The Truth About Declaring Bankruptcy After DivorceMay 09, 2017
Not only can divorce take a toll on your emotional well-being, it can also take quite a toll on your financial health and well-being. In fact, a relationship breakdown is one of the top five reasons why Canadians choose to declare bankruptcy. Declaring bankruptcy is not the only way to deal with debt after a divorce, however. Here are two alternatives to bankruptcy that can help individuals rebuild their financial stability and move forward with their lives.
Debt consolidation is a great way to reduce debt quickly and effectively without the consequences that come from declaring bankruptcy. As the name suggests, debt consolidation involves combining multiple debts together into one debt. This is a great strategy for those who have a lot of high-interest debts, as you can effectively combine these debts into one debt with a lower interest rate. As a result, you’ll not only simplify the debt repayment process, you’ll also save money in interest payments. You can then use this money to pay down the principal of your loan more quickly.
For example, if your divorce has left you with a lot of high-interest credit card debt to deal with, you may want to explore consolidation as an option. It’s important to do your research, however. Debt consolidation does have some limitations, and it may not be an effective or available option for you depending on your circumstances.
Another form of debt assistance that can help you manage financially after a divorce is a consumer proposal. A consumer proposal provides individuals with immediate relief from overwhelming debt without the need to declare bankruptcy. When you file a consumer proposal, you would work with a Licensed Insolvency Trustee (LIT) in order to arrange an agreement with your creditors. Typically, this agreement states that you will only need to repay a portion of the amount you owe with a longer timeline in which to make these payments, up to a maximum of five years.
Although filing a consumer proposal does have an effect on your credit rating, it is not as severe as the credit rating you’d receive when declaring bankruptcy. Filing a consumer proposal also provides many of the same protections that bankruptcy offers, including protection from any legal action taken by your creditors, including wage garnishments. All interest charges will be frozen and collections calls will stop.
Filing a consumer proposal is not the solution for everyone, however. In order to file a consumer proposal, you must be able to repay a portion of the amount you owe. Your debt must also not exceed $250,000, although this excludes mortgages and car loans, which cannot be included in a consumer proposal or a bankruptcy.
If, after exploring all your debt relief options, you’ve determined that bankruptcy is your best bet for dealing with the financial impact of a divorce, don’t fret. Although declaring bankruptcy is a serious decision, it is not the end of the world; it is possible to rebuild after you decide to do so. In fact, declaring bankruptcy can help give you a fresh start financially sooner than other debt solutions. The Licensed Insolvency Trustee (LIT) you work with throughout the bankruptcy process can provide you with tips and strategies to implement after your bankruptcy is discharged in order to move forward.
Are you dealing with the financial impact of a divorce? Join the conversation and share your thoughts with BDO Sault Ste. Marie using the hashtags #BDOdebtrelief and #LetsTalkDebt.