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Things to Know Before Declaring Personal Bankruptcy in Canada

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If your business is facing financial losses and your expenses are more than your revenue, and you have no idea how to handle your company’s finances anymore, then you need to stop, take a deep breath, and understand the critical situation you are stuck in. However, if you find no way out and the only solution you see is bankruptcy, then here are some things you need to know before declaring bankruptcy.

There are a couple of strategies to take to petition for financial protection, which offer insurance from leasers and a clean monetary record. You will require the entirety of your monetary data, including financial records, bank explanations, contract records, and credit desk work, to apply for liquidation in Canada. Following that, you will reach out to a Licensed Insolvency Trustee to either begin the liquidation system or investigate different choices.

Your liquidation begins when you ask for financial protection from a Licensed Insolvency Trustee (LIT). They are the primary professionals in Canada who are authorized and managed to monitor insolvencies.

What is Bankruptcy?

Insolvency, or owing more than your assets are worth, is a legal designation that can be obtained through bankruptcy. A Licensed Insolvency Trustee is in control of supervising the procedure (LIT). Your assets are sold and a payment is made to your creditors with the profits of those sales. The remaining debts that were a part of your bankruptcy are dismissed.

If you are considering bankruptcy, you need to do these 4 things.

In these difficult circumstances, what should you do if you are facing financial difficulty and considering filing for financial bankruptcy?

  1. Get professional advice
  2. Don’t fall into a debt spiral
  3. Make a proposition 
  4. Rebuild your credit 

Get professional advice

Getting guidance from professionals will help you understand your business position a little bit better. Experts will find a way for you to do bankruptcy the right way. The right way means choosing a path where you will pay back all your money to debtors and also be able to save your assets as much as you can. 

Advice from professionals will refrain you from making these serious blunders like paying credit card negative balance from Registered retirement saving plan. Moreover, taking more loans to pay back old loans, all these mistakes will only cause the company to fall into more debt. 

Don’t fall into a debt spiral

Another difficult circumstance is not falling into a debt spiral. Many businessmen make this mistake by taking more loans and thinking they will pay them back after they earn revenue. Business revenue is always uncertain. If you think you are dependent on revenue to pay back your loan, then find another alternative method. 

People forget that if they take a $50,000 loan, it will cost them $100,000 with interest. Then it is very difficult to pay back these loan amounts. Private assets like a house, car, jewelry, or other items are sold to pay back.

Make a proposition

Experts believe that if your debts don’t exceed $250,000, then you should start working on making a proposition. Making a proposition will help you reimburse your money. 

However, if your debts are over $250,000, then you can apply for a division I proposal. The benefit of making the proposal is that you can pay back the creditor’s money through the cash flow present. The trustee then collects your creditor’s money and distributes it accordingly if the proposal is made and submitted within 45 days. 

Rebuild your credit 

Rebuilding your credit score is another circumstance you should keep in mind before filing for bankruptcy. If you submit your proposal within the given 45 days’ time or before that, your credit score will increase. 

What is the duration of bankruptcy?

Bankruptcy should be the last step taken by businessmen. Filing for bankruptcy is one of the hardest decisions. If you are filing for bankruptcy for the first time, then the duration period is 9 months. In these 9 months, the financial advisors will ask you to complete all your unassigned tasks.

However, if you are filing for bankruptcy and you have surplus income, then the duration period is 21 months. Surplus income is determined by your trustee after considering your household’s income, spending, and dependents in accordance with guidelines published by the Office of the Superintendent of Bankruptcy Canada.

Second, bankruptcy lasts up to 24 to 36 months. The court will decide how long it will take you to file for bankruptcy if you have filed for bankruptcy more than once, have not followed your obligations, or have engaged in one or more bankruptcy offenses. When you file for bankruptcy, it will show in your credit points. The credit points are important as they show previous credit history or whether you are able to pay back credit or not. 

How do you know if you are eligible to file for bankruptcy?

There are some rules and circumstances in which you can file for bankruptcy. You can file for bankruptcy if:

  1. In unsecured debt, the payment amount you owe should be at least $1000
  2. Outstanding dues/ unable to pay your dues 
  3. The value of your assets is less than the amount you owe 
  4. You must either live, work, own property or do both in Canada.

Conclusion

Filing for bankruptcy is a dreadful situation a business person has to go through. Remember, when operating your business, never ever spend more than your revenue. Learn from all these mistakes and try to save your business from going into bankruptcy. According to chartered accountant and Canadian professional, Pierre Leblanc,  “The majority of people who end up in debt default are acting in good faith. Often, they’re just unlucky and unfortunately lack the necessary financial knowledge.” Having financial knowledge about your business and understanding when to file for bankruptcy will save you from so many problems.

In this blog, we have learned about four circumstances you need to consider before filing for bankruptcy, what is the duration of bankruptcy; and what makes your business eligible to apply for bankruptcy.

Salman Rundhawa
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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