Debt Consolidation Canada

What Happens with Debt Consolidation When You File Bankruptcy?

With so many people deep in debt today, it’s not surprising that many are considering bankruptcy as a possible solution. If you have been already trying to repair your damaged credit by using a debt consolidation program, what happens when you decide to file bankruptcy? Here are some things to consider before you take this step as you try to deal with your debts.

How Bankruptcy Works

Many consumers view bankruptcy as a way out of their debts. In a way, it is. Legally, bankruptcy is a proceeding that relieves someone of his or her financial obligations when it becomes impossible for the individual to repay what is owed. Canadian bankruptcy is fairly simple. When you file bankruptcy, you are offering to surrender your assets so that your debts can be discharged. Of course, there are exceptions, such as some assets that will be protected and some debts that cannot be discharged, but that is the basic process.

Bankruptcy starts when the insolvent individual seeks the services of a trustee in bankruptcy. Once the bankruptcy has been filed, which can be done electronically with the Superintendent of Bankruptcy, a stay of proceedings is issued. This means that the individual’s assets are temporarily protected from creditors, unless they are being used in security for a particular debt. Wages also cannot be garnished, and collection calls have to stop as soon as the creditor has been alerted of the bankruptcy filing.

Once the collector’s calls have stopped and the debtor has a chance to breathe, the trustee will step in and investigate the financial affairs of the individual, sell any non-protected assets, and distribute money between the creditors. The trustee will also determine whether or not the debtor should be discharged from some or all of his or her debts. Almost all unsecured debts are discharged during bankruptcy, but only a trustee can advise you as to which are dischargeable and which are not.

Bankruptcy and Debt Consolidation

A debt consolidation program is an option many people struggling with debt choose as they work to manage their debts. These programs work with the debtor to make the total monthly payment for all debts something he or she can afford. However, sometimes consumers will face an unexpected hardship, such as loss of a job or serious medical condition, that makes it impossible for them to repay their debts even with the help of a debt consolidation program. When all other options have been exhausted, these debtors may turn to bankruptcy.

Debt consolidation programs typically help consumers struggling with unsecured debts. Because of this, most people who file for bankruptcy find that the debts they have in a debt consolidation program will be discharged. Again, the trustee will examine the debts first, but debts like credit card debt, personal loans, and medical bill are typically dischargeable, even when managed by a credit consolidation company.

Conclusions About Bankruptcy

Bankruptcy may seem like an easy way out of your debt, but it does have some consequences. Under current bankruptcy law, the bankruptcy will stay on your credit rating for up to seven years. This is a long time, and can make it difficult to get back on your feet, even if your debts are gone. You will also lose many of your assets as the trustee works to repay as much of your debt as possible.

Before filing for bankruptcy, take the time to talk to a qualified credit counsellor to see if there is another option. If you are facing a serious and unexpected financial situation, bankruptcy may be the best option. Once the pressure from your existing debts has been lifted, you can take the time to rebuild your credit and start over. Just make sure that you understand as much about the process as possible before you begin.