Bankruptcy is a formal, legal declaration that you are insolvent – in other words, unable to pay your debts. If you choose to file for Bankruptcy in Canada, you will receive protection from your creditors. Your Licensed Insolvency Trustee (LIT) will work to maximize the amount of money that can be paid to those creditors.
Unexpected circumstances can overtake even the most honest, hardworking and well-intentioned of us, leaving us unable to repay the money we owe. It happens to hundreds of thousands of Canadians every single year.
As you might expect, going bankrupt has consequences but in some circumstances, it is the only way forward. With the right advice and support, your financial future can be rebuilt.
Exploring some of the most common reasons for declaring Bankruptcy can be both reassuring and illuminating. Everyone feels the pressure of debt, and bankruptcy is often the best way to relieve that pressure and start fresh.
What are the top 5 causes of insolvency?
1. Job loss
Job loss is one of the most common reasons people file for Bankruptcy in Canada. Losing your job can have a disastrous effect on your personal finances. Once your money has run out, it can become increasingly difficult to keep up with your financial obligations. The more fortunate among us find new jobs quickly but for some, it is an extended struggle.
If you lose your job unexpectedly, make sure you:
- Get a full and fair settlement from your previous employer if you’ve been made redundant. Don’t allow them to take advantage.
- Immediately reduce your spending and establish a strict budget. You may also need to take out some carefully calculated loans.
- Claim any government benefits to which you may be entitled.
- Prepare for the possibility of job loss by building up some emergency savings.
2. Business downturns
Self-employed Canadians cannot be fired but they can face an equally unfortunate downturn in demand from their existing clients. Equally, shift workers may find their hours and overtime sharply reduced if their employer runs into unfavourable market conditions. This can all cause strained budgets and suddenly, debts accumulate and the financial stress starts to grow.
It is important to prepare for life on a reduced income. Build up an emergency fund that you can access and cut your day-to-day spending as much and as soon as you can.
3. Illness and injury
A sudden illness or significant injury can have a major impact on household income. You or your spouse may be unable to work for a long period – or even be forced into early retirement – while the expenses mount. Even with benefits, you could be facing an extended period on a reduced income and that could make it increasingly difficult to make ends meet and make your debt repayments.
To try and avoid the worst, set aside some savings and make sure you are properly insured, especially if your line of work is a hazardous one.
4. Relationship Breakdown
Divorce and civil partnership dissolution can be very costly affairs, especially if the estranged spouses fail to agree on a settlement and end up in court – accumulating legal fees.
Following separation, the income that used to support one household often needs to be stretched to two. This new financial pressure, combined with potentially sizable settlements, high maintenance, and legal fees can easily push people into serious financial difficulty.
So proceed with caution and try your very best to avoid an expensive courtroom confrontation.
5. Bad Luck
And then there’s simple bad luck – an unexpected disaster that suddenly throws your finances into turmoil, such as a car accident or a house fire. There are many possibilities, any of which could keep you from working for an extended period or require income that you simply don’t have. Again, adequate insurance and emergency savings are the best defense against sudden disasters.
Living within your means
Beyond specific triggers like job loss or illness, day-to-day overspending and mis-use of credit can contribute to eventual Bankruptcy. This may be down to long-standing bad habits or simple financial mismanagement. You may feel you are too organized and sensible to have such problems but what about when you are unable to pay your mortgage due to monthly overspending? What happens when interest rates rise? This happens to the best of us.
Living beyond your means puts your finances under continual strain and makes it harder to save, leaving you more vulnerable to sudden disaster.
Receive expert financial support today
If you are considering filing for personal Bankruptcy, consult a Licensed Insolvency Trustee. These financial professionals are licensed by the Canadian federal government to administer Bankruptcies and also provide valuable guidance and assistance to Canadians just like you who find themselves in financial difficulty.
At Allan Marshall & Associates, we are well-established debt professionals with offices conveniently located in areas of Alberta, Prince Edward Island, New Brunswick, and Nova Scotia. Contact us today. We can help.