What are the consequences of personal bankruptcy?

We wish to share with you the most common questions surrounding the consequences of personal bankruptcy. These are legitimate concerns that we often hear during our informative meetings. We hope these clarifications will help demystify over-indebtedness.

Will everyone know if I declare bankruptcy?

Unless you are a very well-known person or have many realizable assets, your name will not be published in the newspapers if you declare bankruptcy, and even less so if you make a consumer proposal. Indeed, the vast majority of personal bankruptcies remain a very private event, away from the eyes of your employer, friends, neighbors, and sometimes even your spouse, if that is your wish. You can therefore remove this “false” consequence from your list if you decide to declare personal bankruptcy.

Will we lose all our assets?

Rather than being stricter, the laws have become more lenient and now allow you to keep more and more assets despite filing for bankruptcy. Indeed, if you declare bankruptcy, RRSPs and pension funds are now all protected from seizure, except for contributions made in the 12 months preceding your bankruptcy. Additionally, the law prohibits a creditor who finances your home or car from repossessing the asset simply because you are bankrupt.

Thus, if your mortgage or car loan is up to date, you can keep these assets unless they are worth much more than the amount of the financing. In any case, the trustee will analyze your situation with you and can inform you before you make your final decision.

We invite you to consult our article titled “What are the unseizable and seizable assets in bankruptcy?” to learn more about the consequences of personal bankruptcy.

Can all debts be included in bankruptcy?

Most debts will be discharged by bankruptcy. The inclusion of a debt in bankruptcy is the rule rather than the exception. However, the three most common types of debts that cannot be discharged by bankruptcy are student loans if the end of studies is less than 7 years ago, alimony debts, and fines. Many people will also be surprised to learn that tax debts can be discharged by bankruptcy, provided there is no fraud.

The Bankruptcy and Insolvency Act is based on the principle that every honest and unlucky person has the right to a second chance. And what better way to allow such a person to succeed in their financial reorganization than by allowing them to keep their job, dignity, and assets that have little or no net value for their creditors.

By Pierre Fortin
Jean Fortin & Associés
Personal Finance Advisor
Licensed Insolvency Trustee