What Happens If I Declare Bankruptcy
When you declare bankruptcy, you will file a petition in federal court. Once your petition for bankruptcy is filed, your creditors will be informed and must stop pursuing any debt you owe. The court will then request certain information from you, including:
- The total amount of debt you owe
- A complete list of all your creditors
- An accounting of your total income
- An accounting of your outgoing expenses
You are permitted to represent yourself in bankruptcy court. You are also allowed to hire a bankruptcy lawyer who can serve as your advocate and help you navigate the complicated process of what happens if you declare bankruptcy.
Having your debt discharged or reorganized in bankruptcy court can take a lengthy period of time. Should you get a lawyer, your lawyer can help you understand the relevant timeline in your bankruptcy case.
What Not To Do
The biggest mistake people make in bankruptcy filings is trying to game the system. All your assets may be seized in a bankruptcy and failing to disclose all of them can result in criminal charges
Just ask tennis player Boris Becker, currently looking at jail time in the U.K. for hiding assets. Do not transfer property to family or friends before you file. It will be clawed back.
Honest debtors get a fresh start, while dishonest ones can potentially go to jail.David Leibowitzhead of Lakelaw
Also don’t max out your credit resources before you file. The court will not look kindly upon it. Never use funds from retirement accounts to pay off debt.
“Truth and transparency are critical to the bankruptcy process,” said Leibowitz. “Honest debtors get a fresh start, while dishonest ones can potentially go to jail.”
What Is Bankruptcy Declaring Personal Bankruptcy Meaning
Personal bankruptcy in Canada is a legal process, governed by federal law .
Insolvency is defined as the inability to meet your financial obligations , combined with the lack of assets sufficient to pay these bills.If you are insolvent and owe more than $1,000 in total, you qualify for declaring bankruptcy in Canada, which may be a practical option for your situation. However, meeting this requirement does not mean you mustfile for bankruptcy other options can be explored with the help of a Licensed Insolvency Trustee.
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How To Avoid Personal Bankruptcy
Sometimes, the best piece of advice is also the simplest: avoid ignoring debts you can no longer manage. The longer you wait to address your debt issues, the more damage they will do to your credit score. Generally speaking, late or missed payments remain on a credit report for seven years. Even worse, not only will creditors see these delinquencies but so will potential landlords and employers.
This is why it’s important to take action as soon as you start having difficulties paying on time. If possible, try to contact your creditors directly instead of just defaulting immediately by stopping all payments right away. Some groups are willing to work with consumers who are facing financial hardship in order to avoid filing for bankruptcy or other legal processes.
What Happens When You Are Declared Bankrupt
There are a lot of consequences and restrictions imposed on someone who is declared bankrupt such as:
1. The Director General of Insolvency will seize your assets and monitor your finances
All your assets will be seized and placed under the administration of the DGI, who will manage it to repay your outstanding debts. The DGI can sell your assets and distribute the earnings amongst creditors.
The DGI can also use a percentage of your monthly income to settle your debt.
On top of that, your finances will be monitored, and you are required to submit an account of all your income and expenses to the DGI every six months.
A bankrupt is not allowed to make direct payment to creditors. All payments must be made through the DGI.
A bankrupt cannot travel overseas without written permission from the DGI or court.
3. Limited financial freedom
Your existing bank accounts will be deactivated, and all transactions will be barred. If you want to open a new bank account or continue using an existing account for reasons such as crediting your salary, you have to get permission from the DGI.
Plus, to ensure you dont overspend, you are not allowed to spend more than RM1,000 on your credit card or obtain credit over that amount from any creditor.
4. Restrictions on employment
You wont be able to work in professions with a professional association or licensing authority that restrict employment of bankrupts such as being employed as a lawyer, accountant, doctor, and quantity surveyor.
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Laws Governing Bankruptcy In Canada
Federal bankruptcy laws are set out in the Bankruptcy & Insolvency Act.
The BIA defines three types of insolvency proceedings available to individuals seeking a resolution to their debts:
- personal bankruptcy,
- consumer proposal,
- and a Division I proposal.
Bankruptcy can only be filed with a Licensed Insolvency Trustee. The role of the bankruptcy trustee is to ensure that the rules and laws around the bankruptcy process are applied fairly to both the debtor and creditors.
Bankruptcy legislation is what provides immediate protection from creditor actions, known as an automatic stay of proceedings. It is the stay that ensures collection agencies and creditors stop calling and allows your trustee to stop a wage garnishment.
