Daily List of ALL things Equity Trading and Personal Financing for the Smart 2013 Canadian Investor.
Smart Investor Tip of the Day
Although thoughts of bankruptcy scares most people we feel it is a necessary topic for smart investors. The primary purpose of bankruptcy law is to afford a person who has fallen deep into debt a fresh chance to start over again with a clean record — no more debt.
To go into bankruptcy one must be insolvent. To be insolvent one must owe at least $1,000 and be incapable of paying debts.
When a person goes bankrupt they must have a trustee, as licensed by the Superintendent of Bankruptcy, to manage assets (held in trust) and provide proposals while maintaining a debtor’s rights and a creditor’s rights. Trustees also are debt consultants who provide advice, make settlement negotiations, and other arrangements with creditors on your behalf.
Prior to going into bankruptcy it is common for people in debt to be harassed by creditors. However, once the paperwork for bankruptcy is filed these creditors, by law, must cease contacting you directly for payment. This however, does not apply to secured creditors such as banks.
Your spouse (or common law partner) is in no way part of your bankruptcy (assuming s/he is not responsible for any of your debt e.g. did not sign any contract related to taking any of your debt).
Although your credit score will likely get dramatically lowered by going into bankruptcy rest assured that opening a new bank account will not be a problem. If, however, a bank refuses to open a bank account or cancel an existing one after being made aware of your bankruptcy (past or present) then they are breaking the law.
There are several personal seizure exemptions which vary from province to province once you go into bankruptcy. For example, in Ontario there is a $5,650 exemption which unsecured creditors cannot tough. So if you own a car worth $4,000 then you are permitted to keep that car.
One overlooked benefit of filing for bankruptcy is that no one has to know. So your friends, family, and co-workers will never find out you filed for bankruptcy (assuming you don’t tell them). The only way to find out is if someone requested a credit report.
Bankruptcy isn’t for everyone but with today’s pressures to invest or take on new debts it is nice to have a fall back course of action in cases of poor investment decision making or plain bad luck.