Bankruptcies in British Columbia, BC

How to Navigate Bankruptcies in British Columbia, BC: Your Ultimate FAQ Guide

Navigating the complex world of personal finance can be a daunting task, especially when faced with the prospect of bankruptcy. In British Columbia, BC, individuals struggling with overwhelming debt often find themselves in need of guidance and support to make informed decisions about their financial future 1. Filing for bankruptcy is a serious step that requires careful consideration and understanding of the implications involved.

This comprehensive FAQ guide aims to provide valuable insights into the bankruptcy process in British Columbia, BC, including the causes, procedures, and alternatives to filing for bankruptcy. By exploring the cultural and social implications, as well as real-life case studies, readers will gain a deeper understanding of how to navigate this challenging situation and take steps towards achieving a debt-free future through effective debt management and debt relief options.

Understanding Bankruptcy in British Columbia

Bankruptcy in British Columbia is a legal process governed by the Bankruptcy and Insolvency Act, designed to help individuals who have no reasonable chance of paying off their unsecured debts, such as credit cards and installment loans 10. To be eligible for personal bankruptcy in British Columbia, an individual must owe at least $1,000 to their creditors and be insolvent, meaning they cannot repay their debts or the debts owing are more than the sum total of their assets 4 9 10 11.

When an individual files for bankruptcy, the following occurs:

  1. Assets are given to the trustee, except for certain exempt assets 4 11.
  2. The trustee turns assets into cash value by selling them 3 4 11.
  3. The debtor is required to pay a minimum contribution towards the bankruptcy plus any surplus income payment 4 11.
  4. Proceeds from the sale of assets and payments are distributed among creditors 4 11.
  5. The debts are not legally extinguished until the discharge from bankruptcy, which usually automatically occurs between 9 and 36 months after filing 4 10 11.

Certain assets are exempt when filing for personal bankruptcy in British Columbia, including:

  • $12,000 of the equity in the home (Greater Vancouver Regional District or Victoria) or $9,000 of the equity in the home (other areas of the province) 5 11
  • $4,000 worth of household items 5 11
  • $5,000 of the equity in the vehicle 5 11
  • $10,000 worth of tools of the trade 5 11
  • Necessary clothing and medical aids 5 11
  • RRSPs, except for amounts contributed in the 12 months prior to the date of bankruptcy 9

Bankruptcies in British Columbia, BC

According to data from the Office of the Superintendent of Bankruptcy Canada, in December 2023, there were 1,026 total BIA insolvencies in British Columbia (BC), representing a 16.2% decrease compared to November 2023 and a 22.6% decrease compared to December 2022 14. However, business insolvencies rose by over 41% in 2023, according to data from Canada’s top financial regulator 15. The total number of insolvencies, including both businesses and consumers, was up by 23.6% in 2023 15.

Consumer bankruptcies decreased in BC, with the exception of the Cariboo (1.9% increase) and the Nechako (7.7% increase) 16. The number of consumer bankruptcies dropped across all development regions and at the provincial and national scales 16. Consumer bankruptcy rates in 2022 were as follows:

  • Kootenay: 0.41 per 1,000 people over the age of 18 16
  • Thompson-Okanagan: 0.47 per 1,000 people over the age of 18 16
  • Cariboo: 0.77 per 1,000 people over the age of 18 16

In November 2023, there was a 25.4% year-over-year increase in consumer bankruptcies in British Columbia 17.

Bankruptcy proceedings in BC are generally private. Filing for bankruptcy does not automatically affect your spouse unless they are a co-signer, co-borrower, or co-cardholder on your debts 8. There are exemptions in BC that allow you to keep certain assets when filing for bankruptcy, including:

  • Vehicle equity up to $5,000 8
  • Home equity up to $12,000 in Vancouver and Victoria, and $9,000 elsewhere in BC 8
  • Household items 8
  • Tools of your trade worth up to $10,000 8

The cost of filing for bankruptcy in BC typically totals $2,300 for a basic bankruptcy 8.

