Should I Declare Bankruptcy Now or Later?
Sometimes in life, there are things that you just know that you have to do. For example, changing jobs, moving to a new location, changing relationships, and possibly changing your finances by declaring bankruptcy.
While these decisions are not easy ones, you have likely put a lot of thought into it and probably have done some research and talked with your close friends and advisors. The big questions then becomes one of timing and when it should take place. With the pandemic CERB payments and EI programs soon to expire, the financial question becomes should I declare bankruptcy now or later? Let’s take a closer look.
Getting protection from your creditors by filing an assignment into bankruptcy has to be done through a Licensed Insolvency Trustee (LIT). You begin the process by contacting a LIT office, such as ours, and request an appointment which can be done either via phone, online, or in person at one of our many locations. Unlike some other LIT offices, we offer free appointments and consultations, so there is no cost to you should you wish to enquire.
During the consultation one of our LIT’s will discuss a variety of matters with you regarding your financial circumstances such as:
- Your debts – who you owe and how approximately how much
- Your income and expenses
- Your assets
- Your marital status and family situation
- Other factors that may impact your financial situation
- All of your debt relief options
Other Debt Relief Options
We will discuss a variety of options for dealing with your debts to make sure you have thought through all of the possible pathways. Some of the other options besides federal bankruptcy protection, would include:
- Obtaining a debt consolidation loan
- Selling some assets if they are redundant and you don’t need them
- Making an informal proposal to your unsecured creditors
- Working with a reputable credit counsellor
- Filing a consumer proposal which must be done with a LIT
Circumstances, such as modest or uncertain cash flow, can prevent the above options from being available to you. As a result, making an assignment into bankruptcy can often be the most practical solution. It is much like choosing the right tool from a tool box.
The Bankruptcy Option
Although the word “bankruptcy” is sometimes construed as being ominous, often it is the fastest and least expensive option to reset your finances. It is designed to allow the honest but unfortunate person a fresh start. Many times a bankruptcy can start and finish in as little as nine months and allow you to keep your belongings, vehicle, and house. Sounds too good to be true? Well, it’s federal law that is available coast to coast in Canada.
An individual can retain their assets during bankruptcy because of Government set exemptions which are in place so that you don’t lose everything during the process. In addition, if you have a secured creditor such as a car loan, you can most often keep the car so long as you continue to pay that secured creditor.
Once you have determined that filing for bankruptcy is the right choice, the next step is for our office to prepare the documents necessary for you to sign. When you have signed, we register your documents with the Federal Government. This is the effective start date of the timeline which leads up to your discharge from bankruptcy.
The discharge represents the finish line and is set to occur automatically in either 9 months, 21 months, 24 months, or 36 months after the start date. The difference in the time frame is a function of your income level and whether you have made a bankruptcy filing sometime in your past.
Even though we may have your forms ready, you are still in control of the timing of when the bankruptcy filing starts. There are some specific factors to consider which will impact when you sign your papers which will be the start date.
Timing: Should I File for Bankruptcy Now?
As a LIT, I’m often asked “Should I file for bankruptcy now or later?”. While everyone’s situation is slightly different, here are some factors to consider, which will influence your choice of when to sign.
- Your current and future income level. This is a consideration because each month up until your discharge you are required to report your monthly income. A calculation then determines whether you have “surplus income” which then requires you to make a payment into your bankruptcy for the benefit of your creditors. If you know that your income will likely rise twelve months from now you may want to get the bankruptcy going and get a discharge in nine months.
Pro tip: surplus income is calculated based on your average income. CERB payments do not count towards your average so it is not a bad idea to get a bankruptcy going before they expire.
- How much collection pressure you are under. If the phone is ringing a lot or if you are being garnished or taken to Court, you should definitely get a bankruptcy going immediately. A bankruptcy filing creates a stay of proceeding meaning that the collectors have to stop contacting you, a garnish will be removed, and the Court action is stayed.
- The time of the year. This is relevant because you are required to surrender your tax refund to your bankruptcy for the calendar year that the filing begins and for the previous year if it is not already filed and received. Therefore, it would be in your interest to start a bankruptcy filing before 2021 so that you do not lose your 2021 tax refund to the bankruptcy. The tax return for 2021 would be filed in spring of 2022. Even though you might be discharged at that point the refund will still be sent to the bankruptcy proceeding.
We can think of many instances where we initially talked with people who were considering filing for bankruptcy. The individual decided to wait until much later to proceed. We understand that this is a natural response. However, in every instance where the person decided to proceed at a later date we have heard a variation of the following sentence:
“I wish I would have started the bankruptcy when we first met because I would have been discharged by now.”
We understand everyone’s situation is a little bit different and that getting the right information is important before any big decision is made. If you’re still unsure if the time is right for you, please feel free to take advantage of our no cost, confidential initial consultation. Make an appointment to discuss the merits of whether you should declare bankruptcy now or later.