How to Navigate Bankruptcies in Nova Scotia: A Comprehensive Guide
Bankruptcy in Nova Scotia can offer a path to financial recovery for those with unmanageable debt 1. Excessive debt can lead to strained relationships, constant anxiety, a sense of hopelessness, sleepless nights, and declining mental health 1. Debt affects more than just the families or individuals carrying the financial burden; it has a significant societal impact 1.
This comprehensive guide explores how to navigate bankruptcies in Nova Scotia, providing insights into the process, benefits, and consequences of filing for bankruptcy. It also discusses alternatives to bankruptcy and resources available for those facing financial hardship in the province.
Bankruptcies in Nova Scotia
Bankruptcy in Nova Scotia is a legal process governed by the Bankruptcy and Insolvency Act, administered by the Bankruptcy Court, and overseen by the Registrar in Bankruptcy 2. The Office of the Superintendent of Bankruptcy is responsible for the administration of the Bankruptcy and Insolvency Act and certain duties under the Companies’ Creditors Arrangement Act 6. The Canadian Association of Insolvency & Restructuring Professionals advocates for a fair, transparent and effective insolvency and restructuring system throughout Canada 6.
In November 2023, the total BIA insolvencies in Canada were 12,176, representing a 5.1% change compared to the same period last year 3. Bankruptcies accounted for 2,831 of these insolvencies, while proposals made up 9,345 3. The 12-month period ending in November 2023 saw a 7.1% increase in bankruptcies and a 24.0% increase in proposals compared to the same period last year 3. In Nova Scotia specifically:
- Bankruptcies decreased by 2.5% and consumer proposals increased by nearly 45% year over year 4.
- The average household debt is $20,613, slightly lower than the national average of $21,131 4.
- Delinquency rates have increased by 1.43% to over 25%, representing the amount of debt that is overdue and more likely to end up in default 4.
- The CPI shows an increase of 2.5% in consumer prices in November 2023 versus November 2022 4.
- Home sales were 17% below the five-year average and 3.5% below the 10-year average in November 2023 4.
Business insolvencies increased by over 41% in 2023, while the total number of insolvencies (businesses and consumers) rose by 23.6% 5. Low economic activity and CEBA loan repayments have contributed to the high insolvency rates for businesses 5. Credit card debt has reached an all-time high of $11.34 billion in the fall, a 16% rise from the same period last year 5. Consumer bankruptcies plunged to a record low at the start of the pandemic but have returned to 2019 levels, and consumer-filed creditor proposals were up by 28.3% last year 5.
Understanding Bankruptcy
Bankruptcy in Nova Scotia is a legal process governed by the federal Bankruptcy and Insolvency Act, which outlines how different financial options work legally and defines the roles of the Superintendent of Bankruptcy, official receivers, the court, trustees, creditors, and consumers 6. The Act provides a system that allows insolvent debtors to be relieved of most debts by filing an assignment in bankruptcy 6 16 1 18 19. To be eligible for bankruptcy in Nova Scotia, you must:
- Owe at least $1,000 in unsecured debt 9 16
- Live, do business, or have outstanding business debts or property in Canada 16
- Be unable to pay your debts as they come due 9 16
The bankruptcy process in Nova Scotia is administered by a Licensed Insolvency Trustee (LIT) 8 15. The LIT settles all debts by paying the proceeds of non-exempt assets to creditors 8. Exempt assets, which vary by province, are those that a debtor can keep regardless of bankruptcy 8. Non-exempt assets are those that exceed the equity limit set by the debtor’s province 8. The federal Office of the Superintendent of Bankruptcy maintains a list of all active, licensed trustees in Canada 6.
Bankruptcy in Nova Scotia typically lasts approximately 9 months for a first-time bankruptcy, provided all duties are completed 8. It eliminates most unsecured debts, such as credit card bills, medical bills, and payday loans 9. Collection activity stops once a bankruptcy claim is filed, and creditors cannot garnish wages 9. However, bankruptcy does not eliminate certain debts, such as alimony, child support, fines, or certain student loans 13. It also does not address secured debts like mortgages 13. Upon receiving an Absolute Discharge from bankruptcy, the debtor is no longer responsible for any discharged debts 8.
