4 Things You Should Know Before Filing for Bankruptcy

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Filing for bankruptcy is often viewed as a solution to severe financial distress or after foreclosure on one’s house. There are however many caveats to undergoing the bankruptcy process that should be considered as a caution to the wise. Here are a few things you should know before you file for insolvency.

  1. It Is Very Time-Consuming

Filing for bankruptcy is anything but a quick fix to your mounting financial problems. Bankruptcy can take more than 21 months to automatically discharge in some cases and a minimum of 9 months. Although your trustee will have notified your creditors that you have filed, that still won’t stop all the creditors from reaching out to you. Not to mention you will be required by law to disclose all your assets and it will be at the Bankruptcy Trustee’s discretion which ones should be liquidated at the earliest opportunity.

  1. Unsalvageable Credit Rating

Once you file for bankruptcy in Montreal you will still get a bad credit rating for the foreseeable future. You may be unable to borrow money or get house loans for at least 10 years, not to mention you will also have disadvantages when accessing other financial services such as insurance. In the case of insurance, you will need to pay a much higher premium as you will be considered high-risk. Getting a credit card will also be extremely difficult and banks will be unlikely to allow you to open new accounts. Any financial advisor would tell you to exhaust other options like debt consolidation and settlement before going the bankruptcy route.

  1. Types Of Bankruptcy

There are a few different types of bankruptcy but the most common ones are as follows:-

  • Liquidation Bankruptcy is the most common for individuals in heavy debt. Court-appointed trustees or trustees hired by the individual make a list of assets, evaluate their value, and choose which ones to liquidate (in some cases a full liquidation is carried out). Unsecured debt usually gets a full discharge such as debt accumulated on credit cards. However, taxes, student loans, and some other forms of debt are not exempted in this type of bankruptcy proceeding. In many cases, if your home is about to be foreclosed this proceeding can only halt it for the time being to be carried out later.
  • Chapter 13 bankruptcy is when an individual is given a restructuring plan to pay off their debt loads. A plan is made so you can pay off the secured debt within 5 years or more and a part of unsecured debt. This form of bankruptcy still deteriorates your credit score for at least 7 years.
  • Chapter 12 bankruptcy is a good option for individuals of certain professions such as farming. It is a repayment plan that lets them keep their major assets like the home, farm, livestock, and boats while managing their debt.
  1. Employ Personal Measures

Personal measures always exist as an alternative to filing for bankruptcy such as setting a tight budget, selling major assets to counter debt, incorporating sound financial management habits such as reducing credit card use and diversifying sources of income.

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