Loan Articles


Filing for bankruptcy is a difficult decision indeed because it affects your family, credit score, and chances to get approved for a new loan or credit card. However, there are some benefits to declaring bankruptcy, the main one being debt relief.

Debts That Can Be Discharged

The decision to file depends on the types of debt you have. Some types can be discharged such as deficiency balances, dishonored checks, and past due utility bills. Other examples of dischargeable debt include medical bills, late fees on credit cards, and auto loans. You can include social security overpayments, unpaid taxes, and court judgments as well. Unpaid rent and collection accounts are also examples of dischargeable debt. If your liabilities fall in this category and you have a fair or poor credit score, it makes sense to file for bankruptcy. It is not the best solution for court penalties and fines, student loans, alimony, and child support. Homeowners association fees are another example. In general, the borrower should repay all unsecured loans. If he has secured debts, it is better to consider alternatives to bankruptcy.

Exempt Property

In addition, there is exempt and non-exempt property. Examples of exempt items include clothes, furniture, and household appliances. The term household may refer to linens, television, radio, china, kitchenware, and so on. Retirement accounts, public assistance, worker’s compensation, and unemployment benefits are also examples. The list of exemptions varies based on your province of residence. There are non-exempt assets that can be sold to pay off the borrower’s debts.
The proceeds from the sale are distributed among the creditors. Non-exempt property includes assets such as expensive jewelry, antiques, and collectibles such as coins and stamps. Other examples are family heirlooms, vacation and second homes, and second trucks or cars. Investments such as bonds, stocks, bank accounts, and cash are also non-exempt property. There is also a possibility to offer an exempt asset such as tools of trade or household goods and keep non-exempt items. The trustee may accept the offer if the asset is liquid, i.e. it is easy to sell it.

Benefits to Declaring Bankruptcy

In addition to dischargeable debts and exempt property, borrowers benefit from the fact that there are mechanisms to reduce or eliminate liens on real estate. This is because the lien is often worth more than the real estate. Automatic stay is one of the main benefits of bankruptcy. It stops collection attempts by financial institutions. This is a court order that prohibits evictions, foreclosures, utility shutoffs, garnishments, and repossessions. Another benefit is that filing for bankruptcy freezes interest payments on all outstanding balances. There are other mechanisms that protect the debtor. For example, his driver’s license may be revoked in case he incurs debt because of a road accident. This debt will be discharged when filing for bankruptcy. The borrower is also protected from discriminatory treatment by private entities, employers, financial institutions, and the government authorities. For many debt-ridden borrowers, bankruptcy is an opportunity to start anew and gain control over their financial situation. This is also a cost-effective solution to piling debt. The cost is lower than that of debt management, consolidation, and other alternatives. Consolidation, for example, does not erase debts but allows borrowers to extend the term of the loan. They pay more in interest charges in the long run.

Of course, there are downsides to filing. In addition to tarnished credit, bankruptcy stays on your report for 10 years and luxury possessions are lost.