Do I Qualify for Personal Bankruptcy?

| Category: Bankruptcy FAQ
Category: Bankruptcy FAQ | (6) comments

You are broke. No money. Way too much debt. You don’t feel you have any way out of your current situation. A friend suggests you file for bankruptcy, but you don’t know. Bankruptcy sounds so bad, besides, do you even qualify to file for bankruptcy?

qualifications for bankruptcy

None of this is easy. The more debt you have the harder it seems to deal with. The truth is, personal bankruptcy is not as complicated as most people believe and there is a relatively simple set of criteria to see if you qualify for the protection bankruptcy provides:

1) You owe your creditors more than $1,000 in total: this threshold rule is decades old and was introduced when the Bankruptcy and Insolvency Act was first created. Back then, $1,000 was a lot of debt. Today, well, let’s just say the $1,000 threshold is pretty easy to meet.

2) Your assets, if sold will not cover the total amount that you owe: this is a basic solvency test. If you have equity in your home, or savings in a bank sufficient to pay off what you owe then you aren’t really broke from a technical standpoint (that doesn’t mean you don’t feel broke, it just means the law doesn’t consider you to be broke). In other words, if you have a lot of debt, but have enough assets if you liquidated them to pay off those debts, you cannot claim bankruptcy.

3) You are unable or unwilling to pay your debts as they become due: this is the “cash” test. If there’s no way to cover your living expenses and make all of your required debt payments than you are allowed to file for bankruptcy.

In practical terms, it’s usually your in-ability to pay your debts, that forces you to act. In other words you are in the red zone.  If you can’t make your payments then eventually you fall behind with your debts and you end up in collections or worse, legal action. Filing bankruptcy will stop collection agencies and provides you with legal protection from your creditors. That means your creditors cannot garnishee your wages, seize your bank account or continue with any collection activities without permission from the Bankruptcy Court.

That is not to say that bankruptcy is the only option to deal with financial problems. When you speak to a bankruptcy trustee about your financial situation they will take the time to look at debt consolidation, credit counselling, consumer proposals and bankruptcy as possible solutions. If you are not familiar with these other solutions spend some time reviewing them to see if they might work for you.

For debt help, contact a bankruptcy trustee in Ontario to review your options and find a way out of your dilemma.

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  1. Carmen Larkin

    We are seniors. Have 45,000.00 in credit/line of credit. debts. We also have a 145000.00 mortgage. On our OAS and CPP pensions we cannot make any payments towards our credit debts. We have declared bankruptcy about 40 years ago. As well as had a proposal in 2009. Can we declare bankripcy again and will we be able to renew our mortgage in 4 yearswhen it becomes due. We are 70 and 66 . My husband was working until last month but due to illness has now retired. I look forward to your response

    1. Ted Michalos, Bankruptcy Trustee Post author

      As long as you have not had (and do not have) problems with your mortgage payments you should be able to renew you mortgage when it comes due. You certainly have the right to file a second bankruptcy, but before you make that decision you need to determine if there is equity in your home. If there is that will impact how much a second bankruptcy will cost. I’d go and speak to a licensed insolvency trustee to consider all of your options.

  2. Lucia opazo

    If i owe personal debts in addition to my company debts, Sole propietor, can i file for bankruptcy including both debts and not being obligated to sell my house, that the profir is less than mu debsts or very similar? Can i keep my house?

    1. Ted Michalos, Bankruptcy Trustee Post author

      If you are operating as a sole proprietor then there is no difference between your personal debts and business debts – you are the business and therefore the debts are ALL personal. If you file for bankruptcy then any equity you have in your house must be paid into the bankruptcy or the Court will require the house to be sold to pay down your debts. There is another solution called a proposal where you payback the equity over time (5 years max). You might want to speak directly to a licenced insolvency trustee (LIT) about our situation.

    1. Ted Michalos, Bankruptcy Trustee Post author

      Your furnishings are protected under Ontario law to a value of $14,180. That means you can keep furniture worth up to $14,180 when you file. I have only ever had 1 client with furniture worth more than the limit…

      If your furniture is worth more than the limit you can pay the difference to keep it or you can agree to have some of it sold.


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