If you’re considering bankruptcy, make sure you do your homework first.

One of the most commonly asked questions is: what types of debt does bankruptcy eliminate?

The answer is simple: most unsecured debts can be eliminated in bankruptcy.

What types of debt does bankruptcy eliminate?

Some examples of unsecured debts include:

  • Credit card debts.
  • Personal loans.
  • Bank loans and overdrafts.
  • Payday loans.
  • Unpaid utility bills (You can’t include bills for services you continue to use).
  • Unsecured lines of credit.
  • Tax debts (unless the CRA registers a lien on your property).
  • Student loan debt if you haven’t been in school for seven years or more.
  • Unpaid rent.
  • Debts owed to friends and family.

At the end of your bankruptcy term, these debts are eliminated.

Can I eliminate my student loan debt?

Bankruptcy can only discharge student loan debt if you haven’t been in school for seven years or more.

If your student loan is less than seven years old, you still need to make your loan repayments if you decide to file.

Can you include tax debt in bankruptcy?

Many people declare bankruptcy to deal with tax debts.

If you proceed with bankruptcy, the CRA is treated the same as any other creditor, but they can attach specific conditions or request a creditors meeting.

Any taxes and penalties owed to the CRA are eliminated when you complete your bankruptcy.

What debt is not covered by bankruptcy?

Although bankruptcy is a great way to eliminate your unsecured debts, not all debts can be discharged by filing bankruptcy.

Some debts are excluded, such as:

  • Secured debts such as a mortgage or car loan.
  • Property taxes.
  • Court-imposed fines and damages, e.g. a parking ticket or fine.
  • Unpaid alimony or child support.
  • Debts as a result of fraud or false pretence.
  • Student loans (if less than seven years since leaving university or college)
  • An award by a civil court for damages arising from personal or sexual assault.

Secured debts, such as a mortgage or a car loan, cannot be eliminated by filing for bankruptcy. You can either continue to pay your secured creditors or stop paying them and surrender the asset instead.

Next steps: Connect with a Licensed Insolvency Trustee to establish whether bankruptcy can eliminate your debts.

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Conclusion

Bankruptcy can eliminate most unsecured debts, but secured debts such as a mortgage or car loan will survive, and you must continue to pay or surrender the asset.

Some debts, such as property taxes, court fines and unpaid child or spousal support, cannot be eliminated in bankruptcy.

You can only include student loan debts if you have been out of school for seven years or more.

Always get advice from a Licensed Insolvency Trustee to determine whether bankruptcy is right for you.

If your debts have become unmanageable and you are interested in filing for bankruptcy, connect with a trustee for a free consultation.

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