The Process of Declaring Bankruptcy
To file for personal bankruptcy in Nova Scotia, you must use a licensed professional known as a Trustee in Bankruptcy 6 21 26 27 28 29. The Trustee in Bankruptcy realizes upon the available property of the individual applying for bankruptcy and distributes the proceeds among the bankrupt’s creditors in accordance with the Bankruptcy and Insolvency Act 6 11 22. The process of declaring bankruptcy involves:
- Evaluating your financial situation and consulting with a Licensed Insolvency Trustee (LIT) who assesses your situation, explains the bankruptcy process, and discusses its pros and cons 1 2 15.
- Filing paperwork with the LIT, who will then file the necessary documents with the Bankruptcy Court 2 6 14.
- Surrendering your non-exempt assets to the trustee, who sells them for the benefit of the creditors 15 17.
- Fulfilling bankruptcy commitments, including making payments according to your household size and income, attending financial counselling sessions, reporting monthly income, providing all income tax information, and completing all required documentation 2 15 20.
- Concluding the process, which typically lasts 9 to 21 months for a first-time filer and 24 to 36 months for a second-time filer 1 15 18 19 20 30 31 [32] [33].
- Moving on after receiving a discharge from bankruptcy 2.
To be eligible for bankruptcy in Nova Scotia, you must:
- Be unable to make regular payments on your debts 1 16 18 19 30 [32] [33]
- Have at least $1,000 in unsecured debt 1 16 18 19 30 [32] [33]
- Live, do business, or have outstanding business debts in Canada 1 16 18 19 30 [32] [33]
- Have no previous bankruptcy discharge within the past year 1 16 18 19 30 [32] [33]
When you file for bankruptcy, creditors must stop contacting you about payments and cannot take legal action to collect debts, which is called a stay of proceedings 20. Debtors are encouraged to appear at their hearing in Bankruptcy Court, as they may be called upon to give evidence 6 23. Bankruptcy Court documents must be filed at the Law Courts building in Halifax 6 14 24.
Benefits and Consequences of Bankruptcy
Filing for bankruptcy in Nova Scotia offers several benefits, such as preventing creditor harassment, discharging student loan debt, receiving financial counselling from the Trustee, and obtaining a fresh financial start 1. However, it also comes with drawbacks, including a significant impact on credit scores, restrictions on operating an incorporated business as a bankrupt, and potential loss of some assets 17 21.
In Canada, certain assets are exempt from seizure during bankruptcy, while non-exempt assets may be sold to repay creditors 1. Exempt assets include:
- Personal belongings, household furnishings, and medical aids 16 18 19
- Tools used for work 16 18 19
- A vehicle worth up to $6,500 16 18 19
- Most life insurance policies, pensions, and RRSPs (except for contributions made in the last 12 months) 15 16 18 19
However, secured assets, such as those financed with a loan, may still be seized by the creditor if payments are not kept up 16 18 19. Additionally, a Registered Education Savings Plan (RESP) is not exempt in Nova Scotia, but creditors can only access the RESP portion that would be received if cashed early 16 18 19.
Filing for bankruptcy in Nova Scotia for the first time can impact your credit report for up to seven years, while a second filing stays on your report for 14 years 1 16 18 19. In comparison, a consumer proposal generally stays on your credit report for three years 16 18 19. Bankruptcy discharge dates depend on the individual’s income and whether they have been bankrupt before. Those with surplus income above $200 will be bankrupt for either 21 months (if they have never been bankrupt before) or 36 months (if they have been bankrupt once in the past) 15. An Absolute Order of Discharge releases you from your legal responsibility to repay your debts, except for certain debts such as government student loans (if your Period Study End Date is less than seven years from when you file), spousal and child support, questionable debts, and court-ordered fines or restitution 16.
Alternatives to Bankruptcy
There are several alternatives to bankruptcy for those struggling with debt in Nova Scotia:
- Repaying debts yourself: If debts are small and manageable, you can repay them within a reasonable period. However, missed payments can negatively impact your credit report 22.
- Debt consolidation loan: Combining unsecured debts into a single debt can be a viable option if you have a good credit history or assets to secure the loan. This is especially useful if a low-interest rate can be obtained for high-interest rate debt like credit cards 22 23 26.
