Everything You Need To Know About Bankruptcy – All bankruptcies and consumer proposals in Canada are governed by the Bankruptcy and Insolvency Act (BIA or the Act). This is federal law that governs all aspects of your bankruptcy or proposal. Bankruptcy law was introduced to enable an “honest but unfortunate debtor” to be released from the obligation to pay debts when he finds himself in serious financial trouble.
Our infographic summarizes the key points you need to know about insolvency and bankruptcy law, key stakeholders and benefits.
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If you’re insolvent, meaning you owe more than you owe or can’t pay your debts when they’re due, the two main tools the BIA offers are:
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Both methods will eliminate your debt. A proposal is a way of making an offer to creditors to pay off part of your debt in exchange for them agreeing to write off all of your credit. In bankruptcy, your assets are liquidated, with some exceptions, and the proceeds are distributed to your creditors. After completing a bankruptcy or consumer filing, you will find yourself debt free.
Bankruptcy law sets the rules for these procedures and provides a framework for you, your creditors, the trustee, and the bankruptcy court.
For example, it protects the debtor from creditors by creating a “stay” during which your unsecured creditors cannot take legal action against you. However, bankruptcy law does not cover secured loans, so creditors, such as a mortgage holder, can still foreclose on your home for mortgage arrears. However, if you owe money on debts such as credit card debt, bankruptcy law prevents you from paying wages.
It determines for your creditors what assets can be seized or what monthly payments are required for your bankruptcy “estate.” The law also specifies how those funds are distributed among your creditors and how your trustee is paid from those proceeds.
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It is rare for a bankruptcy to go to bankruptcy court, although it does happen. In the case of a consumer proposal, if your creditors accept your proposal, the court will also approve it.
The bottom line is that bankruptcy and bankruptcy law is designed to give you a fresh start. The purpose of this is not to punish, but to provide a fair and just way for you to eliminate your debts and for your creditors to receive their fair share of what you can pay.
If you need help, contact your local bankruptcy attorney today to discuss bankruptcy or a consumer proposal. Written by Michelle Black Written by Michelle BlackArrow Right Contributing Author Michelle Lambright Black is a credit professional with over 19 years of experience, a freelance writer and certified credit expert. In addition to writing for, Michelle’s work has appeared in numerous publications including FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest and others. Connect with Michelle Black on Twitter Connect with Michelle Black on LinkedIn LinkedIn Michelle Black
Chelsea Wing Editor Chelsea WingArrow Right Student Loan Editor Chelsea has been in business since early 2020. He is invested in helping students navigate the high costs of college and demystifying the complexities of student loans. Connect with Chelsea Wing on LinkedIn Linkedin Chelsea Wing
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Bankruptcy protects your creditors when you are unable to pay your debts. However, paying off private student loans in bankruptcy can be difficult. Read on to learn how the process works now and how recent lawsuits and legislation pending in Congress may provide more solutions for high-income student borrowers in the future.
Before 1976, borrowers could discharge private and federal student loans in bankruptcy, as well as credit card debt or medical debt. However, the introduction of the US Bankruptcy Code in 1978 brought about a major change in student debt.
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At the time, Congress intended to protect education loans from abuse in bankruptcy. The amendment to the bankruptcy code states that funds received as scholarships are no longer disbursable unless the debtor demonstrates undue hardship, which is not easy. To prove undue hardship, borrowers must show that repaying the loan will prevent them from maintaining a minimum standard of living and that their circumstances will not change soon.
Because the ability to repay private student loans is limited, there has been much debate about this issue. In recent years, there have been several important court decisions that have authorized the servicing of private student loans. But attorneys caution that the rulings don’t necessarily mean that all private student loans can be discharged in bankruptcy — at least not without special conditions.
It seems likely that the courts will eventually answer that question unless Congress acts first. Until that happens, however, bankruptcy law allows private student loans to be discharged in bankruptcy only if borrowers can meet the undue hardship standard.
Before you can seek to discharge any private student debt, you must first file for Chapter 7 or Chapter 13 bankruptcy. If you take this approach, you may fall behind on your payments and be unable to meet your financial obligations. Creditors and creditors could previously seek judgments or present accounts to debt collectors.
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After filing for bankruptcy, you must file a counterclaim, which is similar to filing a lawsuit in other courts. As a plaintiff, you can seek certain types of debt relief, such as private student loan forgiveness, through these lawsuit actions.
During this dispute, you must prove that you meet the strict standards of the undue hardship clause. This is a necessary step if you want the court to settle your private student loan balance.
Historically, proving undue hardship, sometimes called “frustration certainty,” has been difficult. To prove undue hardship, it should
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