What Does Bankruptcy in Canada Cost?
When considering the different options available for debt relief in Canada, being able to understand the costs of each is significant. For instance, many people do not think personal bankruptcy has a cost because when successful, it will clear your consumer debt. Therefore, it eliminates expenses that you would be required to pay otherwise.
This type of thinking causes many people to belief that alternative debt relief options are too expensive, such as debt settlement or consumer proposals. However, an individual should not file for bankruptcy without having all the facts on what they are getting themselves into. Regardless of what some are thinking, bankruptcy in Canada does incur some costs. This can be both financial costs and personal costs.
Personal Costs with Bankruptcy
The following are some personal costs associated with bankruptcy that need to be considered:
Agreements and Contracts: Your credit rating is severely damaged for seven years after filing bankruptcy. This makes it nearly impossible to find a creditor that will approve you for a loan. Additionally, this can hurt your chance of renting an apartment with an affordable rate.
Time: It takes up a lot of time when trying to keep up with all the bankruptcy paperwork and with the trustee.
Service: While in bankruptcy, you are unable to serve as the director of a company.
Financial Costs with Bankruptcy
The financial costs of bankruptcy can become significant. If you end up with a successful bankruptcy, then your consumer debt is going to be discharged. However, while working towards getting that far you are going to incur other costs which will not be relative to other debt relief. There are three major categories for these costs:
Base Contribution Cost
Throughout the bankruptcy the trustee is going to charge their clients a contribution cost which is based on a monthly amount during the process. It covers paperwork, administrative overhead, and other costs of operating a business. Trustees do not get paid by any other sources, not the government or your creditors. On average, the base contribution cost will be roughly $200 per month, but may pay more if you won a business or have a significantly higher income.
When filing bankruptcy in Canada, the bankruptcy trustee is responsible for setting up the trust in which all assets will be deposited. You will be allowed to keep some of your things, but for the most part, anything that has any value you will have to turn over to the trustee. Some of the things you may have to give to the trustee, depending on the territory or province of residence, can include home equity, jewelry, excess home furnishings, motor vehicles, and much more.
Surplus Income Cost
There is an income limitation established by the Canadian bankruptcy law stipulating the amount you may earn during bankruptcy. Any income earned over this limit is referred to as surplus income, which you are required to pay to the bankruptcy trust through the trustee. Your bankruptcy trustee determines the amount of surplus income you will have to pay, but it is usually is usually all income above what is necessary to live on.
Individuals have a $200 buffer which is in place to protect against having to pay surplus income payments for slight changes. Therefore, surplus payments do not start until you earn over the $200 limit. You are required to provide your trustee all pay stubs and tax documents regularly to calculate surplus income. Furthermore, being required to pay surplus income can cause your bankruptcy period to be extended up to 12 months longer than the average nine-month period.
Alternative Debt Relief Options
Have you considered other debt relief options? If you are not sure bankruptcy is the only option available, it may be possible to solve your debt issue through another, low cost debt relief program, such as debt consolidation or debt settlement.
To learn more about bankruptcy or other options, fill out our debt relief form we will send you additional information.