- Bank Loan
- Bankruptcy
- Budget
- Children's Future
- Consumer Proposal
- Credit Cards
- Credit Counselor
- Credit Report
- Credit Score
- Debt
- Debt Collectors
- Debt Consolidation
- Early Retirement
- Financial Freedom
- Financial Literacy
- Financial Problems
- Financing For Renovation
- Gambling Debt
- Holiday Debt
- Income Tax Debt
- Investment
- Money
- Money Management
- Money Saving Tips
- online fraud
- Online Scams
- Owing A Car
- Pawnshop loans
- Payday Loans
- Refinance
- Running Out Of Money
- Save Big Money
- Saving Tips
- Secure Retirement
- student loan
- Tax
- Uncategorized
- Wage Garnishment
- February 2021
- January 2021
- December 2020
- November 2020
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- February 2020
- January 2020
- December 2019
- November 2019
- October 2019
- September 2019
- August 2019
- July 2019
- May 2019
- April 2019
- March 2019
- February 2019
- January 2019
- December 2018
- October 2018
- September 2018
- August 2018
- July 2018
- June 2018
- May 2018
- April 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- November 2015
- October 2015
- September 2015
- August 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
What Kinds of Debts are Not Covered in a Bankruptcy?
Not all debts are erased by bankruptcy. It’s important that you know which of your debts are covered by Canada’s bankruptcy law if you are considering filing for personal bankruptcy, to ascertain if bankruptcy is the best option to solve your current financial situation.
Bankruptcy law is extremely complex. The law’s aim is to protect innocent creditors, and to provide financial absolution for the honest debtor. The law was written to ensure that debts, “arising out of fraud, dishonesty or misconduct while acting in a fiduciary capacity” remain the responsibility of the debtor even after bankruptcy.
As such, bankruptcy discharges most of your unsecured debts, though there are exceptions. Also, bankruptcy generally does not discharge secured debts, though again, there are exceptions.
Unsecured debts
Most unsecured debts—debts on which lenders do not have collateral—are discharged in bankruptcy. These include credit card debts, personal loans, unsecured lines of credit, unpaid bills, and income tax debt to Revenue Canada (CRA). As soon as your file you are protected from these creditors and once you are discharged from your bankruptcy, the debts are erased.
However, some unsecured debts remain even if you do file for bankruptcy. These debts include:
- Spousal support and child support (payments and arrears).
- Student loans obtained less than 7 years from when you last studied in school. However, some the courts, if applied to after the expiration of 5 years, may reduce this period under certain conditions of hardship.
- Government overpayments (the principal amount that was overpaid to you must be repaid while the penalties and interest up to the date you file with the trustee will be erased)
- Debts arising from proven theft or fraud
- A criminal fine, penalty, or restitution order (i.e. bail, parking tickets, or court fines)
- Court-awarded damages or penalties
These debts must be repaid over time.
Secured debts
Secured debts are not erased by bankruptcy unless the asset (car house, etc) is surrendered at the time you file. With secured debts, your creditor will have collateral on the loan. This collateral—such as your house or car—can be claimed by the lender if you default on your payments. Most mortgages, for instance, contain a clause permitting repossession of the house if you do not make the required payments.
It is against the law for a creditor to end your contract or seize your asset simply because you have filed for bankruptcy or a consumer proposal. Besides that, mortgage lenders and other secured lenders prefer to keep a mortgage going if you are able to pay because they make money when they are lending money. However, if you have negative equity (the value vs what you owe) you may decide not to keep the asset. If you have positive equity, any excess value above the bankruptcy exemption value is considered an asset.
Overall, ensuring you are fully informed about your bankruptcy options, and obligations, is essential before deciding to file for personal bankruptcy. A bankruptcy trustee will explain your other options (such as a consumer proposal) and help you make the best decision to resolve your financial stress.