When things get really tough financially and you’ve accumulated a lot of debt, personal bankruptcy or a consumer proposal are two solutions that can help you get your life back on track and on a solid footing. In a bankruptcy, you can clear all of the debts that can be discharged. This includes debts towards an individual, overdue bills (electricity, telephone, etc.), credit card debts, loans and your mortgage. Contrary to popular belief, tax debts can also be discharged.
Debts that cannot be discharged
It’s important to realize however that some debts cannot be discharged. Regardless of your financial situation, you must repay these debts, as stated in Section 178 of the Bankruptcy and Insolvency Act (BIA).
Here are the main debts that are not discharged:
Fines, penalties and offences
Debts resulting from violations of a law cannot be discharged. This could be a parking ticket or a speeding ticket.
Debts for alimony or child support
You must comply with the agreement that was reached after your separation or divorce. If you are behind in your payments, a bankruptcy or consumer proposal will only reduce the amount of money you pay on your debts and other monthly bills so that you have the funds to pay support.
Debt due to fraud, misrepresentations, embezzlement, collusion or breach of trust
If the court has ruled that you committed fraud, embezzlement, collusion or breach of trust, you must pay the related debts. This can be as common as unreported work income or unsubstantiated last-resort financial aid payments.
Student loans
Whether you took out a student loan for full- or part-time studies, seven years or more must have elapsed from the end of your studies and the date of your bankruptcy in order to be discharged from your student debt. If the period is less than seven years, the bankruptcy will not discharge your student debt.
Damages under a civil case
If you’ve been convicted in a court of intentional bodily harm or sexual assault, you’re responsible for paying the damages awarded as a result of the judgment despite a bankruptcy or consumer proposal.
In short, if you’re thinking of filing for bankruptcy or making a consumer proposal with your creditors, do not hesitate to call on our team of insolvency counsellors. Based on your specific situation, they will tell you the best way to discharge your debts and will help you differentiate between those that can be discharged and those that can’t.
