Special Situations of Personal Bankruptcy
Situations That Affect if You Qualify or The Filing Process
Your ability to file for bankruptcy, the cost of the bankruptcy, and the length of time you will be bankrupt, depends largely on your personal circumstances. There are some special situations that should be considered when filing for bankruptcy or debt consolidation in Canada.
Separated and divorced individuals
It is a common misunderstanding that when the obligation to pay debts is settled in a separation agreement or divorce order that the matter has been finally and permanently resolved. Unfortunately, where bankruptcy is concerned, that is not the case. If you have co-signed or guaranteed debts and one of you goes bankrupt, the non-bankrupt spouse will likely be responsible for payment of the joint or guaranteed debts. This may lead to difficulties in the post-bankruptcy relationship, enforcing child custody rights and the payment\receipt of support. In light of these possible problems, it is recommended that you discuss your finances and your impending bankruptcy with us, as well as your lawyer, prior to going into bankruptcy.
Student and student loans
It is a requirement that all debts be disclosed to the Licensed Insolvency Trustee when you go bankrupt, including student loans.
If more than seven years have passed since you were last registered in college or university when you go bankrupt, your discharge from bankruptcy will discharge your student loans.
If less than seven years have passed since you were last registered in college or university when you go bankrupt, your student loans will not be discharged. In fact, these loans will continue to accrue interest during and after your bankruptcy until the loans are paid. Of note, the CRA may also withhold and apply income refunds to the payment of undischarged student loans until they are paid. Filing for bankruptcy may help ex-students pay student loans, as income that was previously used to make debt payments on non-student loan debt will be available to pay the student loan debt.
If you are currently enrolled in college or university, have student loans and require additional student loans in the future, but need to go bankrupt, it is very important that you discuss this with us to ensure you will continue to be eligible for student loans in the future.
If you are a non-resident Canadian, and you are unable to pay your debts, you may declare bankruptcy in Canada. We will obtain the necessary approval from the federal bankruptcy office to file the bankruptcy. It is unlikely that you will be required to come back to Canada to go bankrupt or to obtain your discharge. Of note, you will be required to disclose to the Licensed Insolvency Trustee all of your global assets, liabilities and sources of income. The discharge from bankruptcy will only discharge Canadian debts.
Self-employed individuals may file for bankruptcy. With a few rare exceptions, the bankruptcy filing will stop all personal and business creditors from commencing or continuing collection actions against you. Your discharge from bankruptcy will extinguish and discharge not only personal debts, but also business debts you are liable for, including amounts owed to suppliers, debts you have guaranteed, and amounts owed to the CRA for HST and employee source deductions.
To be able to provide you with proper advice, and an appropriate course of action, the Licensed Insolvency Trustee will need to understand a number of matters including:
- What type of business do you currently operate: a corporation, a partnership or a sole proprietorship?
- Do you wish to stay in business if at all possible?
- What do your co-shareholders or partners wish to do?
- Is your current business insolvent, can it continue in business, or must it be closed or also go bankrupt?
- Can the current business avoid bankruptcy by filing a proposal to its creditors?
- Are you personally liable for certain of its debts, such as HST or employee source deduction arrears?
If you wish to better understand your finances, options and solutions to your financial challenges, please contact us today to arrange a no-charge initial consultation. You will find it to be very informative and helpful!
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