Causes of Bankruptcy

There are several common causes of bankruptcy in British Columbia, including:

  1. Financial Mismanagement: Over-spending, excessive use of credit, and not planning for unexpected expenses can lead to financial problems and bankruptcy 20. Easy access to credit, online shopping, and poor financial habits due to poor financial literacy skills can contribute to this issue 18. Lack of financial literacy and understanding of budgeting and saving can lead to credit and debt problems, potentially resulting in bankruptcy 18. In fact, general financial mismanagement is the leading cause of insolvency in British Columbia, contributing to 27% of recent insolvency cases 17. Impulsive buying without considering budgets was cited by 27% of insolvent individuals as a reason for their financial situation 17.
  2. Job Loss and Income Reduction: Losing a job or experiencing a reduction in income can quickly drain savings, forcing individuals to rely on credit to pay for living expenses 18. Business downsizing, closures, sickness, or substance addiction can cause job loss, leading to financial struggles and potential bankruptcy 19. Seasonal employment with fluctuating income throughout the year can make it challenging to save money and stick to a budget, potentially leading to bankruptcy during offseasons 18. Job-related issues were cited by 5% of respondents as a reason for insolvency 17, and pandemic-related job loss or reduction in work hours was cited by 5% of respondents as well 17.
  3. Health Issues and Unexpected Expenses:
    • Medical costs not covered by insurance, time off work, and recovery expenses can quickly drain savings, forcing individuals to rely on credit cards and potentially leading to bankruptcy 18. Medical appointments and interrupted income can contribute to financial problems, potentially resulting in bankruptcy 19. Illness, injury or health-related problems were cited by 11% of respondents as a reason for insolvency 17.
    • Unexpected disasters can force individuals into bankruptcy due to a lack of adequate savings and insurance 18. Essential purchases that income could not cover was the second most common reason for insolvency, cited by 22% of respondents 17.

Other factors that can contribute to bankruptcy include:

  • Relationship breakdown and divorce 18 19 21
  • Failed businesses 18
  • Gambling addiction and substance addictions 18 19
  • Failure to pay taxes and income tax debt 18 19 21
  • Carrying debt into retirement 20

Indicators that intervention is needed include missed mortgage or loan payments, using credit card cash advances to pay bills, receiving threatening calls from collection agencies, and notice of legal action against you to collect debts 22.

The Bankruptcy Process

The bankruptcy process in British Columbia involves several steps, beginning with considering your financial situation and contacting a Licensed Insolvency Trustee (LIT) 22. LITs are the only debt help professionals authorized to administer the bankruptcy process in Canada 4. The process involves gathering financial information, meeting with the LIT, filing the assignment in bankruptcy, working with the trustee, attending two counselling sessions, and receiving a discharge from bankruptcy 5.

There are two types of bankruptcy:

  1. Voluntary bankruptcy: The person unable to pay debts seeks the services of a LIT to help with bankruptcy 9.
  2. Non-voluntary bankruptcy: A personal or business creditor may petition the court to make an order assigning the person or business into bankruptcy 9.

During the bankruptcy process, the person must complete certain duties, such as:

  • Attending two financial counselling sessions 9 23
  • Submitting a monthly Statement of Income and Expenses 9
  • Remitting any surplus income required 9 23
  • Providing information for the Trustee to file income tax returns 9
  • Keeping the Trustee informed of their current address 9
  • Attending a meeting of creditors if called 9

A person is discharged from bankruptcy nine months after the date their bankruptcy starts, provided that the duties required have been successfully completed 9. However, some debts cannot be discharged, including alimony and child-support payments, court-ordered fines or penalties, debts arising from fraud, and, in some cases, student loans 23.

Assets and Exemptions

In British Columbia, when filing for personal bankruptcy, certain assets are exempt from seizure by creditors 28. These exemptions include:

  • Household items up to a $4,000 value 28 29
  • A motor vehicle up to a $5,000 value ($2,000 if the debtor is a maintenance debtor) 28 29 3
  • Home equity of up to $12,000 in Greater Vancouver and Victoria or up to a $9,000 value elsewhere in BC 28 3
  • RRSPs up to an unlimited value, except for contributions made in the 12 months prior to bankruptcy 28 30 31
  • Clothing, medical aids, and work tools up to an unlimited value 28 29 3
  • Certain life insurance policies and nearly all pension plans 29 3

To calculate the equity in an asset, determine the fair market value, check if the asset is security for a loan or a mortgage, subtract the amount of the loan from the value of the asset, divide the gross equity by the number of owners, and deduct the applicable exemption amount 29.

If an asset is worth more than the provincial exemption allowance, alternatives such as filing a Consumer Proposal or arranging to ‘pay in’ the above-exemption value of the asset may be possible 28. If there is equity in the asset above the protected amount, you can:

  1. Make a lump-sum payment
  2. Discuss a payment arrangement
  3. Have a family member make a lump-sum payment
  4. Have a family member purchase the asset from you 29

It is important to note that inheritances or lottery winnings acquired during the bankruptcy are not considered exempt property 29. To learn more about asset exemptions and debt solutions, it is recommended to meet with a Licensed Insolvency Trustee 28.

