Declaring bankruptcy is associated with repaying debts with court protection or wiping them altogether. This appeals to many desperate borrowers. No more worries or constant calls from creditors, and one can move on debt-free when debt has been so overwhelming.
This decision is not an easy one, however, or it shouldn’t be. Declaring bankruptcy will tarnish your credit score and make it very difficult to apply for a mortgage, loan, credit card, or any other type of financing. Filing for bankruptcy tells potential creditors that you can’t manage debt and your finances in general.
So, when should you file for bankruptcy? Most financial advisors consider it a last resort step, when budgeting, debt consolidation, credit counseling, and other efforts to eliminate debt do not bring results. Credit counseling programs come with a strict debt management plan to follow. Debt consolidation entails applying for a single loan as to pay off multiple debts. Another option is to file a consumer proposal with your lending institutions. Even if you exhausted all options, it is wise to seek the advice of a bankruptcy attorney or another professional in the field.
If you are decided on declaring bankruptcy, it is not a difficult process. You should contact a federally licensed trustee who is in the position to evaluate your financial circumstances. As a next step, you will assign any assets you own to the trustee. The latter will distribute your assets to the lenders. He or she also prepares the necessary documentation with the Office of Superintendent of Bankruptcy. That done, the creditors are stopped from proceeding with legal actions against you. Any surplus income you make will go to your creditors, and you will be required to attend counseling with the trustee. Then, you will be discharged. A discharge means that you are no longer required to pay off the discharged debt.
Filing for bankruptcy means that your financial situation and credit score are so bad that hardly anything you do will make them any worse. If that is the case, bankruptcy can help you start anew. The procedure is not expensive and doesn’t take long to complete. Rebuilding your credit will be a long process, though, staying on your file for as long as 10 years. So, you may want to discuss that with your trustee.