Personal Bankruptcy Wipes Out Certain Debts
Getting out from under debt is the primary reason people file for personal bankruptcy. The debt that you can discharge includes:
- personal loans, such as payday loans, and
- gym memberships.
Bankruptcy doesnt get rid of all debt, however. For instance, filing for bankruptcy wont relieve you of past due domestic support obligations, such as spousal or child support. Additionally, most back taxes, student loans, and fines and penalties owed to the government are not discharged in bankruptcyalthough exceptions exist. To learn more about debts that youll likely remain responsible for after your discharge, read Nondischargeable Debts: Debts You Cant Discharge in Bankruptcy.
Alternatives To Declaring Bankruptcy
A consumer proposal entails paying back a part of your financial debts in return for your unsecured creditors forgiving the remaining balance owing. A consumer proposal provides a significant benefit for a proprietor or partner in an unincorporated business. Unlike in a bankruptcy, your assets are not available for seizure by the licensed insolvency trustee .
You can take up to 60 months to pay off your consumer proposal. How much you will have to offer your creditors depends on what the unsecured creditors could expect in your bankruptcy. Working with a LIT, you work out that amount through discussion and analysis. A LIT can explain the entire process to you.From a financial viewpoint, a consumer proposal is better than your bankruptcy because it permits the unsecured creditors to recoup a larger part of the debt than they would receive in your bankruptcy.
Things To Do Before Filing Bankruptcy
If you plan to file bankruptcy, there are several things you should or must do prior to filingor even before retaining an attorney.
Here is a brief, non-exhaustive list of the dos and don’ts before filing bankruptcy.
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How Chapter 7 Works
A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. In addition to the petition, the debtor must also file with the court: schedules of assets and liabilities a schedule of current income and expenditures a statement of financial affairs and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case . 11 U.S.C. § 521. Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling evidence of payment from employers, if any, received 60 days before filing a statement of monthly net income and any anticipated increase in income or expenses after filing and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. § 302. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors.
Suspended Income Tax Payments
HMRC will apply a nil tax code when youre bankrupt. This tells your employer not to take any further income tax from your wages for the rest of the tax year . The extra money in your pay that results from this can be claimed by the trustee to form part or all of an IPA or IPO. If the IPA or IPO is wholly paid out of this extra income, it will stop when you start paying tax again.
The NT wont tell your employer youre bankrupt as an NT can be applied for a number of reasons.
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Chapter 7 Bankruptcy Vs Chapter 11
Chapter 7 bankruptcy, also known as liquidation, is what most people think of when it comes to bankruptcy. It involves selling assets and using the proceeds to pay debts. For a business, however, selling assets often results in ceasing operations. Unless a business owner plans to shut down, Chapter 11 is often the better choice for businesses that can continue to generate income to pay off their debts.
|Chapter 7 Bankruptcy|
What Types Of Debt Are Not Discharged In Bankruptcy
You wont be able to walk away from all your debts in a personal bankruptcy. There are 19 categories of debt that are exempted from discharge under the different bankruptcy filings.
There are a few types of debt that are usually discharged in a chapter 13 bankruptcy but not in a chapter 7. These include debts for willful and malicious injury to property, debts from a tax obligation and debt from property settlements in a divorce.
Besides the types of debt that are generally not discharged, a creditor can ask the court to exempt any specific debt. If the creditor can prove you committed fraud when you got the loan, lied on the loan application, or intended to not pay it back then they might keep you from getting it discharged.
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Set Up A Free Consultation With A Licensed Insolvency Trustee
The first step is to sit down with an LIT. A consultation is free of charge and without any obligation on your behalf. The initial consultation is the chance to go over your debts with a federally licensed debt professional who will listen carefully to your financial situation and explain all available debt relief solutions. In many cases, an LIT can find an alternative to filing for bankruptcy.
What Happens To Your Home
If you own your home it can be sold if it is the only way to pay your creditors.
If youre the only owner of the property:
- the value of the property after any secured debts have been paid transfers to the trustee. This is known as the beneficial interest and is sometimes called equity
- the legal title transfers to the trustee and a bankruptcy restriction is added to the land registry record. This will stop you from selling your home or making deals connected to it
The restriction will be removed once the trustee has been paid for their interest in the property.
