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What Happens When Your Parents Declare Bankruptcy?

More older Canadians than ever are struggling financially. Mortgage payments, medical costs and mounting credit card debt can be crippling for aging parents on a fixed income. For many, filing for personal bankruptcy may be the only way out. Here’s some advice if your parents are struggling with debt.


a senior couple looking at a financial statement looking worried

What’s Personal Bankruptcy?

Bankruptcy is a legal process done through a licensed insolvency trustee (LIT). If your parents file for bankruptcy, certain assets are considered exempt under the Bankruptcy and Insolvency Act, while other are not. A first-time bankruptcy generally takes about nine months, after which your parents will be eligible for their discharge from the same. The benefits of bankruptcy include the following:

  • Legal action and calls from collectors and creditors will immediately stop

  • Wages can’t be garnished

  • ​Assets like a Registered Retirement Savings (RSP) are mostly protected

  • You can be free of your debt and have a fresh financial start


However, bankruptcy isn’t always the best option because it has serious consequences. A bankruptcy will be a black mark on your parent’s credit report for at least six years. If it’s a second bankruptcy, that timeframe becomes 14 years. A tarnished credit report means your parents may have difficulty taking out low-interest loans, finding an apartment or co-signing loans for you.


Older Canadians looking for debt help should consult with a LIT who can help assess their financial situation and recommend the best path forward. A licensed insolvency trustee may recommend filing a consumer proposal instead of insolvency.


Can You Inherit Their Debt?

If your parents are in financial trouble, you may be concerned that you or your siblings will be responsible for paying their debts after they pass away or that your inheritance will be affected.


It’s true that on top of certain assets and investments, your inheritance will also include your parents’ debts. If the debt is more than the assets of your parent’s estate, you may find yourself burdened with tough financial decisions. However, the estate is responsible for paying off the debts, not you. And, as with individuals, a LIT can help submit a consumer proposal or file for bankruptcy on behalf of the estate, which can help protect your inheritance.


Above all, it’s important to talk to your parents now about their financial situation and find possible solutions before they get passed down to you.


Personal Bankruptcy Services in Ottawa and Across Eastern Ontario

If someone in your family is struggling with debt, the licensed insolvency trustees at D. & A. MacLeod Company Ltd. can help. We offer consumer proposal and bankruptcy services to help get Canadians out of debt and find a new beginning™. Contact us today to set up a free, no-obligation consultation or schedule a virtual appointment.

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