Financial struggle is something that many people will deal with in their lives, but depending on your circumstances, dealing with debt can simply become untenable. If it’s impossible or unreasonable for you to repay everything, there are ways you can find relief. One of them is through bankruptcy.
Bankruptcy is often seen as a last resort. It’s true that it should not be pursued lightly. The effects on your credit report will be significant and long-lasting, but they won’t be permanent. If you’re worried about losing assets in bankruptcy, there are also alternatives such as a consumer proposal that will leave your assets protected.
Can You File for Bankruptcy?
Before you consider this option, you should know who can file for bankruptcy. In order to be eligible, you must be an insolvent person, which means that your debts are higher than the realizable value of your assets, or that you are unable to keep up with your obligations. If you’re in a position where you struggle to or can’t pay bills, you could qualify.
You also have to owe at least $1,000 in unsecured debts. A bankruptcy trustee, now known as a Licensed Insolvency Trustee, can help you determine if you qualify.
Should You Seek Debt Relief?
Now that you know whether or not you qualify to file, the question is, should you? There are several reasons to consider it.
You get out of debt sooner
When you’re struggling to pay back loans, you’re not saving for yourself. Whatever your long-term financial goals, investing allows you to use compound interest to grow your savings far beyond what you could set aside yourself. The sooner you can start doing that, the better.
You can’t keep up with payments
If you can’t keep up with all of your bill payments on a monthly basis, you’re only going to dig yourself into a deeper hole. Each time you miss a payment or borrow more money to pay off another creditor, the problem gets worse.
You have limited non-exempt assets
Depending on where you live, there are different exemptions on assets that can be liquidated to repay your creditors. If you own little to no non-exempt assets, filing for bankruptcy can be an effective way to clear your debts. Keep in mind that you may also have to make surplus income payments until you are discharged.
What Debts Are Included in Bankruptcy?
The final thing to consider is what debts you can clear by filing. First of all, only unsecured debts can be cleared, not things like mortgages or auto loans. Secondly, there are also some types of unsecured credit that can’t be included, such as:
- Student loans, unless you have not been a student full- r part-time for seven years;
- Child support and spousal maintenance payments;
- Court-imposed fines;
- Debts that you failed to declare when you filed.
There is hope, even when you’re overwhelmed by the money you owe. While bankruptcy certainly shouldn’t be your first option, it’s not the end of the world; it’s a new beginning.
Interesting related article: “What does the word Finances mean?“