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?
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.