Effects of bankruptcy

Though being declared bankrupt will relieve you of significant financial debt, there will be a number of other consequences, some of which you might find unpleasant. You may have to relinquish personal belongings, fulfill a number of obligations to your attorney as outlined in the bankruptcy, remain responsible for certain debts that are not cleared by bankruptcy, and your credit rating will most certainly suffer.

Will I lose everything if I file for bankruptcy?

Your attorney may have to sell some of your personal assets and belongings to partly satisfy your debts, however, personal items and household goods probably won’t have to be sold. Certain value limits are set for items you can keep. For example, you will be able to keep any necessary and ordinary clothing up to a value of $1000, household furniture, utensils, equipment, and food up to a value of $2000, and any items that you need to perform your job including things such as tools, equipment, books, and a car, up to a value of $2000. Things owned entirely by your spouse will remain untouched. You may have to sell your percentage of assets that you own jointly with your spouse. Be sure to discuss these issues with your attorney, so that you completely understand what assets will or won’t be affected before you file for bankruptcy.

Duties of Bankruptcy under the Bankruptcy and Insolvency Act

You will be required to fulfill certain duties set out in the Bankruptcy and Insolvency Act. You must provide a complete list of all of your assets and debts to your attorney. You must give your attorney all of your credit cards, and disclose details of all transactions regarding property that you sold or have given away in the last 5 years. You must advise your attorney whether you have paid debts owed to relatives or other persons within the last year. It is important that you advise your attorney of any transactions regarding sale of property or assets you have made so that your attorney can advise the court appropriately. Don’t withhold any information.

You must keep your attorney informed of any changes in your financial or personal situation, including things like a change of address or reemployment. You must attend a meeting with your creditors if one is required, and assist your attorney in handling your case, including dissolving assets and property to fulfill debts. You may also have to pay the attorney a certain amount of money to repay your creditors. These obligations will end when your debts are discharged, approximately nine-twelve months after filing.

Will bankruptcy remove all debts?

Declaring bankruptcy will eliminate most, but not all, of your debts. The following debts are not cleared by bankruptcy.

• Secured debts. A secured debt is one for which the creditor secured one or more of your assets as collateral as a requirement for making the loan to you. A home mortgage or car loan is a secured debt, because the lender can seize these assets to recover money that you owe. However, if these assets are sold as a result of the bankruptcy, any outstanding balance will be discharged.
• Child and spousal support payments.
• Court fines and penalties.
• Any debts that you obtained by committing fraud or by causing bodily harm to another.
• Student loans are not cleared by bankruptcy unless you graduated from school at least ten years prior to the date that you filed for bankruptcy.

If you have surplus income as defined by federal bankruptcy guidelines, you may also be required to pay a set amount to your attorney at the time your debts are discharged or for a period of time after the discharge.

What will happen to my credit rating?

Your credit rating is an historical record, maintained by credit bureaus such as Equifax, Experian and Trans Union, of your credit payments. These credit bureaus follow how you handle credit and whether you make regular, timely payments. You are assigned a credit rating on a scale from R1 (the best rating) to R10 (the poorest rating), based on this accumulated and continually updated information. Your credit rating is used by banks and other lenders to determine your creditworthiness before approving you for a credit card or a loan. A bankruptcy on your credit history will result in a credit rating of R10, and the bankruptcy will remain on your credit record for seven to ten years after your debts are discharged. As a result, it may be difficult for you to get loans or credit cards for quite some time.

When your bankruptcy is final and your debts have been discharged, send a copy of your discharge order to all the credit bureaus so that your credit record can be updated. Over time, you can gradually rebuild a good credit rating. Your income, your level of stability, and whether you can persuade creditors that you have become more financially responsible will determine how long it takes before you qualify for credit or loans.

Because filing for bankruptcy is a complex process, you should speak with a bankruptcy attorney before taking this step.