When Should I File Bankruptcy?

• Should I File a bankruptcy now or wait until Covid-19 is finally gone?
• When might be the best time to file bankruptcy?
• Should I wait?
• Will the debts be forgiven?
• What will the government do to help me with my bills?

Let’s tackle the ‘easier” questions first, and then delve a bit deeper to the main question of when is best to file bankruptcy.

First off, the government passed legislation to provide immediate relief to those who have lost income as a result of the covid-19 lock-down. The government will provide up to $2000 per month for all who apply. (Next year, at tax time, the government will review the applications to ensure that those who received benefits actually qualified under the program. Repayment would be required for those who were not qualified to receive the benefits).

The Ontario government has temporarily prevented residential landlords from evicting renters, but the government cannot eliminate rent arrears or eliminate any other debt you may owe, nor can it reduce the interest on your debt.

So if you are unable to meet your obligations as they fall due, AND you do not expect your income situation to improve due to permanent job loss, loss of customer-base if self-employed, or more generally if you are uncertain that you will be able to return to your ‘pre-pandemic’ earnings, then there is no reason to delay filing a bankruptcy to get relief from your creditors.

Benefits to filing now based on an automatically discharged bankruptcy (I.e., no opposition by any party)

1. Payments will be low because your income is low now;
2. Payment will be for a shorter duration, possibly as few as 9 months.
3. Government “covid” benefits are fully protected (cannot be taken, and do not affect your required payment in bankruptcy);
4. Creditors cannot start or continue legal action against you to recover what is owing;
5. You can immediately focus on ensuring your budget covers the essential “needs”, such as rent, food, transportation and clothing, and setting up an emergency fund for periodic unforeseeable events;
6. Eliminate a major source of stress from your life, marriage, work, family etc.

That said, sometimes it is better to wait before filing.

Here are a few reasons why it may be better to hold off filing bankruptcy:

1. Your income remains strong and can look to other options such as making a proposal to deal with debts rather than bankruptcy;
2. Your income is low at the moment, but you expect to return to higher income very soon and could consider other options such as a proposal to deal with debts;
3. You are “cash-poor but asset-rich” In other words, your income is low but you have a lot of equity in your home or other assets, in which case there may be better options to consider.
   

The most important thing is to never rush into making a decision as important as this. Don’t allow yourself to be pressured into doing something with which you are not completely comfortable.

Know your options, and get the relief you deserve.