Understanding Bankruptcies in Quebec: A Comprehensive Guide

Bankruptcy is a legal procedure that releases an individual from most debts if they are insolvent and facing serious financial problems ¹. When someone files for bankruptcy in Quebec, property owned at the time of bankruptcy and acquired before discharge is seized to pay off creditors, except for unseizable property ². However, bankruptcy should be considered a last resort, as there are other solutions available, such as consumer proposals and voluntary deposit ³.

In this comprehensive guide, we will delve into the intricacies of bankruptcies in Quebec, exploring the common causes, the step-by-step process, and the impacts of filing for bankruptcy. We will also discuss alternatives to bankruptcy and provide insights on how to rebuild your financial life post-bankruptcy. The Office of the Superintendent of Bankruptcy plays a crucial role in ensuring the integrity of bankruptcy and insolvency processes and helping Canadians understand them ⁴.

Understanding Bankruptcy in Quebec

Bankruptcy is a legal procedure that allows individuals to be released from most debts if they are insolvent and facing severe financial problems ¹. To go bankrupt in Quebec, an individual must be insolvent, which means they have at least $1,000 of debts, live or own property in Canada, are not already bankrupt, and meet one of these conditions ²:

• Unable to pay debts as they become due
• Stopped paying debts or monthly bills
• The value of all their property is less than the value of all their debts

The process of personal bankruptcy in Quebec involves several steps ^1 2:

1. Initial meeting with a trustee
2. Declaration of bankruptcy
3. Liquidation of property
4. Payments to the trustee
5. Discharge

Most debts can be included in a bankruptcy, such as unpaid credit card balances, line of credit debt, personal loans, taxes owed, and debts owed to collection agencies ². However, some debts cannot be included, such as support payments to a former spouse or for children, fines, penalties, restitution orders, and debts arising from fraud, misrepresentations, or illegal acts ².

Not all assets are seized during bankruptcy; exempt assets include ¹:

• Furniture
• Instruments required for professional activities
• Food, linens, and clothing necessary for the household
• Papers and family portraits
• Medals and other decorations
• Donated goods or gains exempt from seizure under certain conditions
• Support awarded in justice
• Benefits payable under a supplemental pension plan
• Periodic disability benefits under a contract of insurance against illness or accidents
• A certain portion of gross wages and salaries

Common Causes Leading to Bankruptcy

Financial mismanagement is the leading cause of bankruptcy in Canada, with overextension of credit and overspending cited by 62% of debtors ^7 8. This often includes excessive use of credit cards and a lack of savings for unexpected expenses ^8 9.

Other common causes of bankruptcy include:

1. Job loss or stagnant income: 31% of debtors cited job loss, and 8 in 10 people filing insolvency were employed at the time of filing, with their income not growing as fast as their debt burden and living expenses ⁸.
2. Unexpected disasters: Major unforeseen events, such as car or home repairs, house fires, or deaths in the family, can lead to bankruptcy due to lack of adequate savings and insurance ⁷.
3. Medical and health problems: 19% of debtors cited illness, injury, and health-related problems as a cause of their financial difficulties, with not all medical costs covered by insurance ^7 8.
4. Separation and divorce: 23% of debtors were separated or divorced at the time of filing, with the end of a relationship causing financial problems due to increased expenses and limited income ^7 8.

Other factors contributing to bankruptcy include:

• Tax debts: 37% of individuals filing insolvency owe money to the Canada Revenue Agency ^8 15.
• Carrying debt into retirement: 1 in 3 insolvencies involve those aged 50 and older, with much of this due to credit card debt ⁸.
• Seasonal employment: Fluctuations in income due to seasonal employment can lead to financial strain and potential bankruptcy ¹⁰.
• Gambling addiction: Gambling addiction can contribute to financial difficulties and bankruptcy ¹⁰.

