Role of Bankruptcy in Debts.
The fundamental goal of claiming personal bankruptcy is to get debt relief when your debt arrives at a point where you will never pay it off on your own. When you file bankruptcy, you acquire a stay of protection from creditors. With bankruptcy, the creditors can no longer follow you to collect, cannot garnish your wages, or sue you in court. Your creditors obtain their share of any assets allocated in your bankruptcy and cash from your monthly insolvency payments, in exchange for which they consent to pardon the rest of your debts. Your bankruptcy discharge is the last stage of this arrangement.
The good news is bankruptcy eradicates almost all unsecured debts, including credit card debts, payday loans, bank loans, lines of credit, instalment loans, and tax debts. However, declaring bankruptcy doesn’t brush clean all your debts.
A discharge of bankruptcy is a court-issued document that destroys unsecured debt permanently and officially. Discharging your debts means you are legally released from all obligations covered under your bankruptcy. Hence, you no longer have to repay those debts. Even though some debts are discharged by bankruptcy, there are, however, other debts that are not erased by bankruptcy.
Dischargeable debts in a bankruptcy in Canada contain:
- credit card debt,
- personal loans,
- instalment loans,
- retail store cards and accounts,
- bank loans,
- unsecured lines of credit,
- finance company loans,
- payday loans,
- past due bills,
- loans from individuals,
- overdue tax debts
- judgment debts from lawsuits,
- certain student loans.
You must surrender any credit cards to your trustee when you file bankruptcy. You can eradicate credit card debt; however, you should only run up your balances after claiming bankruptcy. Student loans are loans guaranteed by the government. You can discharge student loan debt via bankruptcy, but only if you quit school at least seven years ago.
You can’t declare bankruptcy directly after graduation. Another factor is that bankruptcy and consumer proposals can resolve outstanding tax debt successfully. As of the date of your bankruptcy filing, the debts included in your bankruptcy are those you owe. Bankruptcy also covers penalties and interest due associated with your listed debts.
A non-dischargeable debt is a debt that cannot be incorporated or settled through bankruptcy. Yes, bankruptcy does not clear all debts.
The debts that are not eliminated in bankruptcy:
- Spouse Spousal or child support payments
- Alimony
- A debt emerging out of fraud
- Any court-imposed fines and penalties
- Student loans if you have not been out of school for seven years
- Restitution orders
- Gambling debts
In Canada, divorce debts are one of the leading causes of bankruptcy.
What about car loans/ housing loans/co-signed debts?
Unsecured debt is treated differently from secured debt. A secured debt is a loan with an asset or collateral, a mortgage, or a car loan.
There is one exception to bankruptcy dischargeable debts: secured debts. You can keep those assets by paying a monthly mortgage or car loan.
In bankruptcy, your home equity is an asset. If you have a substantial amount of equity in your home, then there are better solutions than bankruptcy to eliminate your debt. If you are amid other debts, filing bankruptcy helps improve your finances to keep up with your monthly auto and house payments.
Claiming bankruptcy stops your obligation to repay the debt, but it does not clear someone who has co-signed or guaranteed a loan for you. Your creditor will still hold the joint debtor or co-signer responsible for making the remaining loan payments.
As soon as you receive your bankruptcy discharge papers, you are legally released from all debts covered by your bankruptcy. Thus, you are no longer liable for payments and are legally protected from creditors. If your discharge is opposed, a bankruptcy judge or registrar determines the conditions of your discharge during a court hearing. Those conditions include a more extended bankruptcy period, or you may be required to make extra payments.
The result of a court hearing is:
- Automatic discharge
- Absolute discharge
- Conditional discharge
- Suspended bankruptcy discharge