Undischargeable Debts in Bankruptcy

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Bankruptcy is a legally binding arrangement that unleashes you from your unsecured debt. The bankruptcy procedure demands the debtor surrender their assets to a Licensed Insolvency Trustee, who then sells them to pay off creditors. Bankruptcy does not cover secured debts like a mortgage or auto loan. Bankruptcy can release you from unsecured debts, such as credit card debt, unsecured loans, and lines of credit; let us look into a list of debts you cannot contain in bankruptcy.

Your Mortgage

You cannot include your mortgage in bankruptcy. As bankruptcy involves surrendering assets in exchange for releasing unsecured debts, you could lose your home if you had substantial equity built into it when you file.

Auto Loan

If you have a secure vehicle loan, you cannot enclose it in a bankruptcy filing. As with your home, you may have to surrender your vehicle if the value far surpasses what the car loan owes.

Wage Garnishment

Garnishments for child support or alimony remain after bankruptcy and cannot be discharged.

Child Support or Alimony

Further to the above, any lump sum or future child support or alimony payments owing remain.

Student Loans

Student loans cannot be included in bankruptcy if it’s been less than seven years since you were a student. They consider it if you’ve been out of post-secondary school for over seven years.

Income Tax

You must pay any income taxes owing if you claim bankruptcy.

Debts Due to Fraud

Bankruptcy does not apply to debts that were accumulated fraudulently. A typical example would be someone who decides to rack up a huge credit card bill making purchases of luxury items within a few months of filing for bankruptcy. This would be considered fraudulent activity.

If you have debts that cannot be part of a bankruptcy, there are methods to ease the financial commitment to improve your cash flow. When you claim bankruptcy, you must relinquish your assets, such as your home or vehicle. After all, the process does not intend to take away a person’s dignity. Instead, it’s to help them recover from extreme financial hardship.

Apart from the minimum home or auto equity amounts, the following is a list of assets generally exempt from bankruptcy.

  • Food & Clothing
  • Heating fuel
  • Medications
  • Household furnishings.
  • Industry equipment
  • Farm equipment, land, animals
  • Pensions/RRSPs

The best debt recovery option may be bankruptcy if you own little to no assets, and most of your debt can be covered by bankruptcy. However, it should always be considered a last resort due to its adverse impact on your credit. Bankruptcy holds one distinct benefit over other debt relief mechanisms. When you file, you obtain a quick stay of proceedings, and your unsecured creditors must suspend any contact, lawsuits, or wage garnishments they have against you, nor can they start anything new.

Do you still need to decide which debts can be discharged in bankruptcy? Check your province’s financial laws to understand how they apply to your situation. For more assistance, contact Dana MacRae, Licensed Insolvency Trustee, without any second thoughts.

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