Should I be declaring bankruptcy during the pandemic?

Monday, July 27, 2020 - 13:23

Bankruptcy


Since the pandemic was declared hundreds of thousands of Canadians have lost their jobs and find themselves unable to make their basic monthly payments. Fortunately, our Canadian Government has stepped up and assisted financially. Banks have offered deferred payments and lower interest rates subject to qualifications. Landlords have deferred rent payments. Insurance companies have given rebates on insurance. All of this offers some short-term relief, but will it be enough?

At the end of the ‘grace periods’ credit card balances will have increased (interest still gets added to the balance), mortgage payments will increase (those deferred payments are added to the balance over the remaining term of the mortgage) and your rent will need to be paid. But for now, there is some breathing room. 

So, how are people going to survive the storm when the dust settles? 

Many of the calls I am getting at the moment are from those considering their options. They are not ready to file bankruptcy at the moment but they see it coming. And they want to know what to expect. I like those calls. It shows that someone is doing their homework, considering all options, seeking to find out what they don’t know. Sometimes, that conversation will lead them in another direction, away from bankruptcy. Sadly, other times, it leads them towards bankruptcy. 

The most common question I have heard lately is “Should I file now or later? The answer is “It depends.” It depends on your own personal circumstances and your prospects for recovery. 

Consider these guidelines
The following are some general guidelines that may help answer that question. I must, however, ensure it is noted that your personal circumstances are of utmost importance in making a final decision and consultation with a Licensed Insolvency Trustee is highly recommended. 

  1. What are your prospects of returning to your pre-pandemic income? If they are great, there may be some benefit to waiting. If they are not, getting ahead of the situation may prevent undue stress in the future. 
  2. Do you currently have enough income to cover your monthly expenses? If the answer is no, you are not covering your expenses at your current income and that income is not expected to change, some type of debt-restructuring may be imminent in order to survive. 
  3. What are your income prospects in the long-term? This will certainly play a part in whether you decide to declare personal bankruptcy or file a consumer proposal.
  4. What was your credit use and payment history like prior to the pandemic? If credit use was low and payments were stable, your scenario is a lot different than if credit use was high and payments were the bare minimum. 
  5. Have you been bankrupt previously? This will have a great impact on the decision on whether or not to file a second bankruptcy and often leads one to more strongly consider the benefits of filing a consumer proposal.
  6. What are the nature of your assets? In most instances, the initial efforts to survive will result in liquidating what assets you can. It makes sense to understand which assets are exempt and non-exempt {meaning their availability to your creditors} before making a decision to liquidate them for the creditors, as those decisions may have long-term irreversible effects to you. 
  7. And finally, what are your short-term and long-term goals? Your timing may impact how long you are in bankruptcy or the term of a consumer proposal and should align with your overall goals for your future.
As I have indicated, there are numerous considerations to, well, consider. The above list is meant to give you a starting point. If you're considering bankruptcy, call our office today for a free, no-obligation consultation. We will be able to answer all of your questions and put your mind at ease. 

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