What are the benefits and disadvantages of filing for bankruptcy?

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Bankruptcies can affect a person’s credit and personal finances for several years, but it is a very good option for relief from debt for some individuals. Each client’s circumstances are unique, and an insolvency trustee is someone to consult.  

Bankruptcy filings are very complicated, and in Canada, they must be handled through a trustee in an authorized bankruptcy or insolvency firm. 

They will be able to provide solid advice and help you understand both the advantages and disadvantages of filing for bankruptcy.



Once the bankruptcy papers have been filed with the government, there is an automatic stay of proceedings against any debt collections. This does not wipe out your debt but suspends any of the processes a creditor may have. This includes calls and letters, lawsuits, garnishments, foreclosures, and repossession. However, it will not stop any criminal proceedings, government tax audits, child support and/or alimony, paternity issues, or debts that have been consigned.

The bankruptcy will discharge or cancel all dischargeable debts.

These are generally credit cards, medical, and personal loans. Some unsecured debts will remain like student loans that are less than seven years old, court fines, and child support responsibilities.  

With bankruptcy, you will have a target date for a clean credit report.

That means you can carefully rebuild your financial standing and plan for the future.


There is a fee involved.

It is not free. The administrative fee is set by tariff under the Bankruptcy and Insolvency Act (BIA).

Your credit rating will take a big hit.

The bankruptcy is reported as an R9 and will remain on your record for six years after the first time bankruptcy is discharged. 

If you file for bankruptcy a second time, it is extended to 14 years.

However, if you are in such debt that you cannot make your monthly payments, your current credit report is probably pretty low to start with, so you may not really be losing much.

You can lose assets.

Some assets may be kept even after bankruptcy. This is RESPs and any of those contributions during the previous year. A home with an equity of more than $10,000 will generally be lost, except that there are circumstances that will allow you to keep your house—any tax refund for the current year and any previous tax refunds that may be pending.

You will need to assume some responsibilities.

Such as reporting all monthly income, making payments as directed, attending credit and financial counselling sessions, and income tax information. If you fail to complete any of these duties, your debts will not be discharged. Actually, these can be considered benefits because they will help you develop and maintain good financial habits.

Bankruptcy is nothing to take lightly, but a good trustee in bankruptcy in Waterloo will help you make the right decision under your particular circumstances. They can also talk about other options like a consumer proposal or some money management techniques.

Dana MacRae Licensed Insolvency Trustee has been helping people manage their debt since 2000. With 10 offices across Southwestern Ontario, it’s easy to schedule an appointment. Just go to www.danatrustee.ca and book your appointment online. We offer video conferencing, or book a home consultation and have the trustee come to you (when allowed by COVID-19 protocols). Contact us today at 1.800.665.9965 or info@danatrustee.ca to learn more about our services and find the financial solution that’s right for you. 

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