Bankruptcy and Loans in Canada
Do I qualify for Bankruptcy?
For an individual or business to file a bankruptcy in Canada they must be considered insolvent. Insolvency is defined as owing at least $1000 to creditors and being unable to meet their debtor obligations.
If you have a lot of debt (credit cards or auto loans) and you’re having a hard time paying off your debt or making your payments on time, then you might qualify for bankruptcy.
How do you file for bankruptcy in Canada?
In Canada bankruptcy is regulated by the Federal Government. The Federal Government in Canada enforces bankruptcy by requiring that all consumers or businesses must file bankruptcy thru a qualified bankruptcy agent. In Canada the only agents authorized to file bankruptcy are called Trustee’s in Bankruptcy. A Trustee in Bankruptcy is a bankruptcy and insolvency specialist authorized to administer and manager consumer bankruptcies.
If you are considering a bankruptcy, then you should first do your best to research bankruptcy online. After you’ve done your bankruptcy research it might be time to seek the counsel of a Trustee in Bankruptcy.
What Does a Trustee in Bankruptcy Do?
A Trustee in Bankruptcy is an agent assigned by the Federal Government to administer and support bankruptcies in Canada. The job of the Trustee in Bankruptcy is to represent both the bankrupt consumer and the creditors they are seeking bankruptcy protection from.
While a bankruptcy is often seen as financial protection for the person or company filing, it is also a lesser form of protection for the creditor.
Another job of a trustee in bankruptcy is to negotiate a fair settlement between the debtor and their creditors. This allows the bankrupt to absolve the debt they owe, while permitting the creditor to receive back some of the funds owed to them.
A fair settlement grants the bankrupt protection from their creditors collection methods and also allows the creditor to retain a portion of the debt owed to them. This allows the creditor to take a smaller financial loss than they would if the debtor did not pay them at all. It also saves the bank, auto finance company, credit card issuer or creditor significant expenses in the form of collection calls, repossession fees and other administration costs.
Is Filing Bankruptcy Fair?
Bankruptcy is an unfortunate step that many people and businesses have no choice but to make. Bankrupt can be caused by abuse of credit, irresponsible financial behaviour and sometimes even fraud. If an individual or business goes bankrupt because of poor decisions, fraud or mismanagement, it is still an unfortunate situation. However, a self inflicted bankruptcy is often avoidable and sometimes even necessary. While this doesn’t make bankruptcy fair, it should be understood that in some cases, bankruptcy is deserved.
Bankruptcy isn’t always self inflicted. Sometimes bankruptcy is caused by external forces such as a recession, troubled economy or tumbling financial markets. The 2009 recession in both the United States and Canada is a perfect example of an uncontrollable economy causing businesses and individuals to file bankruptcy by no fault of their own.
When bankruptcy is caused by external forces and can’t be helped, it is both unfortunate and extremely unfair.
Does Filing Bankruptcy Fix Bad Credit?
Bankruptcy, over time can fix bad credit and repair a damaged credit bureau. The process however is not direct. Bankruptcy is a method of wiping out credit. Wiping out bad credit is sometimes the best way to begin fixing credit but it is not the only way!
If you are struggling with credit card payments, can’t afford a car loan, unable to catch up on bills or having other credit problems then filing bankruptcy might stop your struggling and help get you back on your feet.
When you file bankruptcy in Canada creditors and collection agencies are not allowed to contact you for late payments, past due auto loan payments or other arrears. Bankruptcy is a legal way of stopping creditors from chasing after you and taking you to court.
Once you’ve filed bankruptcy and stopped all the collection calls and past due notices you will only be responsible for your bankruptcy payments. Bankruptcy payments are owed to the Trustee in Bankruptcy and almost always a much smaller payment then your monthly creditor obligations.
With all your debt reduced to one monthly payment, a bankruptcy can free up enough income to allow the bankrupt to make their payments on time. Paying your bankruptcy off in time is the beginning of the credit repair process.
After you pay all your bankruptcy payments and complete all other conditions you will be discharged from bankruptcy. If it’s your first time filing bankruptcy and the courts do not protest your discharge, then your bankruptcy will be complete in 9 months.
What Happens After Bankruptcy?
Once you’ve been discharged from bankruptcy it is time to rebuild your credit. There are several ways to do this.
First, you can actually begin rebuilding your credit in bankruptcy. This can be done by obtaining a secured credit card or a bankrupt auto loan. Obtaining a secured credit card in bankruptcy is an excellent way to have the use of a credit card and show the banks or credit bureaus that although you’re bankrupt, you are still able to pay your credit card on time.
A bankrupt auto loan is available to some individuals immediately after filing bankruptcy. If you apply for a car loan while bankrupt it is very likely that your loan will be declined. However, that doesn’t mean you don’t qualify for a car loan.
Most regular banks in Canada do not approve auto loans for bankrupts, however there are several special finance banks that do approve bankrupt auto loans or after bankruptcy auto loans. If you can get approved for an auto in bankruptcy then you are getting a great opportunity to rebuild your credit. A well paid auto loan is one of the best loans to build credit with.
After Bankruptcy Auto Loan
Why get an after bankruptcy auto loan? A positive auto loan history stays with you thru bankruptcy and after bankruptcy. Once you’ve been discharged from bankruptcy, every payment you make on that auto loan represents a post bankruptcy auto loan.
If you pay that auto loan on time and the loan reports to the credit bureau then you’re gaining a lot of mileage towards rebuilt credit. So if you need a new or used car and you’re bankrupt then you can Get Approved on an auto loan and repair bankruptcy credit at the same time!
For Canadian Bankruptcy Facts visit the Bankruptcy Facts page!