit rating?
Credit bureaus find out when you file for bankruptcy in Ontario, and this goes on your credit report for six years after discharge – or 14 years after discharge if it’s a second bankruptcy. Lenders will see you as a high risk, and it will be very difficult for you to get credit in the future. The interest rates that you will have to pay to get that credit will also be quite high.
What happens to my spouse’s assets and wages?
If your debts are just yours (instead of joint debts), then your spouse should see no effect on his or her credit rating. Any joint assets will go into half-liquidation for the part that you own, and if you have any joint debts, they become solely the responsibility of your spouse. Because so many people have joint assets and debts in marriage, though, it is good to go over this with a Trustee before declaring bankruptcy.
You should talk to a bankruptcy Trustee to learn information specific to your current situation. A consumer proposal can take care of the situation with significantly less impact on your credit history and profile than a bankruptcy, so if your equity is right and you can complete your proposal, that may be the right way to go.