How Much Debt Do You Need to File for Personal Bankruptcy?

| Category: Debts In Bankruptcy
Category: Debts In Bankruptcy

How much debt to you need to file for personal bankruptcyWhen you file for personal bankruptcy you are declaring yourself to be “insolvent”.  To be insolvent you must:

  • owe at least $1,000, and
  • your assets (things you own), if sold, would not cover your debts and you are unable to pay your debts as they are due.

Is Any Debt Amount Too Small to File Bankruptcy?

If the amount you owe is a fairly small amount, say $10,000 or less, and you have a reasonably steady income then personal bankruptcy may not be the best option for you.

When individuals come to see me who owe a relatively small amount of money, we will first talk about a Debt Management Plan. With a DMP, you pay back 100% of your debt over a three or four year period, however during this time you receive a break from interest.

Your creditors get all of their money (although less interest) and it has a slightly better impact on your credit report then other options. The key here is that your income must be enough to be able to pay back your debts in full and keep up with your payments. That’s why a debt management plan works for smaller levels of debt.

If your debts are small and you can’t afford to pay them back, then we would look at filing bankruptcy as a last resort. We would look at whether or not your creditors can take action to collect on that debt. If you are currently unemployed and have no assets or income, your creditors cannot garnish any wages, so you may be able to just tell them you can’t pay. Bankruptcy does have a cost so if you are currently without any income then this may be your best approach until things change.

Bigger Debt Problems

Another issue to think about when you are considering filing for bankruptcy with a low amount of debt is not what today looks like but what the future might hold. Filing a second bankruptcy is much more punitive. If you file bankruptcy to get rid of a small amount of debts today, but haven’t dealt with the underlying reason why you are accumulating debt, then bankruptcy may not be a wise decision.

If You Can’t Repay Your Debts, But Want to Avoid Bankruptcy

What if you owe more than $10,000 and but want to avoid bankruptcy? Another option to consider is a consumer proposal. This is where you offer to pay back a portion of the debt over a period of up to 5 years. You must offer your creditors the greater of what a bankruptcy would generate and an amount sufficiently large enough for your creditors to consider it.

If you have questions regarding the amount of debt you have and what your options might be, talk to a trustee in bankruptcy. All consultations are free, so in that regard no debts are too small to discuss.

  1. betty

    i apparently owe a credit card 11.000 dollars fom 10 years ago and my husband apparently signed a letter at post office 2009 and now they want to garnish my wages which i only make 600 dollars a month,what should i do.

    1. Ted Michalos, Bankruptcy Trustee Post author

      Hi Betty – the first thing you need to know is that normally a garnishee is for 20-30% of your pay. If you do nothing and allow them to garnishee you then you’ll pay between $120 and $180 per month. The only way to garnishee your wages is if they obtained a Court against you back in 2009. If they did, then you’ll owe interest on the debt too. I think the first thing you do is ask someone to give you proof of the debt. If they have a Court Order they’ll just send you that. If they don’t have a Court Order then there is something called the Limitations Act of Ontario that says if it has been more than 2 years since you acknowledged the debt then they may no longer be able to collect on it. You may want to look into this further…

  2. my

    I owed 30,000 in visa and LOC. I’m currently on maternity leave with 2 small children trying to make end meet thus not able to pay my debt. I received letter from my creditor threatening to garnish my wages. please help

  3. J. Douglas Hoyes, Trustee

    Hi my. If you are on maternity leave you do not have wages that can be garnisheed until you return to work. As to what further action you should take will depend on when you will be returning to work, and what other debts and assets you may have. To discuss your options, we suggest you contact a trustee At this stage a phone conversation with a trustee may be able to put your mind at ease as to your options.

  4. george

    I took OSAP loans in 2005 and called today to ask what is my end of study date. They said april 20 2007. Since I have started a program at the same college in 2012 and finished 2014, without OSAP ( I payed for it). If i file for bankruptcy today, will I still have to pay my student loan, or does the 7 year rule apply to me? Thank you.

    1. J. Douglas Hoyes, Trustee

      There is no obvious answer to your question; there are court cases going both ways. As a general rule, it is based on the end of study date in the government’s system, so if they report that your end of study date was 2007, it is now more than 7 years, so you should be okay.

      I would suggest that you ask OSAP to send you confirmation in writing of your end of study date before you file bankruptcy.

  5. DJ

    Hello there, couple of questions. I am considering bankruptcy and feel my situation is a little complicated. I have credit card/ Student Loan/ Payday loan and other debts to Rogers and a few others. The Student loans are well over 7 years ago. I have no Assests and have not filed taxes in a very long time. I have earned cash over the years with the odd real job for a year or two, but never earn enough in a year to owe them tax. I want to get things in order, so my question is:
    Currently I am what I guess you would call “self-employed” and earn cash as a nightclub DJ and sometimes do odd labour and painting work. If the work is cash based how do I declare to the trustee what I earn, or even start this bankruptcy process? How does this all work?

    1. J. Douglas Hoyes, Trustee

      Hi DJ. You would simply add up what you earned in the month (less work expenses if you are self employed) and report that amount to the trustee. If you are paid cash, there is no way to specifically prove what you have earned. Your trustee can advise you on this in more detail. You will also want to get your tax returns filed, even if there is nothing owing. Your trustee can provide you with advice on how to do that as well.

  6. Asif

    Hi, I had 02 houses in Calgary in 2007. One I bought for myself and the other one my friend bought for him totally under my credit. Later on, my friend moved and left the home. Due to financial issues and recession, I left my house too and foreclosed both of them. So, technicaly speaking I had 02 houses foreclosed under my name. I did not filed any bankruptcy and waited for 07 years to get rid of everything from my credit. But now I came to know that the after the court judgement, CMHC had informed CRA about the debt and its still there which is almost $275,000. To avoid problems, I have been working on cash and filed taxes as zero income. Now I want to move on and improve my credit. Please suggest.

    1. J. Douglas Hoyes, Trustee

      Hi Asif. Your story is relatively common; it often takes many years for CMHC to pursue a debt for a mortgage shortfall. Your choices to clear this up would be to either make payment arrangements with CMHC (which may be difficult if you owe $275,000) or file a bankruptcy or proposal. Whether or not those options will make sense will depend on your income and other assets, so you should consult a trustee to review your situation.

  7. Anessa

    Hi my question is I have over $40,000 in student loans, 407 debt over $5,000 and a car loan debt that is owed in the amount of $10,000 somebody had cosigned for me. What is the penalty for the cosigner if I file for bankruptcy and will my student loan and 407 dept be cleared after filing? I have little income, no assets and currently unemployed and not able to put anything down on the amount of debts I owe . I want to improve my credit without filing for bankruptcy. What are my options? Do you have any suggestions for me. What chapter of bankruptcy should I be filing?

    1. J. Douglas Hoyes, Trustee

      Hi Anessa. Government guaranteed student loans are discharged in bankruptcy is you have “ceased to be a student” for more than seven years. So, whether or not bankruptcy is a viable option for you will depend, in part, on whether or not your student loans are old enough. 407 debt is dischargeable in bankruptcy. If you go bankrupt, your co-signer is still liable for the debt.

      For a complete discussion of your options you should contact a licensed Ontario bankruptcy trustee to review all of your options in detail at a no charge initial consultation to help you make the best decision.

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