The bankruptcy process may be one way to solve your money problems but there are implications. Here are some frequently asked questions related to what happens after filing for bankruptcy:
1. What is a discharge from bankruptcy?
2. Will I still owe money after I declare bankruptcy?
3. Will I still owe income taxes after bankruptcy?
4. What happens if someone co-signed a loan for me?
5. How do I rebuild my credit after bankruptcy?
6. Can I get a credit card after bankruptcy?
7. Can I get a mortgage after bankruptcy?
8. Can I get a personal or car loan after bankruptcy?
1. What is a discharge from bankruptcy?
One of the purposes of the bankruptcy process is to provide the insolvent debtor with a fresh financial start. This is accomplished through a discharge (forgiveness) of responsibility for debts that were incurred prior to the bankruptcy. To qualify for a discharge the bankrupt must comply with certain duties and cooperate with the Trustee. There are four kinds of discharge three that are issued by the Court:
1) Automatic: This is a discharge that occurs after a period of time has lapsed – 9 or 21 months for a first time bankrupt, and 24 or 36 months for a second time bankrupt – without the need to attend in Court; or
2) Absolute: An Order of Discharge issued by the Court; which may be either;
a. Suspended: The discharge is not granted to the bankrupt for a set period of time; or
b. Conditional: The Bankrupt is required to complete some outstanding duty in order to get a discharge.
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2. Will I still owe money after I declare bankruptcy?
Even when you declare bankruptcy, you may still owe money on certain debts. These include Canadian and Provincial student loans that are less than seven years old; alimony, child, or spousal support; court fines or penalties; as well as debts arising from fraud.
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3. Will I still owe income taxes after I declare bankruptcy?
After you are discharged from bankruptcy your pre-existing debts to Canada Revenue Agency will be discharged. However, you will still have to pay taxes on the money you earn after filing for bankruptcy.
Bankrupts with High Income Tax Debt will no longer be eligible for an automatic discharge. Bankrupts with personal income tax debt which exceeds $200,000, or represents 75% or more of total unsecured proven claims will have to seek a Court Order to be discharged from their debts. This is to prevent the use of bankruptcy by high-income individuals as a strategy to avoid large income tax debt.
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4. What happens if someone co-signed a loan for me?
Anyone who has co-signed a loan for you will still be responsible to make loan payments after you go bankrupt. The Bankrupt’s responsibility for the loan may be discharged by filing a bankruptcy but the co-signer will still be required to make payments.
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5. How do I rebuild my credit after bankruptcy?
To rebuild credit after bankruptcy there are a few things that you can do;
- Avoid companies that promise to help with “Credit Repair” they cannot do anything for you that cannot do for yourself
- Make regular deposits into a savings account
- Do not keep any account in an overdraft
- Make regular contributions to an RRSP or GIC
- Pay your mortgage or rent and utility bills when they become due.
- Allow a reasonable length of time (typically a year or two) to be able to demonstrate good financial management before applying for a credit card.
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6. Can I get a credit card after bankruptcy?
It is usually more difficult to get credit after bankruptcy than it may have been before. One way to get a credit card is to apply for a secured credit card (backed by money you have on deposit with the credit card company). This is another way to rebuild your credit rating after bankruptcy. Most people find that credit cards are one of the first forms of credit to become available after bankruptcy.
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7. Can I get a mortgage after bankruptcy?
It is possible to get a mortgage after you have been discharged from bankruptcy. You will require a down-payment and you will need to be able to meet other financial criteria set by the lender. If you are seeking a new mortgage during the first two or three years following a bankruptcy you will probably need to shop around to ensure that you are getting a reasonable posted rate.
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8. Can I get a personal or car loan after bankruptcy?
As with credit cards and mortgages your credit rating may not allow you to get the best interest rates immediately following your discharge. Take some time and rebuild your credit rating before you apply for a loan. Some people are able to get a car loan even while they are going through a bankruptcy but they will usually pay higher interest rates.
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