Impact on Credit Rating

Declaring bankruptcy typically reduces your credit score to the lowest level at most Canadian credit bureaus 32. An R9 rating is likely at Equifax, which is the worst score possible 32. TransUnion measures credit scores on a scale of 300 to 900, with bankruptcy potentially reducing your score to as low as 300 32.

The impact of bankruptcy on your credit score lasts for a significant period:

  • Equifax maintains first-time bankruptcy on your record for six years from the date of discharge 32.
  • TransUnion does so for six or seven years, depending on your province or territory 32.
  • If you file for a second bankruptcy, both bureaus will maintain this on your credit record for 14 years from the date of discharge 32.
  • Negative information about accounts such as credit cards and loans may stay on your credit report for up to 6 years in British Columbia 34.

A low credit score due to bankruptcy can affect your ability to:

  • Obtain credit, such as loans, credit cards, or mortgages 32
  • Secure employment, especially if potential employers seek permission to check your credit file 32
  • Rent properties in the future 7

Before declaring bankruptcy, it is recommended to consult with a Licensed Insolvency Trustee to explore alternative options, such as debt consolidation or a consumer proposal 32. Credit Counselling Societies and non-profit credit counsellors offer debt management plans, potentially lowering interest, but reflecting as R7 on credit rating for 8 years 37. Consumer Proposal is a formal offer to all creditors, avoiding bankruptcy, and more than creditors would receive in bankruptcy, but it reflects as R7 on credit rating for 8 years 37.

After being discharged from bankruptcy, individuals can start rebuilding their credit rating 33. Sending a copy of the discharge order to credit bureaus is crucial for updating credit records 33. Over time, consistent income and demonstrating financial responsibility can help improve credit ratings 33. With effort and diligence, a very good credit rating can be regained in as little as two years after discharge from bankruptcy 35.

Being deep in debt often leads to mental health challenges, with 83% of survey respondents constantly worrying about debt, 79% experiencing mental health suffering, and 61% having self-esteem issues 17. Approximately one in six respondents (17%) experienced suicidal ideation due to debt stress 17. 87% of survey respondents stated that filing a Consumer Proposal or declaring personal bankruptcy has helped them manage day-to-day finances despite rising costs 17.

Alternatives to Bankruptcy

There are several alternatives to bankruptcy for individuals struggling with debt in British Columbia:

  1. Debt Consolidation: Consolidation loans allow for combining bills and debts into a new loan, potentially offering better interest rates 36. This can simplify repayment and potentially save money on interest, but qualification depends on credit score and income, and may require a co-signer or security 37. Debt Consolidation combines multiple debts into one repayment plan, potentially saving money and lowering interest rates 38 40.
  2. Consumer Proposal: A Consumer Proposal is a legal alternative to bankruptcy, arranged by a licensed insolvency trustee, where individuals pay back a portion of their debts through fixed monthly payments determined by income and assets 8 36 40. It is a formal agreement between the debtor and creditors outlining how unsecured debt will be settled, subject to creditor approval 40. Consumer Proposals involve a financial tool used by licensed insolvency trustees to help debtors reduce the repayment on both the principal sums and the accumulated interest costs 38.
  3. Other alternatives include:
    • Debt repayment programs: Consolidating payments and working with a non-profit credit counselling organization to lower or waive interest charges 36.
    • Debt settlement: Offering creditors a lump sum of money to pay off part of what is owed 36 or negotiating a settlement amount with creditors, paying a lower amount than the total debt 38 40.
    • Selling personal assets: This can help repay debts and preserve credit rating, but assets may not fetch full value 37.
    • Informal proposals: Direct negotiation with creditors, but creditor participation is not guaranteed 37.
    • Repaying debts yourself 39
    • Getting a debt consolidation loan 39
    • Trying credit counselling or a Debt Management Plan (DMP) 39

The Credit Counselling Society offers various services to help individuals manage their debt and has helped many Canadians avoid bankruptcy and eliminate their debt 36. Choosing the right debt solution depends on the value of debts, unsecured debt to secured debt ratio, previous bankruptcies and financial issues, and earnings and other outgoings 38. The text emphasizes that bankruptcy should always be looked upon as a solution of last resort and encourages individuals to carefully explore all of their options and the implications of each to determine what’s right for them 41.