Provincial laws also impact your bankruptcy, including legislation that defines what assets are exempt from seizure when you declare bankruptcy.
Alternatives To Filing Bankruptcy
Filing bankruptcy means you arent able to keep up with payments on your debt so bankruptcy alternatives should either increase your ability to pay or decrease the debts you have.
1) Getting a second job or even a weekend side hustle could save your credit score and turn into a full-time job you love. I never would have believed how much I could make owning websites but now make six-figures after less than five years. You dont need to make extra money forever, just until you can get your debts under control.
2) A chapter 7 bankruptcy is going to mean you have to sell anything of real value so you might as well do it before the bankruptcy to pay down debt. Selling the second car or anything else to pay down a few debts might keep your head above water without getting a night job.
3) Taking out a debt consolidation loan may be a way of lowering your payments and even saving money on interest. This is where you apply for a personal loan to pay off a group of debts, reducing your bills to just one payment. Debt consolidation can extend the time you have to repay and lower your rates but you need to apply before your credit score falls too low to qualify.
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Overview: What Is Bankruptcy
Bankruptcy is a legal process for individuals or companies that are unable to pay their outstanding debts. You can go bankrupt in one of two main ways. The more common route is to voluntarily file for bankruptcy. The second way is for creditors to ask the court to order a bankruptcy.
If you decide to file for bankruptcy yourself, there are several ways to do so. You may want to consult a lawyer before proceeding so you can figure out the best fit for your circumstances.
What Are The Disadvantages
Since your bankruptcy filing will remain on your credit record for up to ten years, it may affect your future finances. A bankruptcy is a troublesome item in your credit record, but often debtors who file already have a troublesome history.
In one respect, bankruptcy may improve your credit records. Because Chapter 7 provides for a discharge of debts no more than once every eight years, lenders know that a credit applicant who has just emerged from Chapter 7 cannot soon repeat the process.
Research in this area has produced mixed results. A study by the Credit Research Center at Purdue University found that about one-third of consumers who filed for bankruptcy had obtained lines of credit within three years of filing one-half had obtained them within five years. However, the new credit itself may reflect the record of bankruptcy. For example, if you might have been eligible for a bank card with a 14 percent rate before bankruptcy, the best card that you can get after bankruptcy might carry a rate of 20 percentor you might have to rely on a card secured by a deposit that you make with the credit card issuer.
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Disadvantages Of Filing For Bankruptcy:
The Bankruptcy and Insolvency Act is the legislation by which Licensed Insolvency Trustees administer bankruptcy files. The laws and regulations of the Act are meant to balance the scales between the need of an honest but unfortunate debtor for a fresh financial start, and the rights of the creditors. For this reason, declaring personal bankruptcy in Canada has some disadvantages:
- Bankruptcy will lower your credit score for a minimum of six years from the time your bankruptcy is completed
- Some of your assets may need to be surrendered, and/or a portion of your income above a certain level may need to be paid into your bankruptcy
- In bankruptcy, you must provide the Trustee with detailed income and expense information
- Your income tax refund, if you get one, is part of the bankruptcy and is forfeited to the Trustee for the year of bankruptcy
If you have reached the point where you are over-extended and can no longer afford your debt, the advantages of filing for bankruptcy or consumer proposal likely far outweigh the disadvantages.
Different Types Of Bankruptcy
For individuals, there are two main types of bankruptcy cases. Most individual debtors file for Chapter 7, which can also be described as âstraightâ bankruptcy or âliquidation.â Under this plan all non-exempt assets are converted to cash , and secured creditors may have the item they financed turned over to them , unless the debtor reaffirms the debt with the courtâs approval prior to obtaining a discharge. Chapter 13, also called âreorganization,â is an option for people with regular income and debts that are less than the limits allowed by law. When you complete a Chapter 13 plan, you have the satisfaction of keeping your assets, paying your creditors, and possibly discharging some of your debts.
Bankruptcy is a serious step. If you choose to file Chapter 7 or Chapter 13, you will probably need to hire an attorney. Be sure to find an attorney who has experience handling the type of bankruptcy case you plan to file. The following overview of Chapter 7 and Chapter 13 will give you some idea of whatâs involved.
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Personal Bankruptcy Can Save You From Lifelong Financial Loss But You Need To Understand The Bankruptcy Process And How To File Correctly
I had a high school teacher that was fond of saying, Show me an income and Ill show you how to live above it. It wasnt until I got older and had to start paying bills that I realized how true it was.
