Chapter 7 Bankruptcy And Chapter 13 Bankruptcy Statistics
By: Jack Caporal |Updated Jan. 5, 2023
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Bankruptcy — including Chapter 7 and Chapter 13 bankruptcy — is a last resort for consumers in financial distress, giving them a chance to liquidate their debts and get a fresh start.
That opportunity comes at a cost, both in what consumers pay to file bankruptcy and in the damage it does to their credit score.
Some good news is that bankruptcy filings were down in 2021 as compared to 2020. Still, almost 414,000 Americans filed for personal bankruptcy that year.
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Consequences Of Filing For Bankruptcy
As mentioned above, your will be impacted for at least six years after you are discharged from your bankruptcy. Take heart, though you can begin to improve your credit rating as soon as your bankruptcy is discharged, and your credit options will improve in step with your credit rating. Read more on our page: When Does a Bankruptcy Clear from My Credit Report?
While your bankruptcy is in progress, you may not be a director in a corporation. Certain professional designations and board memberships are also affected while you are bankrupt your Trustee can help you source the relevant information, or you may check with the specific professional association or board.
Some financial and professional applications will require you to declare whether you have been bankrupt you will need to answer truthfully. This does not necessarily mean your application will be denied. Note that if you have filed a consumer proposal but have never been bankrupt, you will answer no to this question.
Is Your Situation Temporary
Realistically consider whether or not your financial problems are temporary. For instance, if youve lost your job, will you qualify for unemployment benefits? How good are your prospects for getting another job?
When you file for bankruptcy, the court looks not only at your current income but also at your income over the past six months or more. If youre currently having a financial problem, but youve historically paid your bills on time, consider waiting a few months to see if you can improve your situation.
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I Do Not Want To Be A Bad Role Model To My Kids
One of the comments we got on our Facebook page was You people make me sick youre teaching kids they dont need to pay back their debts. Ive always paid back my debts, and this is the problem youre teaching people not to pay back their debts and not be responsible. It takes courage to share perspectives so we can have a dialogue. If teaching people about their rights to restructure their debts under the law is to corrupt people, then so be it. Nobody wants to be a poor role model, exercising our rights does not make us poor role models. What is a poor role model is judgement of others, unforgiving judgement of ourselves and banging our head against the wall over and over and hoping the wall will become a door. If a picture is worth a thousand words, actions are worth an entire novel. Our children pay attention to our actions and that gives us an opportunity to teach kids how to turn to help within the community.
I Am No Good With Money And I Earned This Penance
This one is particularly pervasive. One of our values at Bromwich+Smith is non-judgement and we are not going to judge someone either way. It is your journey and you need to walk through it, we are ready to walk with you. As Licensed Insolvency Trustees, we are the only ones who can have your debts forgiven. There comes a time you need to forgive yourself and be okay with yourself. No one can tell you when that is, it is a very personal journey. Ask yourself if you would want to hang out with someone that abuses you as much as you abuse yourself? We harm ourselves in our quiet. When we lie down at night is usually when we are paying our interest on our penance. Carrying this burden will impact your work, your relationships, and your well-being. Our debt is so incredible and crushing that we can take little breaks maybe when we sleep or when we escape but it is always there. You can change things. If you have made mistakes in life, if you were not good with money, it is okay. When you are ready to stop abusing yourself, reach out to a Licensed Insolvency Trustee to explore how you can help yourself. The most important resource is not oil or lumber its people and this is a people business.
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How Bankruptcy Can Help You
Bankruptcy in Canada is designed to permit an honest but unfortunate debtor to obtain relief from his or her debts while treating creditors equally and fairly. Another goal of the bankruptcy process in Canada is the rehabilitation of the debtor through financial counselling.
Through bankruptcy, a person hopelessly burdened with debt receives a chance for a fresh start and a better financial future. Bankruptcy is not a punishment. Although bankruptcy can be difficult, it is a constructive process.
The legal process of bankruptcy features a stay of proceedings that prevents a garnishment or any legal action from taking place and stops your creditors from calling. Most first-time personal bankruptcies in Canada last nine or 21 months, depending on the debtors income and other factors.
When you are discharged from bankruptcy, you can make a fresh financial start.
Chapter 11 Bankruptcy Statistics
In 2021, 4,836 Chapter 11 bankruptcies were filed, an increase of roughly 4,000 from 2020.
In Chapter 11 bankruptcy filings, the debtor commits to a payment plan to repay a portion of their debts and discharge the rest, similar to a Chapter 13 bankruptcy filing . Debtors may elect to file for bankruptcy under Chapter 11 if their total debt exceeds the limits for Chapter 13 bankruptcy.