The COVID-19 pandemic significantly impacted business dynamics, leading to a decline in corporate insolvency proposals and bankruptcies under the Bankruptcy and Insolvency Act in 2020 ⁶. However, business insolvencies increased by over 41% in 2023, with low economic activity and CEBA loan repayments contributing to the high insolvency rates ¹¹. Consumer insolvencies alone rose by 23% last year, with the high daily cost of life, credit card debts, skyrocketing payday loans, and elevated interest rates contributing to financial stress among clients ¹¹.

The Bankruptcy Process: A Step-by-Step Guide

The bankruptcy process in Quebec involves several key steps:

1. Determine if bankruptcy is necessary by considering signs such as missed mortgage or loan payments, maxed-out credit cards, threatening calls from collection agencies, and legal action against you to collect debts ¹⁴.
2. Seek advice from a Licensed Insolvency Trustee (LIT) who will assess your financial situation, explain the merits and outcomes of various options available to you, and make recommendations ^14 15. The trustee’s role includes completing the necessary paperwork, offering consultation sessions, and managing the bankruptcy until its completion ¹⁵.
3. File the required paperwork with your LIT, who will assist with the completion of the necessary forms to declare bankruptcy ¹⁴. From the date of bankruptcy, creditors can’t usually sue you to make you repay your debts ².
4. Attend two mandatory bankruptcy counselling sessions ^12 13.
5. Complete required duties such as filing monthly reports on income and expenses, paying for equity in assets, surplus income, and administrative costs, and filing personal income tax returns for the year of bankruptcy ¹⁴.
6. The trustee determines what property you must hand over to pay your debts and what you may keep ². They will sell the property that is not protected, and the money from the sale will be distributed to your creditors in the order provided by law ².
7. Automatic discharge from debts usually takes place nine months or 21 months after the date of your bankruptcy, depending on your situation ^2 3. Upon completion of duties, you will be eligible for discharge, releasing you from the obligation to pay the debts you had when you filed bankruptcy ¹⁴.

It’s important to note that most debts are included in bankruptcy, with exceptions such as support payments, fines, penalties, restitution orders, court-ordered payments for sexual assault or assault causing physical injury or death, debts arising from fraud, misrepresentations, or illegal acts, debts not disclosed to the trustee, and student loans within seven years of ceasing to be a full or part-time student ².

A note that you went bankrupt will be put in your credit report and will stay there for six to seven years after the date of discharge, or up to 14 years in the case of a second bankruptcy ².

Impacts of Filing for Bankruptcy

Filing for bankruptcy has significant impacts on an individual’s financial life, both in the short and long term ^1 5. While bankruptcy can provide relief from most debts, it also involves the seizure of property owned at the time of bankruptcy and acquired before discharge to pay off creditors, with certain types of property being exempt from seizure ^1 5.

The impacts of filing for bankruptcy include:

1. Credit rating: Bankruptcy negatively affects the debtor’s credit rating for six years following discharge, with a second bankruptcy extending this to 14 years ⁵. A note that the debtor went bankrupt will be put in their credit report and will stay there for six to seven years after the date of their discharge ². This can make it difficult to obtain credit, renew a mortgage, or apply for low-interest rate credit cards ¹³.
2. Tax obligations: Bankruptcy involves specific tax obligations for the individual declaring bankruptcy, with the date of bankruptcy being a crucial factor in determining these obligations ⁴. Both the individual in bankruptcy and the trustee in bankruptcy have specific tax obligations and must comply with income tax filing requirements ⁴.
3. Discharge from debts: Upon discharge, the debtor is typically debt-free, with a few exceptions such as student loans that are less than 7 years old, court fines, penalties, and child support ⁵. The length of time until discharge from bankruptcy depends on several factors, such as whether it is the first or second filing and whether surplus income payments are required ¹². It’s important to note that bankruptcy may not be the best or only solution for all types of debts, as secured debts, student loans (less than 7 years old), and child/alimony support payments cannot be eliminated through bankruptcy ¹³.