Financial trouble can strike anyone, from the richest to the poorest. Walt Disney, rapper 50 Cent and even President Trump have all filed bankruptcy.
Hundreds of years ago, if you couldnt pay your debts, you might be convicted as a criminal or sold into slavery. Personal bankruptcy was established as a last resort to save debtors from lifelong financial loss but that doesnt mean the process is an easy one.
Going through bankruptcy can affect your life for years after but it might be the only solution. Understanding the bankruptcy process as well as the difference in types of bankruptcy can help you through the ordeal in the least amount of stress possible.
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Filing for bankruptcy can feel stressful, but the process can reset your finances and allow you to create a more stable fiscal foundation for the future. However, bankruptcy should be a last resort solution, as it will not only cause considerable damage to your credit score, it will also remain on record for 7 or 10 years, depending on the type.
An experienced bankruptcy lawyer will help you navigate the process to help you decide the type of bankruptcy to file for, correctly value your property and determine which debts can be wiped away or still need to be paid.
While you can go it alone, filing for bankruptcy without a lawyer can lead to disastrous results. According to the American Bankruptcy Institute, less than 50% of debtors filing for Chapter 7 without the assistance of a lawyer had their debts discharged. Conversely, 94% of debtors represented by Chapter 7 bankruptcy lawyer cases had their debts discharged.
Continue reading to learn more about what a personal bankruptcy lawyer can do to make your filing less stressful.
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Questions For Your Attorney
- Would filing for bankruptcy help resolve my financial problems?
- Which bankruptcy chapter would best fit my needs?
- Will I have to pay all of my bills through a Chapter 13 repayment plan?
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When To Declare Bankruptcy: 8 Questions To Ask Yourself
Most people take their financial obligations seriously and want to pay their debts in full, but knowing when to file bankruptcy and when to negotiate or use another strategy can help put you on the road to financial health.
Here are a list of questions that can help you assess your financial health and give you insight into whether bankruptcy may be right for you. You should also discuss these questions with an attorney.
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The Personal Bankruptcy Process
Lets start by saying that filing bankruptcy should be a very last resort. It might sound great to just wipe out your debts and start over but bankruptcy isnt starting over. You might not be digging yourself deeper into debt when you declare bankruptcy but youll still be in a financial hole from which youll have to claw your way out over the next several years.
Your official bankruptcy case begins when you file a petition in court. In reality, the process usually starts with finding a bankruptcy lawyer to help you with the case.
The bankruptcy filing will include:
- A list of all your assets, things you own, and your liabilities or debts
- A list of all creditors
- A budget of your current income and spending
- A statement of all your finances
- A schedule of all contracts and leases
- Tax returns for the most recent year
- A certificate of credit counseling
- Copies of any debt repayment plans worked out in counseling
Filing fees for bankruptcy vary by state but are generally between $250 to $500 including administrative and trustee fees. Lawyers fees for bankruptcy can cost several thousand dollars.
A bankruptcy filing creates a temporary estate for all your assets and debts. An impartial trustee is put in charge.
The process for filing chapter 13 bankruptcy is almost exactly like chapter 7 except you also file a repayment plan with the court. The repayment plan provides for fixed payments, either bi-weekly or monthly, to the case trustee to pay creditors.
Which Do I File Chapter 7 Chapter 11 Or Chapter 13
Most consumers choosing which type of personal bankruptcy to file will look at two options Chapter 7 and Chapter 13.
- Chapter 7 is the quicker option of the two. It generally takes about 90-120 days to complete. Your assets are liquidated or sold and the proceeds are used to pay your creditors off. However, many assets may be exempt from liquidation even a home or car below a certain value can be saved. In fact, only about 4% of people who file chapter 7 have any assets liquidated.
- Chapter 13 is called wage earners bankruptcy because it sets up a three- to five-year repayment plan. You must make monthly payments that get distributed to your creditors to pay back a percentage of what you owe. Once you complete the repayment plan the remaining balances will be discharged.
Although individuals can also file for Chapter 11, its highly uncommon and mostly meant for businesses. Individuals only qualify for Chapter 11 if their personal asset totals are too high to file Chapter 7 or 13.
I typically lean towards the Chapter 7 route because the fresh start comes fast, the consumer is almost immediately protected from creditors and collectors, and people can get back to saving quickly.EXPERT: Steve Rhode, The Get Out of Debt Guy
Chapter 13, for example, may be best if you want to save your home, Mark Scribner explains. While many homes may qualify for an exemption, a primary residence with a high property value or a vacation home would not.
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