Life is always unpredictable, and sometimes unforeseen circumstances pile on and you find yourself buried under debts that are beyond your ability to pay. In situations where you’re stuck in a financial burden, it might be best to consider declaring bankruptcy.
In the process of filing for bankruptcy, should you stop paying your loans and other debt? The fast answer is that it depends on what type of loans you have. As a guide on handling your debt at this point, here are some things you need to take note of:
1. Secured Loans
The bankruptcy filing does not include your secured loans (car loans and mortgages) if you are keeping the items they are secured against, like a car or a house. If you want to keep the house or car, then you must continue to make the payments. If you are behind on your payments, you should contact the lender immediately and arrange a payment plan to catch up and let them know you are struggling. Also let them know it is your intention to keep making those payments and you don’t want to have those assets taken from you.
However, if you plan on surrendering the house or car and need to break that contract, then you can include the vehicle loan or mortgage in your bankruptcy or proposal, and you will’ll be able to stop making your payments.
2. Credit Card Debt
If you are filing for bankruptcy, you can stop making payments to the credit card companies. However, always remember to manage your credit cards in good faith and don’t incur a bunch of new debt right before filing for bankruptcy. Stop using the card on new charges and don’t take out cash advances. If you do these things, they can become problematic during your bankruptcy and a creditor might be more inclined to oppose your discharge since you took on debts when you don’t have any plans on repaying them.
3. Unsecured Loans
Generally, you are free to stop making payments on your unsecured debts before filing for bankruptcy. For instance, you can stop paying those payday loans, stop making credit card payments and stop entertaining those collection calls. It is not beneficial to use up all your money to make your minimum payments and then have to borrow more and have to go further into debt right before bankruptcy.
However, before filing for bankruptcy, just remember that when you start defaulting and missing you payments, you can still suffer negative financial consequences. Before you start the bankruptcy process, you may continue to be charged with interest fees and late payment charges. You may also have lenders that might also report your loan defaults to the credit bureaus, bring down your credit score, and even file for legal action against you.
4. Student Loans
When it comes to student loans, the decision will be dependent on the nature of your debt.
If you were given a student line of credit or personal loan, the loan will generally be considered an unsecured loan. With this, you can stop making payments if you are filing for bankruptcy, as your debts will be discharged once the filing is complete. Just remember that if your loans or line of credit were co-signed by someone, they will be held responsible for those debts.
However, if the Canadian government or provincial granted the student loan, there are specific guidelines you should look into. If you haven’t been out of school for seven years, you will still have to pay your loans. You can stop making your payments during your bankruptcy, but once you have completed the process, you will need to arrange a payment plan with them as those loans won’t be discharged. Remember that the loans will continue to incur more interest, and they may report your failure to pay to the credit bureaus as late payments.
Bankruptcy is a viable option for people who are facing financial difficulty. However, you can also opt to offer a consumer proposal to your creditors. If you want to review your options and learn about consolidation loans, debt management programs, credit counselling, proposals, consumer proposals and bankruptcies, please contact Paul J. Pickering and Associates. Our team will review your options and help you find a solution to get a fresh start. Contact us today to schedule your free consultation.