Top Reasons Canadians are Declaring Bankruptcy and How to Bounce Back

Are you curious about why some Canadians are declaring Bankruptcy? It’s essential to remember that Bankruptcy isn’t the end of the road; it can be a fresh start on your financial journey. Let’s explore the top reasons why Canadians declare Bankruptcy, what leads to it, and how to get back on track.

Demographics of Those Filing Bankruptcy

Before we dive into the reasons, let’s take a quick look at who’s filing for personal Bankruptcy in Canada. People from various walks of life can find themselves in financial hardship. Over the years we have assisted people who are very young to people who have been retired for quite some time. As they say, “life happens” and it does not pay attention to your gender or how old you are.

In addition, income levels also vary dramatically. Just because you have a higher income does not mean you are immune from having to seek out a debt management plan. We often notice news reports of movie stars, pro hockey players, or famous singers needing assistance with their debts despite the fact that they make a lot of money.

Bottom line is that if you are struggling with your debts, you are not alone.

The Most Common Factors Leading to Bankruptcy

There are a million different reasons for getting into financial difficulties and having to seek debt relief. Here are a few of the most common.

1. Debt accumulation over time – this often occurs slowly when you run a modest deficit each month and need to finance that deficit on your credit card or via a payday loan. Then the high interest rates start to bite. We are seeing this happen more often as Canadians struggle with the high cost of living expenses as a result of inflation
2. Job loss – this can be a bit of a crossover factor; sometimes it is beyond a person’s control when a business downsizes or closes. Other times, factors such as getting sick or struggling with a substance addiction can lead to job loss. In either case, the loss of a paycheque can collapse a monthly budget.
3. Health issues, illness and disability – this factor catches a lot of people. When someone gets sick, injured, or disabled you may find that income is interrupted plus there can be costly travel for medical appointments.
4. Broken relationships and divorce – another big factor that leads to financial problems. When a two person household becomes two, one person households the expenses go up and the household income goes down. In addition to the emotional cost, relationship changes are a common precursor to debt problems
5. Income tax debt – the silent debt that you don’t really notice until you do your tax return or a Canada Revenue Agency collector calls you. This catches many people who are self employed and are great at what they do but not necessarily an accountant or bookkeeper. Fortunately, you can find relief from big tax debt by filing a Consumer Proposal or a Bankruptcy.
6. Gambling and substance addictions – this factor can be very difficult both emotionally and financially. If this is a challenge in your life, or someone in your circle, you will likely need specialized counselling in addition to debt protection

Surface Reasons vs. Underlying Causes of Insolvency

The Federal Government monitors insolvency filings across Canada and tries to gain an understanding about what factors are impacting Canadians. It is most concerned with underlying factors that may persist into a person’s future. For example, job loss could be the surface reason for declaring Bankruptcy but substance abuse could be the underlying factor.

Bankruptcy is designed to provide the honest but unfortunate person with a fresh start. An underlying factor may continue on to impact a person’s life years into the future. We often encourage and direct people to seek out specific counselling to address an underlying factor so they don’t end up in financial trouble again.

How Filing for Bankruptcy Can Free Funds to Carry On Living

While declaring Bankruptcy may seem daunting, it can be a lifeline for those drowning in debt. Here’s how it can help you get back on track:

• Debt Relief: Bankruptcy provides a fresh start by wiping out many of your unsecured debts, such as credit card balances and personal loans. A powerful stay of proceedings goes into place which legally prevents your unsecured creditor from collecting
• Monthly Budget Reset: It forces you to reassess your financial situation and create a new, sustainable monthly budget.
• Assets Preservation: you can often keep essential assets like your home, car and tools of trade. The Provincial Governments are allowed to set exemptions that allow for people to retain certain assets. Please call for details.
• Credit Counselling: you will still have to make many more financial decisions in the months and years ahead. As part of a Bankruptcy, there are two required financial counselling sessions where we talk and plan about the future.

The Importance of A Bankruptcy Discharge

All of the above is good information, but the most important thing to get when you start off a Bankruptcy is to get a Bankruptcy discharge. This most often happens automatically at the end of 9 months or 21 months depending on your income level. We recommend that you stay in good communication with your Licensed Insolvency Trustee to make sure this occurs. Think of it as the finish line.

We Are Here To Help

In conclusion, Bankruptcy is a tool that can help Canadians overcome insurmountable debt and regain control of their financial lives. Understanding the factors that lead to bankruptcy and addressing the underlying causes can prevent future financial struggles. Don’t be discouraged if you find yourself facing Bankruptcy; it’s an opportunity for a fresh financial start and a chance to build a more secure future. With the right guidance and a commitment to financial responsibility, you can bounce back stronger than ever.

Here at Chase & Associates, we offer a free consultation where we will gain an understanding of your situation and provide you with some specific information about practical options to improve it.

Once you make the decision to contact us and do something about your debt you are more than half way there to a brighter financial future.