Frequently asked questions about bankruptcy & debt

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Frequently asked questions

What are some warning signs that I might have a debt problem?

If your monthly debt payments (not counting rent or a mortgage) are greater than 20% of your income, you are headed toward a difficult financial situation. Other warning signs include difficulty paying monthly bills, trouble keeping track of money, and uncontrolled spending.

What is the difference between personal bankruptcy and a consumer proposal?

While both personal bankruptcy and a consumer proposals are administered by a Licensed Insolvency Trustee (previously known as a Trustee in Bankruptcy), they involve different legal processes to eliminate your debt. You should choose between the two based on your individual situation. Bankruptcy is the best choice if you have over $250,000 in debt and have an uncertain income. A consumer proposal is a good choice if you have less than $250,000 in debt and have a steady income.

Am I eligible to file a consumer proposal?

To be eligible to file a consumer proposal, your debts must total less than $250,000. You must have a stable income source, have no open prior proposal proceedings, and be unable to pay your debts when they are due. Businesses cannot file consumer proposals.

What are the steps to filing a consumer proposal?

First, you need a Licensed Insolvency Trustee to review your financial situation. Your trustee will work with you to determine how large a monthly payment you can fit into your budget. Then, he or she will make an official offer to your creditors. If it is accepted, you make monthly payments for a predetermined amount of time.

How do I rebuild my credit after bankruptcy or filing a consumer proposal?

The best thing you can do to rebuild your credit is to pay your bills on time. Avoid any habits that could get you back into debt, like charging purchases you can’t pay back. When you set up your budget, make sure to put aside extra money each month in case of emergency. You can also get a secured credit card with a low limit, which, if you make your payments on time, can start to rebuild your credit score.

Can I include my student loans in my bankruptcy?

You can only include your student loans in your bankruptcy if you have been out of school for seven years or more. If you go back to school (even if you don’t take out additional loans), the seven year waiting period begins anew. You can shorten your waiting period to five years if you can prove financial hardship, but you must be able to convince a bankruptcy judge that your case is especially difficult.

What will happen to my house if I file for bankruptcy?

You will be able to keep your house. The trustee will make arrangements with you to deal with the equity you may have in the property. As long as your mortgage is in good standing the mortgage company is required by law to allow you to continue with it throughout the bankruptcy.

However, if your house has significant equity, it will be listed among your assets and can be sold to pay your debts.

What is the difference between a licensed trustee and a credit counsellor?

Trustees are federally-regulated bankruptcy and insolvency specialists. They are the only ones authorized to file consumer proposals. Credit counsellors are provincially regulated and provide credit advice and offer debt management plans.

Is my spouse liable for my debt?

Your spouse is not liable for your debt. The only exception is when your spouse co-signs or guarantees your debt. This makes the debt legally belonging to both of you.

What are the best ways to reduce debt?

The best way to reduce debt varies by circumstance. If you have a very large debt that you cannot pay on your own, a debt management plan, consumer proposal, or bankruptcy filing could be your best option. If you owe a smaller amount, you should try to use a budget and make payments on your own.