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Is There Anybody In Particular I Should Contact About These Options
Yes. If you are behind on your payments, the collectors for each of your creditors may already be calling or writing you. You might be more successful if you phone each creditor, ask for the collection department, ask and note the name of the person you talk to, and explain your intent to repay the account and your need to stretch out the number of monthly payments and reduce their size. You might offer to come to the collection department office to discuss your situation. Ask each creditor to agree to a voluntary plan for the repayment of your debts.
Saving Your Credit Score Is Only One Reason
An end to collection hell: Nosals study found that once people fell seriously behind on their debt with at least one account 120 days overdue, for example their financial troubles tended to get worse. Balances in collections and the percentage of people with court judgments grew.
By contrast, people who file for bankruptcy benefit from its automatic stay, which halts almost all collection efforts, including lawsuits and wage garnishment. If the underlying debt is erased, the lawsuits and garnishment end.
Freedom from certain debts: Chapter 7 bankruptcy wipes out many kinds of debt, including:
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Civil judgments .
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Business debts.
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Some older tax debts.
Some debts, including child support and recent tax debt, cant be erased in bankruptcy. Student loan debt can be, but its very rare. But if your most troublesome debt cant be discharged, erasing other debts could give you the room you need to repay what remains.
Better access to credit: It can be difficult to get credit right after a bankruptcy. But Nosals study shows people who have completed bankruptcy are more likely to be granted new credit lines within 18 months than are people who fell 120 days or more overdue at the same time but didnt file.
Your credit limits after bankruptcy are likely to be low, however, and your access to credit like your credit scores wont recover completely until a Chapter 7 bankruptcy drops off your credit reports after 10 years.
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The Need For Specialized Legal Knowledge
It is therefore important when evaluating whether bankruptcy is a good alternative to speak with a knowledgeable and competent bankruptcy attorney in your particular jurisdiction. How then to evaluate the competence and expertise of a bankruptcy lawyer:
how many years of specialized bankruptcy practice has the lawyer had
how many cases as the bankruptcy attorney handled in the last 5 years
what notable cases as the bankruptcy attorney been involved in an what were the outcomes
what reviews has the bankruptcy lawyer received and how apparently organic are those reviews
has the bankruptcy lawyer represented clients with the same kinds of problems that you are currently facing
what is the bankruptcy attorneys personality like, how approachable is he or she, and is the bankruptcy lawyer willing to take the time to explain the bankruptcy process to you?
These are just some of the qualities that you should use in evaluating the advice being given by a specialized business or consumer bankruptcy lawyer. Naturally, other factors will necessarily come into play.
What Happens When You File For Bankruptcy: What Only Chapter 13 Bankruptcy Can Do
Chapters 7 and 13 each offer unique solutions to debt problems. The two bankruptcy types work very differently. For instance, how quickly your debt will get wiped out will depend on the chapter you file:
- Chapter 7 bankruptcy. This chapter takes an average of three to four months to complete. Learn more about erasing your debt in Chapter 7 bankruptcy.
- Chapter 13 bankruptcy. If you file for Chapter 13 rather than Chapter 7, you’ll likely have to pay back some portion of your unsecured debts through a three- to five-year repayment plan. However, any unsecured debt balance remaining after completing your repayment plan gets discharged. Find out how to pay off or discharge your debts in Chapter 13 bankruptcy.
Chapter 7 is primarily for low-income filers, and therefore, it won’t help you keep property if you’re behind on payments. But, if you have enough income to pay at least something to creditors, then you’ll be able to take advantage of the additional benefits offered by Chapter 13.
Here are some of the things that Chapter 13 can do.
Stop a mortgage foreclosure. Filing for Chapter 13 bankruptcy will stop a foreclosure and force the lender to accept a plan that will allow you to make up the missed payments over time. You must demonstrate that you have enough income to pay overdue amounts and remain current on future payments to make this plan work. Learn more about your home and mortgage in Chapter 13 bankruptcy.
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What Are The Advantages Of Filing For Bankruptcy
There are several advantages to filing for bankruptcy.
You may be able to keep many of your assets, although state laws vary widely in defining which assets you may keep.
Collection efforts must stop as soon as you file for bankruptcy under Chapter 7 or Chapter 13. As soon as your petition is filed, there is by law an automatic stay, which prohibits most collection activity. If a creditor continues to try to collect the debt, the creditor may be cited for contempt of court or ordered to pay damages. The stay applies even to the loan that you may have obtained to buy your car. If you continue to make payments, it is unlikely that your creditor will do anything. However, if you miss payments your creditor will probably petition to have the stay lifted in order either to repossess the car or to renegotiate the loan.
