What Are The Stages Of Bankruptcy?
Bankruptcy can be one of the most effective ways to deal with spiralling debt problems.
When your debts become unmanageable, eliminating them via bankruptcy can allow you to reset your finances and move forward without the burden of escalating debts hanging around your neck.
If becoming debt-free sounds almost impossible, bankruptcy could be the solution you’re looking for.
However, it’s important to understand all the stages of bankruptcy and the consequences of becoming insolvent.
With this handy guide, you can access all the information you need to decide whether filing for bankruptcy is the right debt solution for you…
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1. Meet with a Licensed Insolvency Trustee
A licensed insolvency trustee (LIT) is a professional who deals with bankruptcies and consumer proposals.
LITs are regulated, so you can be sure that they’re acting appropriately and in accordance with the relevant laws and regulations.
As well as helping you to learn more about bankruptcy, a licensed insolvency trustee will also discuss other potential debt solutions with you.
By disclosing your debt issues to a LIT, as well as providing them with information regarding your income and expenditure, you can access the bespoke debt advice you’re looking for.
Once a licensed insolvency trustee has more detailed information regarding your financial circumstances, they will be able to provide you with information about the debt solutions that are open to you and what the impact of each one would have on your debts, your finances and your lifestyle.
In relation to bankruptcy, a licensed insolvency trustee will explain the process in detail to you and give you the opportunity to ask any questions you may have.
You’ll be under no obligation to move forward with any type of debt solution, so don’t be worried about feeling pressured to file for bankruptcy.
Your licensed insolvency trustee is on hand to provide guidance and assistance, so you won’t be encouraged to consider any form of debt resolution that you’re not happy with.
During this initial meeting, your LIT will also explain the costs associated with various types of debt resolution.
In bankruptcies, the fees payable to a licensed insolvency trustee are usually taken from your estate.
In some cases, you may need to pay a deposit to get the ball rolling.
However, most organizations offer a free initial meeting with a licensed insolvency trustee, so you can access all the information you need without parting with any cash.
2. Preparing Your Documents for Bankruptcy
If you decide that bankruptcy is the right solution for you, your licensed insolvency trustee will begin preparing the relevant documentation.
In order for them to do this, you will need to disclose a significant amount of information.
For example, your licensed insolvency trustee will need to know:
- Your full name, address and date of birth,
- The total amount of debt you’re in,
- The names and addresses of each of your creditors, along with the amount you owe to them,
- A list of your assets (any properties you own (inc. those with a mortgage), vehicles, cash etc.)
Once your licensed insolvency trustee has all the information that’s required, they will begin preparing the legal documentation that’s needed to file for bankruptcy.
As bankruptcy is a legal process, it’s essential that all documentation is completed carefully and in accordance with the Bankruptcy and Insolvency Act.
This is one of the reasons why bankruptcies and consumer proposals must be managed by licensed insolvency trustees, rather than individuals themselves.
By having a LIT complete this paperwork, you can minimise the risk of errors and ensure that the process is dealt with efficiently and without unnecessary delay.
You will, of course, be asked to review and sign any documents before they are filed.
Generally, four documents are required in order to file for bankruptcy:
- Assessment Certificate
- Monthly Income and Expenditure Statement
- Statement of Affairs
- Assignment for the General Benefit of Creditors
Although these formal documents may sound daunting, they are simply the official names given to the information you need to provide, such as your monthly outgoings and your assets.
Your licensed insolvency trustee will go through each document with you to ensure you understand exactly what they mean and you’ll have the chance to ask any further questions or resolve any queries you may have.
3. Filing Your Documents for Bankruptcy
Once you’ve reviewed the documentation and signed it in front of your licensed insolvency trustee, it can officially be filed.
LITs use an electronic filing system to do this, so there is no delay when it comes to lodging your bankruptcy documentation with the relevant court.
Upon filing your bankruptcy documentation, the system issues a Certificate of Appointment.
When this has been issued, your bankruptcy has been filed and becomes official.
At the same time, a stay of proceedings is applied, which means your creditors can no longer take legal action against you in relation to your debts.
Similarly, credit agencies will no longer be able to contact you, any existing wage garnishments will cease, and interest will stop accumulating on your debts.
At this point, your licensed insolvency trustee will use the Certificate of Appointment to notify your creditors that you have filed for bankruptcy.
4. Fulfilling Your Duties
As your licensed insolvency trustee will have explained to you before your documentation was filed, you will have to fulfil some duties in order for your bankruptcy to be discharged.
Although it usually takes 9 or 21 months for a bankruptcy to be discharged, some of your obligations may need to be completed before this time.
Failure to meet your duties can have an impact on whether your bankruptcy is discharged on time, so it’s important to make sure that you fully understand what’s expected of you.
According to the Bankruptcy and Insolvency Act of Canada, for example, anyone filing for bankruptcy must complete at least two credit counselling sessions.
Typically, the first one must be completed within 60 days of filing for bankruptcy and the second must take place within 210 days of filing.
Your licensed insolvency trustee will arrange this for you but it’s essential you attend them.
In addition to this, you will need to submit a monthly report of your income and expenditure to your licensed insolvency trustee.
This will enable your trustee to submit tax returns on your behalf and will also be used to calculate any surplus income you may have received.
If you do receive additional income before your bankruptcy has been discharged, it may be seized so that your creditors can receive more of what is owed to them.
Furthermore, you will need to make your monthly base payments towards your bankruptcy estate.
These will already have been pre-planned and pre-agreed, so you will simply need to transfer the funds in accordance with the terms set by you and your licenced insolvency trustee.
If you’re unsure about any of your duties, be sure to confirm the details with your licensed insolvency trustee.
Similarly, if your situation changes at any time, let your licensed insolvency trustee know straight away.
5. Being Discharged from Bankruptcy
When you are discharged from bankruptcy, it means the process is officially at an end.
It is at this point that the remainder of your debts are eliminated, and you are released from bankruptcy.
If this is the first time you have filed for bankruptcy and you have no surplus income payments to make, it’s highly likely you will automatically be discharged from your bankruptcy nine months after you filed.
However, you’ll need to have fulfilled your duties in order to qualify for an automatic discharge from bankruptcy and none of your creditors must oppose your discharge either.
If you aren’t eligible for an automatic discharge, your licensed insolvency trustee will arrange for a court hearing to be held.
You will need to attend this hearing, but it is your licensed insolvency trustee who will present the majority of the evidence of the court.
They will confirm to the court whether you have fulfilled your obligations, for example.
Your creditors may choose to attend this hearing and they may decide to present reasons why your bankruptcy should not be discharged.
Once both parties have explained their positions and presented any relevant evidence, a judge will decide what should happen next.
You might be discharged from your bankruptcy straight away or you may be told you need to complete further steps before you can be discharged, and your bankruptcy brought to a close.
When your bankruptcy is discharged, either automatically or at the discretion of the courts, your debts are eradicated, and you can start rebuilding your credit rating and looking forward to a fresh financial future.
Find Out More About Filing for Bankruptcy
If you want to learn more about filing for bankruptcy and resolving your debt problems, contact us at Bankruptcy Canada today.
We’re available 24 hours a day, 7 days a week, so you can access the help you need at any time.
Simply call us on (877) 879-4770 and talk to a licensed insolvency trustee about your finances today.
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