Bankruptcy puts an end to many debts. But what becomes of your financial health after bankruptcy? Maybe you want to get out of debt but you’d like to learn more about the positive and negative impacts of your decision. In this case, here is what you should know about some of the consequences after filing for bankruptcy.
The consequence of bankruptcy on utilities
If a service is considered essential, its provider cannot deprive you of it. You are protected insofar as you will continue to receive services even after bankruptcy. This rule particularly applies to the following cases:
Hydroelectricity
In general, if you accumulate electricity arrears, Hydro-Québec and Hydro One have the right to disconnect you. However, these companies cannot deprive you of hydroelectricity during the winter period. Generally, the winter period is said to range from December 1 to March 31.
In a bankruptcy case, your trustee will immediately communicate with your hydroelectric provider. The trustee will supply relevant documents as evidence of bankruptcy procedures. Your outstanding balance will be included in the bankruptcy, whereas the consequences such as a disconnection of services will be thus suspended. Hydro-Québec and Hydro One have no other choice but to provide you with electricity. However, they will have the right to request a security deposit before re-establishing the service.
Natural gas
Natural gas is also considered an essential service. Companies such as Gaz Métro, Enbridge, and Gazifère must continue to provide you with energy. Filing for bankruptcy cannot cut your access to this essential service. However, like hydroelectricity, gas companies can request a security deposit.
The consequences of bankruptcy on non-essential services
Cable, telecommunications, and alarm system companies are good examples of non-essential service providers.
The rules for non-essential service providers are not as strict as those for essential service providers. In theory, section 84.2 of the Bankruptcy and Insolvency Act (BIA) stipulates that a company cannot terminate a contract under the pretext that their client is bankrupt. However, it can establish specific clauses, such as requesting an advance or being paid in cash. Despite everything, it must be said that many contracts are terminated in these situations. Two scenarios are generally possible following bankruptcy:
- Normally, there is no consequences on non-essential service when filing for bankruptcy if accounts are paid. In other words, if you file for bankruptcy, but your mobile network provider is not one of the creditors, your bankruptcy will not have an impact on the service.
- Often, bankruptcy terminates a service provision if the provider is a creditor. In that case, you can usually get access to that service through another supplier. However, this can prove to be difficult for populations in more remote areas, where there aren’t as many suppliers.
Rental agreements
Rental agreements work on the same principle as non-essential services. As long as agreements are respected and payments are made, bankruptcy will not have an impact on rented property.
However, if you have an unpaid balance when you declare bankruptcy, the company may seek to terminate the agreement, which leads the property to be repossessed.
Contacting another supplier to get access to the desired service is usually the simplest way to go.
The consequences of bankruptcy on a car loan
Bankruptcy will not have an impact on a car loan that has already been granted, provided that the conditions of loan repayment are respected. As long as you continue to make payments, you will keep your vehicle. Having filed for bankruptcy will bear no consequences on your car loan. However, the Licensed Insolvency Trustee (LIT) will have to determine whether the vehicle can or cannot be seized in order to repay your other debts.
In Quebec, a vehicle is exempt from seizure if it meets one of the following criteria:
- It is necessary to maintain income and ensure daily living needs.
- It is necessary for active job searching.
- It is necessary for care required by your state of health.
- Public transportation does not adequately compensate for the loss of the vehicle.
In Ontario, any vehicle with a value of less than $6,600 is exempt from seizure. If none of the above criteria are applicable, your vehicle could be seized. However, it will not automatically be. The trustee will compare the value of the vehicle with the debt to be paid. If a reasonable amount of money can be recovered, the vehicle could be seized to repay part of your debts. If not, you would most likely be allowed to keep the vehicle.
The consequences of bankruptcy on financial services
Mortgage
When you file for bankruptcy, the trustee must first determine whether your house must be seized. To do so, the trustee analyzes a number of factors and determines whether the sale of the house will generate enough profit to justify selling it. Where applicable, the trustee must also keep provincial exemptions in mind.
In the event that your house is not seized as part of your bankruptcy, you will not feel any short-term consequences on your mortgage. In fact, if your payments are made according to terms, you won’t feel any consequences linked to your bankruptcy until it’s time to renew your mortgage.
That being said, mortgage renewals are easily carried out in most cases. However, sometimes financial institutions impose certain conditions, such as higher interest rates. Because of your bankruptcy, you should expect to encounter more difficulties when shopping around for your mortgage as you will have less negotiation power.
Bank account
If you are considering bankruptcy as a solution to your debt problems, we generally recommend that you open a new bank account before proceeding. Pick a financial institution you do not owe any money too. Doing so could help you avoid some trouble, particularly bank account seizure.
Although by law, bankruptcy is not a valid reason to reject an individual’s application to open an account, it does make it more difficult. We observed that the procedures can be arduous and subject to numerous disadvantageous conditions (holding funds following deposits, inability to open a checking account, etc.). That is why it is recommanded to open a new bank account before filing for bankruptcy.
How do I limit the consequences of a bankruptcy?
As you can see, declaring bankruptcy enables you to settle your debt problems. But at the same time, it can also lead up to consequences linked to various services. Fortunately, most of these consequences do not entirely compromise access to these services or products.
That being said, the best way to limit the consequences of bankruptcy is to avoid bankruptcy entirely! In the course of my work, I have noticed that people often wait too long before seeking help. Their debt problems therefore have time to escalate. Consulting a Licensed Insolvency Trustee as early as possible can help you avoid some worries and solve your debt problems.
We suggest meeting with a Ginsberg Gingras trustee at first signs of financial difficulty. We will be able to recommend the best solution to free you from your debts and limit their impacts. This consultation is free and holds no obligations on your part. You have every reason to take the first step to a better financial health.