Alternatives to Bankruptcy

Bankruptcy should be considered a last resort, and other solutions like consumer proposals and voluntary deposit should be explored first ¹. A Licensed Insolvency Trustee can help determine if bankruptcy is the right option or if alternatives should be considered ³. Some alternatives to bankruptcy include ⁶:

1. Consolidation loans and debt repayment programs: These options consolidate bills and payments into a new loan or monthly payment based on the individual’s budget ⁷.
2. Debt settlement: This involves negotiating with creditors to accept a lump sum payment ⁸.
3. Consumer proposal: A legal alternative to bankruptcy arranged by a trustee, where the individual makes monthly payments to pay back part of what they owe ⁹.
4. Voluntary deposit: A method of repaying debts through the Court of Quebec, where regular portions of income are deposited with the Court, which then distributes the funds to creditors ¹⁰.

Other options include repaying debts yourself if they are small and you can cut back on expenses ¹¹, getting a debt consolidation loan if you have a reasonable credit history or assets to secure the loan ¹², or trying credit counselling or a Debt Management Plan (DMP) where a credit counsellor works with you to replace multiple payments with one single monthly payment ¹³.

A Consumer Proposal is an excellent option if debts are large and you still want to avoid bankruptcy. A bankruptcy trustee can negotiate a proposal to settle debts for less than owed, with one lower monthly payment usually over 3 to 5 years ¹⁴. The bankruptcy process in Canada is a significant step with long-term consequences, and exploring alternatives to bankruptcy is recommended before making a decision ².

Rebuilding Your Financial Life Post-Bankruptcy

After filing for bankruptcy and receiving a discharge, it’s crucial to take steps to rebuild your financial life and credit. Here are some key strategies to help you get back on track:

1. Pay bills on time: Consistently paying your bills in full and on time is essential to demonstrate responsible credit management and rebuild your credit score ¹⁹.
2. Get a secured credit card: Applying for a secured credit card and using it responsibly by paying the bill on time each month can help rebuild your credit ^19 20.
3. Establish a budget and live within your means: Stick to a monthly budget, spend less than you earn, track your money, and save diligently to avoid accumulating debt and enhance your financial stability ^19 20.
4. Avoid overdrafts and NSF fees: Demonstrating responsible bank account usage by avoiding overdrafts and NSF fees is important for financial recovery ¹⁹.
5. Apply for small amounts of credit: Obtaining a small amount of credit, such as an RRSP loan, and repaying it responsibly can help demonstrate your financial responsibility and rebuild your credit ^19 20.
6. Monitor your credit reports: Regularly review your credit reports to ensure accuracy and identify areas for improvement ²².

It’s important to note that after being discharged from bankruptcy, individuals can still qualify for a mortgage at an interest rate comparable to or better than someone who has never gone bankrupt ²¹. By completing the bankruptcy process efficiently, saving money, and using credit responsibly, you can rebuild your credit and achieve financial stability ^21 22.

Conclusion

Bankruptcies in Quebec can be a complex and overwhelming process, but understanding the causes, steps involved, and impacts is crucial for those facing financial hardship. While bankruptcy provides relief from most debts, it also has significant consequences on an individual’s financial life. Exploring alternatives such as consumer proposals and voluntary deposit, with the guidance of a Licensed Insolvency Trustee, can help determine the best course of action.

Filing for bankruptcy is not the end of the road; it is possible to rebuild your financial life and credit after receiving a discharge. By consistently paying bills on time, establishing a budget, using credit responsibly, and monitoring your credit reports, you can demonstrate financial responsibility and work towards a more stable financial future. With dedication and the right strategies, individuals who have gone through bankruptcy can still achieve their financial goals and secure a brighter tomorrow.

Bankruptcies in Quebec

Insolvency statistics in Canada are available in various formats and time periods from the Government of Canada Open Data Portal ²³:

• Monthly, quarterly, and annual reports from 2015 to 2024, including total insolvencies, consumer and business insolvencies, and insolvencies by NAICS economic sectors
• Insolvency statistics by Forward Sortation Area (FSA) and North American Industry Classification System (NAICS) in Excel format
• Annual insolvency rates for consumer and business insolvencies by province and economic region, census metropolitan area, and sector as defined by the NAICS, starting from 1987 for consumers and 1998 for businesses
• Monthly and annual insolvency statistics from 1987, including total insolvencies, insolvencies filed by consumers and businesses, and insolvencies filed by consumers and businesses by province
• CCAA statistics annually from 2011 to 2021

In December 2023, Canada saw a total of 9,573 BIA insolvencies, a 21.4% decrease from the previous year ²⁴. This included 9,040 consumer insolvencies (a 22.6% decrease) and 533 total business insolvencies (a 57.2% increase) ²⁴. The retail trade sector had the highest number of insolvencies (60), while the agriculture, forestry, fishing, and hunting sector had the lowest (10) ²⁴.