If you own the property with someone else:
- your share of the property after any secured debts have been paid transfers to your trustee. This is known as the beneficial interest
- a Form J restriction is added to your Land Registry record and the trustee will be told of any deals affecting the property, including a sale
You can still sell the property, but the trustee will get your share of the money from the sale. The Form J restriction will be removed once the trustee has been paid this money.
The sale of your home
The trustee cant usually sell the property without your agreement for a year from the date of the bankruptcy order if you have a partner or children living with you.
You can stop a sale taking place later if a family member or friend buys the beneficial interest in your home. The buyer should contact the trustee.
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What Happens To Your Income
Throughout the bankruptcy process, you will be required to submit monthly revenue and expense reports to your LIT.
If you have surplus income, your bankruptcy term may need to be extended up to 36 months. However, if your income increases during your bankruptcy you may find a new job while you are bankruptcy your term wont necessarily increase. Your monthly income is based on your average monthly income, as opposed to income month over month.
Youwill also need to provide yourLITwith the appropriate information so they can file tax returns on your behalf.
How Does Bankruptcy Affect Your Credit Score
An important consequence of filing for bankruptcy is the negative impact on your .
However, this does not mean that you will never be able to borrow again.
A bankruptcy filing results in an R9 credit rating on your credit report. This will remain on your report for six years after youve been discharged from bankruptcy.
An important part of your financial recovery during the bankruptcy process is devoted to credit counselling and money management. You will learn how to budget, set financial goals and manage credit so that you avoid debt problems in the future. These important tools will help you improve your credit.
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Work Through The Bankruptcy Process And Fulfill Your Personal Bankruptcy Duties
There are a few main duties that you will need to fulfill as part of your bankruptcy filing in Canada. Your Licensed Insolvency Trustee will help guide you through the process and will be available for ongoing support through the proceeding.
These required duties generally include:
- Completing a monthly Statement of Income & Expenses budget form tracking the income and expenses of your household and paying any surplus income calculated.
- Your payments in personal bankruptcy are set by a government tariff and are primarily based on your household size, certain allowable expenses and national low-income guidelines. We will review these guidelines with you in detail and explain how they impact the payment you will make in your personal bankruptcy. Most people will pay $200 per month for the duration of their bankruptcy.
Most personal bankruptcies last for only nine months from the date of signing bankruptcy documents until you are discharged from bankruptcy.
What Bankruptcy Can’t Do
Bankruptcy doesn’t cure all debt problems. Here’s what it can’t do for you.
Prevent a secured creditor from foreclosing or repossessing property you can’t afford. A bankruptcy discharge eliminates debts, but it doesn’t eliminate liens. A lien allows the lender to take property, sell it at auction, and apply the proceeds to a loan balance. The lien stays on the property until the debt gets paid. If you have a secured debta debt where the creditor has a lien on your propertybankruptcy can eliminate your obligation to pay the debt. However, it won’t take the lien off the propertythe creditor can still recover the collateral. For example, if you file for Chapter 7, you can wipe out a home mortgage. But the lender’s lien will remain on the home. As long as the mortgage remains unpaid, the lender can exercise its lien rights to foreclose on the house once the automatic stay lifts.
Eliminate child support and alimony obligations. Child support and alimony obligations survive bankruptcy, so you’ll continue to owe these debts in full, just as if you had never filed for bankruptcy. And if you use Chapter 13, you’ll have to pay these debts in full through your plan.
Eliminate most tax debts. Eliminating tax debt in bankruptcy isn’t easy, but it’s sometimes possible for older unpaid tax debts. Learn what’s needed to eliminate tax debts in bankruptcy.
Eliminate other nondischargeable debts. The following debts aren’t dischargeable under either chapter:
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Fill Out The Bankruptcy Forms
You’ll complete a few dozen pages of forms, in which you tell the court about all of your property, debts, income, expenses, and prior transactions. You’ll list the names of all your creditors, property, and income, list your property exemptions, and decide what you want to do about each of your secured debts. Finally, you’ll disclose property transactions that occurred up to ten years before your case.
