debt bankruptcy

Too much debt to file bankruptcy?

Debt is too much? A question asked by a user on Quora:

When declaring bankruptcy can’t be avoided, does it matter how much debt one racks up?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada answers as follows:

The amount of debt accumulated prior to filing bankruptcy is an important factor in determining what would happen in your bankruptcy. There are additional factors as well:

  • How quickly the debt was accumulated prior to bankruptcy.
  • Why was the debt accumulated – i.e., what were the funds used for? Cash advances at the casino? An exorbitant shopping spree? To finance medical bills? To pay for groceries?

For example, using debt to purchase groceries for your family after you’ve been laid off from work would be considered a reasonable explanation for why the debt was accumulated. However, accumulating debt to go off on a gambling or spending spree would not be considered reasonable.

So depending on your answers to the above questions, your bankruptcy proceedings may be straightforward and painless, or problematic and prolonged.

Straightforward and Painless

In Canada if you’re filing bankruptcy for the first time, you can discharged from your bankruptcy in as little as 9 to 21 months. You file, attend two counselling sessions, how the trustee your monthly income and expenditures, pay the trustee his fees (or your surplus income obligation if your average monthly income during those first 9 months exceeds a monthly threshold ).

Problematic and Prolonged

Your discharge from bankruptcy could potentially be opposed by your trustee, one of your creditors, or by the Office of the Superintendent of Bankruptcy. If your discharge is opposed, you will be required to apply for your discharge from bankruptcy with the bankruptcy court. You would be advised by your trustee to retain a lawyer specializing in bankruptcy law to represent you. Upon reviewing evidence of your conduct before and during your bankruptcy, the court will make one of the following orders with respect to your discharge:

  • If your conduct was especially egregious, your discharge shall be refused. This means that you will still owe all your debts and your creditors can recommence legal proceedings against you to collect on their debts.
  • Your discharge will be conditional upon you making a monetary payment to your bankruptcy estate for the benefit of your creditors.
  • Your get an absolute discharge. This basically means you are discharged from your debts with no strings attached.