right time to declare personal bankruptcy

When Is the Right Time to Declare Personal Bankruptcy?

Since the pandemic was declared hundreds of thousands of Canadians have lost their jobs and find themselves unable to make their basic monthly payments. Fortunately, our Canadian Government has stepped up and assisted financially.  Banks have offered deferred payments and lower interest rates subject to qualifications.  Landlords have deferred rent payments. Insurance companies have given rebates on insurance. All of this offers some short-term relief, but will it be enough?

At the end of the ‘grace periods’ credit card balances will have increased (interest still gets added to the balance), mortgage payments will increase (those deferred payments are added to the balance over the remaining term of the mortgage) and your rent will need to be paid. But for now, there is some breathing room. 

Living on the edge

According to an April article in the Financial Post, more than a million Canadians believe they are on the verge of bankruptcy due to this pandemic and another 3.2 million feel they are headed in the same direction. It doesn’t seem too difficult to make the connection between living too close to, or above, our means and the inability to weather a massive financial storm, like the one we are going through at the moment. 

I would prefer if the next part of this post was focused on how you can better plan for these types of situations, and avoid filing for personal bankruptcy. However, that’s not the most pressing concern at the moment. The more pressing question, it seems, is how you are going to survive the storm when the dust settles. 

Taking the proactive approach

Many of the calls I am getting at the moment are from those considering their options. They are not ‘at deaths (or should I say debts) door’ at the moment but they see it coming. And they want to know what to expect. I like those calls. It shows that someone is doing their homework, considering all options, seeking to find out what they don’t know. Sometimes, that conversation will lead them in another direction, away from bankruptcy. Sadly, other times, it leads them towards bankruptcy. 

The most common question I have heard lately is “Should I file now or later? The answer is “It depends.” It depends on your own personal circumstances and your prospects for recovery. 

Consider these guidelines

The following are some general guidelines that may help answer that question. I must, however, ensure it is noted that your personal circumstances are of utmost importance in making a final decision and consultation with a Licensed Insolvency Trustee is highly recommended. 

It is important, as well, to highlight the fact, that declaring bankruptcy is only one of the services a Licensed Insolvency Trustee (LIT) is licensed to offer. The second is to assist you in filing a consumer proposal (a settlement offer to your creditors). Rest assured that when you contact a LIT, you will be presented with a complete overview of both options and be assisted in making the decision that is right for you. 

So, in answer to the more pressing question, of “When should I declare bankruptcy / file a consumer proposal?”, I offer the following as some guidelines to consider: 

  1. What are your prospects of returning to your pre-pandemic income? If they are great, there may be some benefit to waiting. If they are not, getting ahead of the situation may prevent undue stress in the future. 
  2. Do you currently have enough income to cover your monthly expenses? If the answer is no, you are not covering your expenses at your current income and that income is not expected to change, some type of debt-restructuring may be imminent in order to survive. 
  3. What are your income prospects in the long-term? This will certainly play a part in whether you decide to declare personal bankruptcy or file a consumer proposal.
  4. What was your credit use and payment history like prior to the pandemic? If credit use was low and payments were stable, your scenario is a lot different than if credit use was high and payments were the bare minimum. 
  5. Have you been bankrupt previously? This will have a great impact on the decision on whether or not to file a second bankruptcy and often leads one to more strongly consider the benefits of filing a consumer proposal.
  6. What are the nature of your assets? In most instances, the initial efforts to survive will result in liquidating what assets you can. It makes sense to understand which assets are exempt and non-exempt {meaning their availability to your creditors} before making a decision to liquidate them for the creditors, as those decisions may have long-term irreversible effects to you. 
  7. And finally, what are your short-term and long-term goals? Your timing may impact how long you are in bankruptcy or the term of a consumer proposal and should align with your overall goals for your future.

As I have indicated, there are numerous considerations to, well, consider. The above list is meant to give you a starting point. Taking advantage of the free consultation offered by an LIT will help you understand the implications to you, both now and in the future.  Consultations can be done by phone or video,  in the comfort of your home or office.

Allan Marshall & Associates Inc. is here to help you choose the option that is best for you. A conversation today can do a lot to avoid stress tomorrow. 

Visit us at www.wecanhelp.ca or call us at 1-888-371-8900 for your free consultation. 

About Author

Mary-Ann Marriott

Mary-Ann Marriott

Mary Ann has been working in the insolvency industry for 25 years. In 2005 Mary Ann received her Chartered Insolvency & Restructuring Professional (CIRP) designation and attained her license as a Licensed Insolvency Trustee (LIT) in 2014. She is passionate about helping others become financially literate, and has been a guest speaker to various groups and organizations on the topic of Money Management. Mary-Ann also hosts a weekly radio show, as a volunteer in her community. Her tagline is “Helping you have happier, healthier finances”.