Exceptions To Discharge From Personal Bankruptcy In Nine Months
The length of your bankruptcy will be nine months, unless one or more of the following is true:
- You fail to perform all your bankruptcy duties, such as regular payments of surplus income to the trustee.
- You have surplus income .
- You have been bankrupt before.
- There is an objection filed to your discharge.
How much longer your bankruptcy period will be depends on the details of your case. Twenty-one month is typical when the bankrupt individual makes a good salary .
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What Is The Process
The bankruptcy process almost always begins with a voluntarily assignment into bankruptcy although it is possible for someone to be petitioned into bankruptcy by their creditors.
You will work with a Licensed Insolvency Trustee who will administer your bankruptcy, file all necessary paperwork and deal with your creditors on your behalf.
As an officer of the court, the trustee does not work for you or your creditors, although the trustee will ensure that both you and your creditors are treated fairly.
This outline shows the steps involved in a typical straightforward case.
Your trustee will notify your creditors of your bankruptcy, hold the meeting of creditors and will give you your two required bankruptcy counselling meetings that are part of your bankruptcy duties.
If you have any assets you have to surrender because they are not protected by the exemptions the trustee will hold these assets until they can be sold and then will hold the funds from the sale in trust for distribution to your creditors who have submitted a valid Proof of Claim on debts that you owe to them.
You must finish any of the bankruptcy duties required and make all required payments to your bankruptcy estate in order to receive your bankruptcy discharge.
Need Help Reviewing Your Financial Situation?Contact a Licensed Trustee for a Free Debt Relief Evaluation
* You do not complete all of your required bankruptcy duties.
Bankruptcy Terms You Should Know
These arent all the terms youll encounter during the bankruptcy process but some of the most important youll need to know.
Automatic stay is a court order that automatically stops lawsuits, collections, foreclosure and garnishments of debt by a creditor while the bankruptcy proceeds.
Bankruptcy code is the name for Title 11 of the United States Code , the federal bankruptcy law.
Bankruptcy judge is the court official for each United States district bankruptcy court
Bankruptcy petition is the document filed by the debtor that formally opens a bankruptcy case. It can be opened voluntarily or involuntarily by creditors.
Chapter 7 is a liquidation of assets in personal bankruptcy, the sale of non-exempt property to pay creditors.
Chapter 9 is bankruptcy reorganization for municipal governments like cities and towns
Chapter 11 is bankruptcy reorganization for corporations or partnerships
Chapter 12 is a special type of bankruptcy for farmers or those in the fishing industry
Chapter 13 provides for the adjustment of personal debts in a repayment plan, usually over a three- to five-year plan
Chapter 15 deals with cross-border bankruptcies and debts
a person or business owed money to by a debtor
is generally a requirement of filing personal bankruptcy and entails two events. The debtor must receive an individual or group briefing from a non-profit credit counseling agency and go through an instructional course in personal financial management.
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What Is A Trustee And What Is A Trustees Role
A Licensed Insolvency Trustee is the only professional who can administer a bankruptcy in Canada.
Licensed Insolvency Trustees are federally licensed and regulated by the Office of The Superintendent of Bankruptcy. Trustee fees are regulated under the Bankruptcy and Insolvency Act and are moderate, so the cost of bankruptcy is tends to be reasonable.
Fill Out An Application
This does not have to be on the day of your appointment, and only occurs after you have explored all your options and have decided that a bankruptcy is the most effective solution for your situation. Your LIT will guide you through the paperwork, which includes various statements, like the Statement of Affairs and an Assignment of Assets, to disclose the details of your financial and professional situation.
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What Happens To The Property I Own That Is Subject To A Lien
In some cases, the Bankruptcy Court can set aside or reduce a lien on your property. Additionally, individuals who want to keep the property secured by a lien can enter into reaffirmation agreements with the secured creditors. Under a reaffirmation agreement, the debtor promises in writing to continue to pay the amount owed to the creditor despite the bankruptcy and in return, the creditor agrees to not seize the secured property so long as the debtor continues to make the necessary payments. All reaffirmation agreements must be filed with the bankruptcy court. If you default on your payments under a reaffirmation agreement, the creditor can hold you liable on any deficiency and repossess the secured property accordingly.