Cultural and Social Implications

Bankruptcy can have significant cultural and social implications for individuals in British Columbia. One misconception about bankruptcy in Canada is that it is an easy way out, and anyone can file for bankruptcy 41. However, the reality is that bankruptcy is a serious decision with long-lasting consequences.

Employees of a bankrupt corporation who receive payments to settle wage claims must report these amounts as ‘other income’ on their tax returns, and the payments are subject to taxation 42. This can create additional financial strain for individuals already struggling with the effects of bankruptcy.

For those who cannot afford to hire a Licensed Insolvency Trustee (LIT) or cannot find one to accept their file, the Office of the Superintendent of Bankruptcy (OSB) offers a Bankruptcy Assistance Program 43. This program aims to provide support and guidance to individuals navigating the bankruptcy process.

Renters in British Columbia have certain rights when it comes to bankruptcy:

  • Landlords cannot evict tenants solely because of bankruptcy 7.
  • Upon filing for bankruptcy, a Stay of Proceedings takes effect, which means any legal proceeding initiated against the tenant, including lawsuits and notices of eviction, must be stopped 7.

These protections help ensure that individuals facing bankruptcy can maintain their housing stability during a challenging time.

Case Studies

  1. The Voluntary Assignments case (1894)
  2. Royal Bank of Canada v Larue (1928)
  3. The Companies’ Creditors Arrangement Act Reference (1934)
  4. The Farmers’ Creditors Arrangement Act Reference (1937) 44
  • Recent notable bankruptcy cases in Canada include:
    • The Ontario Superior Court of Justice considering the impact of a tolling order granted in the context of a CCAA proceeding on the claims of third parties against the debtor company 45.
    • The Supreme Court of British Columbia hearing an application for the appointment of a receiver under section 243 of the BIA over a company that was subject to proceedings under the CCAA 45.
    • The Court of Appeal for British Columbia considering the appointment of a receiver over the assets of the appellants based on disputed events of default 45.
    • The Ontario Superior Court of Justice considering the factors relevant to granting a reverse vesting order (RVO) in the context of a gold-mining operation in northern Ontario 45.
  • Other significant cases involve:
    • The Ontario Court of Appeal considering the circumstances in which the fraudulent intent of a corporation’s principal will be attributed to the corporation as a whole 45.
    • The Ontario Court of Appeal examining the application of the corporate attribution doctrine to a trustee in bankruptcy’s attempt to recover funds lost in a Ponzi scheme 45.
    • The Court of Queen’s Bench of Manitoba considering the appropriate circumstances to order substantive consolidation of the assets and liabilities of a related group of entities 45.
    • The Court of Appeal of Alberta interpreting and applying the SCC’s Redwater decision regarding the treatment and priority of environmental claims in insolvency proceedings 45.

Conclusion

The world of personal finance can be overwhelming, especially when faced with the prospect of bankruptcy. This comprehensive guide has provided valuable insights into navigating bankruptcies in British Columbia, exploring the causes, procedures, and alternatives to filing for bankruptcy. By understanding the cultural and social implications, as well as learning from real-life case studies, individuals can make informed decisions about their financial future.

Ultimately, bankruptcy should be considered a solution of last resort, and it is crucial to explore all available options before making a decision. Seeking guidance from Licensed Insolvency Trustees and credit counselling organizations can help individuals find the most suitable path towards a debt-free future. With the right knowledge and support, it is possible to overcome financial challenges and rebuild a stable, prosperous life.

FAQs

What happens to my property if I declare bankruptcy?

When you file for bankruptcy, you do not forfeit all of your belongings. You may be able to retain ownership of your residence, vehicle, and other possessions. Typically, individuals are able to keep their household goods, retirement accounts, and some equity in their home and vehicle when they go through bankruptcy.

How much will I need to pay each month if I file for bankruptcy?

The monthly payments during bankruptcy vary depending on your income. If you have surplus income, your payments will not simply be the base fee of $2,700. Instead, you will pay either a fixed amount of $200 per month for 21 months (totaling $4,200) or the amount of your surplus income over 21 months, whichever is higher.

Is it possible to save money while going through bankruptcy?

Yes, you can save money during bankruptcy by keeping exempt assets, which may include a certain amount of cash. While state exemptions typically do not protect a large sum of cash, you may be able to safeguard additional funds using a wildcard exemption. However, the amount of cash you can protect varies, so it’s crucial to understand the specific exemptions available to you.

References

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