The length and cost of bankruptcy in Quebec depend on several factors ¹⁵:

• Whether the individual has surplus income
• Whether they have completed all their duties as a bankrupt
• The individual’s ability to pay, with costs typically ranging between $150 and $200 per month

FAQs

What items are exempt from being taken during a bankruptcy? Certain assets are protected and cannot be taken by creditors in the event of bankruptcy. These include essentials such as your household furniture, Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and other investments in retirement accounts, with the exception of contributions made in the preceding 12 months. Additionally, tools that you use for your professional activities cannot be seized.

How much is the monthly cost associated with filing for bankruptcy? The monthly cost you pay when filing for bankruptcy depends on whether you have surplus income. If you do, you will not be charged both the standard $2,700 bankruptcy fee and your surplus income. Instead, you will pay the greater of two amounts: either $200 per month for 21 months, totaling $4,200, or the amount of your surplus income over the same period.

References

[1] – https://www.quebec.ca/en/finance-income-and-other-taxes/manage-debts/bankruptcy [2] – https://educaloi.qc.ca/en/capsules/personal-bankruptcy/ [3] – https://www.raymondchabot.com/en/articles-and-advice/bankruptcy/bankruptcy-in-quebec/ [4] – https://www.revenuquebec.ca/en/citizens/your-situation/bankruptcy/ [5] – https://www.bromwichandsmith.com/blogs/pros-and-cons-filing-bankruptcy-canada [6] – https://www150.statcan.gc.ca/n1/pub/36-28-0001/2023010/article/00005-eng.htm [7] – https://bankruptcy-canada.com/bankruptcy/causes-of-bankruptcy/ [8] – https://www.hoyes.com/press/joe-debtor/causes-of-insolvency/ [9] – https://wecanhelp.ca/understanding-the-top-5-reasons-for-declaring-bankruptcy/ [10] – https://bankruptcycanada.com/insolvency-blog/causes-of-bankruptcy/ [11] – https://www.cbc.ca/news/business/canada-insolvencies-businesses-consumers-bankruptcies-2023-1.7101856 [12] – https://nomoredebts.org/debt-help/bankruptcy/bankruptcy-process-steps [13] – https://nomoredebts.org/bankruptcy-canada/quebec [14] – https://bankruptcy.mnpdebt.ca/faqs/how-to-file-bankruptcy [15] – https://pierreroy.com/en/personal-bankruptcy/ [16] – https://bankruptcycanada.com/guide-to-bankruptcy/ [17] – https://www.raymondchabot.com/en/articles-and-advice/bankruptcy-alternatives/what-is-a-voluntary-deposit/ [18] – https://bankruptcy-canada.com/bankruptcy-alternatives/ [19] – https://nomoredebts.org/debt-help/bankruptcy/how-to-rebuild-credit-after-bankruptcy [20] – https://bankruptcy-canada.com/how-to-file-bankruptcy-canada/after-bankruptcy-credit-repair/ [21] – https://bankruptcycanada.com/rebuilding-credit-after-bankruptcy/ [22] – https://www.rbcroyalbank.com/en-ca/my-money-matters/debt-and-stress-relief/bankruptcy/personal-bankruptcy/bouncing-back-rebuilding-credit-after-bankruptcy/ [23] – https://ised-isde.canada.ca/site/office-superintendent-bankruptcy/en/statistics-and-research [24] – https://ised-isde.canada.ca/site/office-superintendent-bankruptcy/en/statistics-and-research/insolvency-statistics-december-2023