- Credit counselling or a Debt Management Plan (DMP): A credit counsellor works with you to replace multiple payments with one single monthly payment. Interest costs may be forgiven, but the full debt amount still needs to be repaid 22 23 24.
- Consumer Proposal: If debts are too large to repay, a Consumer Proposal can be made through a Licensed Insolvency Trustee (LIT) to settle debts for less than owed. This involves making one lower monthly payment to the trustee over a period of 3 to 5 years 1 22 23 26.
- Informal Debt Settlement: Creditors may accept a lump sum payment of 50-20% of the amount owed for old debts. This option damages credit 17 23.
Option | Pros | Cons |
---|---|---|
Repaying debts yourself | Suitable for small, manageable debts | Missed payments can damage credit 22 |
Debt consolidation loan | Simplifies debt management, potential for lower interest rates | Requires good credit or assets for securing the loan 22 23 26 |
Credit counselling or DMP | Reduces multiple payments to a single payment, potential interest forgiveness | Full debt amount must still be repaid 22 23 24 |
Consumer Proposal | Settles debts for less than owed, protects assets | Remains on credit record for 3 years after last payment 1 22 23 26 |
Informal Debt Settlement | Potential to settle debts for a fraction of the amount owed | Damages credit 17 23 |
Service Nova Scotia provides advice and resources for managing your debt and putting forward a Consumer Proposal 25. It’s essential to carefully consider your options and seek professional guidance to determine the best course of action for your unique financial situation 1.
Navigating the Legal System
The Office of the Superintendent of Bankruptcy maintains a list of all active, licensed trustees in Canada who can help individuals navigate the bankruptcy process in Nova Scotia 6 17. Most matters that go to court are heard by the Registrar in Bankruptcy, Raffi Balmanoukian, although some matters are referred to a Justice of the Supreme Court 6 27.
Individuals appearing in Bankruptcy Court must go through a licensed professional, known as a Trustee in Bankruptcy 6 27. The Trustee in Bankruptcy helps individuals through the process by:
- Realizing upon available property and distributing proceeds to creditors 6
- Helping debtors fulfill their duties under the Bankruptcy and Insolvency Act 27
- Collecting a portion of the debtor’s post-bankruptcy income, if required 27
Debtors are actively encouraged to appear at their Bankruptcy Court hearing 6 27. Certain post-bankruptcy matters, such as variations of prior orders and student loan forgiveness applications, may be filed by the debtor or debtor’s counsel 6 27. The Bankruptcy Court makes judicial determinations as required by the Bankruptcy and Insolvency Act in the administration of bankrupt estates 6 27.
Resources for Nova Scotians Facing Bankruptcy
Filing for bankruptcy can be an emotionally challenging process, with individuals often experiencing feelings of guilt, shame, stress, anxiety, loss, and grief 1. Seeking emotional support during this time is essential for navigating the bankruptcy process and maintaining mental well-being 1. Service Nova Scotia offers valuable advice and resources for managing debt and considering alternatives like Consumer Proposals 6.
The cost of bankruptcy in Nova Scotia depends on several factors, including:
- Household income and size 15
- Assets and whether the individual chooses to buy them back from the trustee 15
- Trustee fees, which range from $1,500 to approximately $9,400 (tax inclusive) based on a Tariff 15 16
- Surplus income obligations, determined by the individual’s take-home income and household size 15 16
While no one can force an individual to give up their house in bankruptcy, retaining a home with equity requires paying for that equity 15.
Conclusion
Navigating the complex world of bankruptcy in Nova Scotia can be a daunting task, but it is essential to remember that help is available. By understanding the process, benefits, consequences, and alternatives to bankruptcy, individuals facing financial hardship can make informed decisions about their future. Seeking guidance from Licensed Insolvency Trustees and emotional support from loved ones can provide the necessary tools to overcome the challenges associated with bankruptcy.
Ultimately, the path to financial recovery is unique for each individual, and it is crucial to explore all options before deciding on a course of action. Whether through bankruptcy, a consumer proposal, or other debt relief solutions, there is hope for those struggling with unmanageable debt in Nova Scotia. By taking proactive steps and utilizing the resources available, individuals can work towards a brighter financial future and a fresh start.
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References
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