That’s the question I hear so often in my practice. Recently, we had an individual stop in first thing in the morning, unusual, yes, many people worry about bankruptcy when they get home from work and open the mail. This was different, the fear in his voice, the concern about the implications and stigma about filing. These are all legitimate concerns and fears which, it is hoped, this blog and the following series will help to dispel.
Here is the legal part, this blog is not designed, nor in the space available, can we set out all conditions, exceptions or possibilities. Once you read this blog, you should contact one of our offices near you or contact a local trustee near you for greater analysis and review of your particular circumstances. For ease of reading, we will try to create a series of short blogs written for ease of reading and avoiding lots of legal jargon.
So what is bankruptcy all about and does it really help? Bankruptcy is the legal process set out by the federal government where an individual or company can seek relief from their creditors. The act that governs the process is called the Bankruptcy and Insolvency Act (“BIA”). The government through the BIA in conjunction with decisions by the court have established a set of “rules” that determine how a bankruptcy is handled.
Over the course of many years of practice, we have encountered all sorts of situations people and companies find themselves in. First of all, don’t panic; while the world may seem to be collapsing around you, there is relief available. The first step, seek professional help from your lawyer, credit counselling or a Licensed Insolvency Trustee (“LIT”). Avoid some “credit counsellors” who seek to refinance your debts with high interest loans or monthly payment plans that seek to pay huge fees to the counsellor.
A LIT is a person licensed by the federal government to administer the provisions of the BIA. Their job is to review your financial situation and advise on the best course of action for you. LITs find themselves in an interesting position, while you may see billboards advertising on how they will work with you to solve your financial situation, in fact their responsibilities are to maximize the realization or money in your file for the benefit of the creditors. This is evidenced by the fact that creditors have the right to replace a LIT if they want to and have the required number of votes.
A LIT or one of their staff who is authorized by the government will sit with you and review your financial situation at an initial consultation. At our firm, this is a free no obligation service and is also typically provided by other LITs. In the meeting you will be asked to provide detailed information on your assets and liabilities as well as family and employment status. Our website provides a free download of the application form that captures most of the information required. In most cases, you will not have all the information and may be asked to provide further information.
In most cases there are a number of options that an individual or company has. While it seems the sky is falling, it isn’t and sorting through the information, often brings clarity and some relief. In general there are a few options which we will explain in further detail in future blogs and are as follows:
- A bankruptcy;
- A proposal, either formal or informal;
- Belt-tightening in your spending and working out your debts over time, and;
- Doing nothing, which really isn’t an option.
Bankruptcy is the legal process where an individual or company can rid themselves of their debts through the provisions of the BIA. In a later blog we will discuss the requirements, what you keep, what you lose, how long and what the implications are to you and your family. We try to address most of the situations but cannot be all encompassing. Companies can file for bankruptcy but unless they pay off or compromise their debts, they will not get out of bankruptcy.
A proposal is basically an agreement between an individual or company and their creditors on how their debt will be extinguished. The possibilities are endless, ranging from payment in full over time to a reduction in what is owed to payment based on certain events happening. This is where the skill and experience of your legal advisor or LIT is important. We will discuss further the options available in filing a proposal in later blogs.
In some situations we see, wants become needs and those needs take up the available monthly income and then some. Family wants, satisfying children’s wants as well as lifestyle choices all have long term implications both financially and emotionally. In some cases eliminating the excesses and trimming the expenses can eliminate the financial burden and with time some people are able to dig themselves out of their financial problems. These situations require great focus and strength in today’s easy credit market. If you are able to do this, over time we have seen the relief from carrying the financial burden
Lastly and sadly, some people and companies choose the last option, doing nothing. Running away, avoiding the calls and reality of the situation you are in is not the answer for a couple of reasons, firstly, it doesn’t make the debts go away and secondly, it prolongs the time when you can get out from under the debt.
These blogs are for information purposes only and if you find yourself in financial difficulty, feel free to contact our offices to arrange a free no obligation discussion about your financial situation with one of our staff. It is our hope that with the right information, you are able to make informed decisions about your financial situation that is right for you, your family or company.