You cannot be fired from your job solely because you filed for bankruptcy.
Why Are People Wary Of Bankruptcy
Not everyone sees bankruptcy as the important debt relief solution that it is because of the impact it can have on their short-term financial situation.
Its true that bankruptcy will adversely affect your credit score in the short run, but its easier than most people think to find creditors willing to help you build it back up. Also, bankruptcy only shows up on your credit report for up to 10 years that means you wont have to wait too long before its like it never even happened.
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What Happens When You File Chapter 13
If you can’t file a Chapter 7 bankruptcy, or if you have some money to pay creditors and there are assets that you want to keep, a Chapter 13 bankruptcy may be an option for you. In a Chapter 13 bankruptcy, you will:
- Develop a plan for making payments to your creditors over a three-to-five-year period, depending on your income
- Make all of your payments on time to said creditors
- Complete a budget counseling course
After these milestones are complete, the remainder of your debt that is eligible for discharge will be erased.
Chapter 13 is a good option for someone with a steady income who has some money left over every month to make debt payments but who needs some breathing room and extra time to get caught up.
How Long Bankruptcy Lasts For
Bankruptcy normally lasts for one year. After this time, you’ll be ‘discharged’ from your bankruptcy regardless of how much you still owe.
Your discharge could happen earlier if you co-operate fully with the Official Receiver. In some cases and if you’ve behaved irresponsibly , bankruptcy can last for more than one year.
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The Chapter 13 Discharge
The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes. Therefore, debtors should consult competent legal counsel prior to filing regarding the scope of the chapter 13 discharge.
A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan so long as the debtor: certifies that all domestic support obligations that came due prior to making such certification have been paid has not received a discharge in a prior case filed within a certain time frame and has completed an approved course in financial management . 11 U.S.C. § 1328. The court will not enter the discharge, however, until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on the debtor’s homestead exemption. 11 U.S.C. § 1328.
The discharge releases the debtor from all debts provided for by the plan or disallowed , with limited exceptions. Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.
When Should I Declare Bankruptcy
You might consider filing for bankruptcy when your debts are such that you see no reasonable way to keep up with your payments. The purpose of bankruptcy is to give people a chance either to wipe out some of their financial obligations and start over with a clean slate, or to repay those obligations in a more affordable fashion.
However, to be clear, bankruptcy is not an option to consider if your debt is fairly new, or if youre going through a temporary financial crisis thats likely to improve . There are consequences associated with filing for bankruptcy, and its most certainly not a get out of jail free card. So you should really consider bankruptcy only as a last resort if youve tried paying off your debts but keep digging yourself deeper into a hole.
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If You’re Overwhelmed By Your Debts Bankruptcy Is Just One Option
If you have large debts that you cant repay, are behind in your mortgage payments and in danger of foreclosure, are being harassed by bill collectorsor all of the abovedeclaring bankruptcy might be your answer. Or it might not be.
Bankruptcy can, in some cases, reduce or eliminate your debts, save your home and keep those bill collectors at bay, but it also has serious consequences, including long-term damage to your . That, in turn, can hamper your ability to borrow in the future, raise the rates you pay for insurance, and even make it difficult to get a job.
I Can File A Proposal Instead
This is so important. Nobody wants to see a doctor or dentist, but if you have a tooth ache go see a dentist. Do not talk to your friend or a mechanic, you need to go to the dentist for the right help. Now here is the irony, in order to avoid bankruptcy, you need to see a bankruptcy trustee that was the original name for Licensed Insolvency Trustees. The name was changed by the Office of the Superintendent of Bankruptcy because Bankruptcy Trustee was not palatable for the community. No one wanted to go to a Bankruptcy Trustee. When the name changed, many other companies started forming up to offer to help people. Often they were charging fees to bring clients to a Bankruptcy Trustee ultimately to file a Consumer Proposal. You need to see a Licensed Insolvency Trustee to sign into a consumer proposal. The name was changed from Bankruptcy Trustee to Licensed Insolvency Trustee to attempt to change the dialogue and comfort level around talking about restructuring and filing proposals. Approximately 70% of the Canadians we help at Bromwich+Smith elect to file a proposal instead of bankruptcy. The choice is up to the consumer. You can even choose to switch from Bankruptcy to consumer proposal talk to your trustee or call us. Filing a consumer proposal is a terrific opportunity for the following reasons:
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