A Comprehensive Guide to Understanding Bankruptcies in Saskatchewan

Bankruptcy is a legal process where a debtor who cannot pay his or her bills may be relieved of some debts ¹. In Saskatchewan, the rise of bankruptcies has become a growing concern for individuals and businesses alike. With debts totaling more than $1,000 and the inability to pay, debtors can apply for bankruptcy as a potential solution to their financial struggles ¹.

This comprehensive guide aims to provide a thorough understanding of bankruptcies in Saskatchewan, exploring the common causes, impact on individuals and businesses, bankruptcy laws, and the process of filing for bankruptcy in the province. We will also discuss alternatives to bankruptcy and strategies for rebuilding after declaring bankruptcy, offering valuable insights for those facing financial difficulties in Saskatchewan.

The Rise of Bankruptcies in Saskatchewan

According to recent data, Saskatchewan has experienced a significant increase in bankruptcies and insolvencies. In the third quarter of 2023, there were 914 total BIA insolvencies in the province, which included 162 bankruptcies and 752 proposals ⁶. Although this represents a 5.8% decrease compared to the same quarter in 2022, the 12-month period ending Q3 2023 saw a total of 3,620 BIA insolvencies in Saskatchewan ⁶.

In December 2023, Saskatchewan witnessed a 7.8% increase in total BIA insolvencies compared to December 2022, with the same percentage increase observed for BIA insolvencies filed by consumers ⁷. However, there was no change in the number of BIA insolvencies filed by businesses during the same period ⁷. Overall, business insolvencies increased by over 41% in 2023, while the total number of insolvencies (businesses and consumers) rose by 23.6% ⁸.

The bankruptcy rates per 1,000 population aged 18 years and older varied across different regions of Saskatchewan in 2022 ⁹:

• Regina – Moose Mountain: 0.8
• Swift Current – Moose Jaw: 0.8
• Saskatoon – Biggar: 0.6
• Yorkton – Melville: 0.9
• Prince Albert and Northern: 0.7

On average, 3.6 individuals per 1,000 population aged 18 years and older declared bankruptcy in Saskatchewan in 2022 ⁹.

Understanding Bankruptcy

Bankruptcy is a legal process where individuals or businesses declare they cannot pay their bills, involving the liquidation of assets to repay debts or the creation of a repayment plan ¹⁰. The process is overseen by a Licensed Insolvency Trustee (LIT) who manages the sale of any non-exempt assets to repay creditors ¹⁶. Once the proceeds from the sale are distributed, the remaining balances on the debts included in the bankruptcy are discharged ¹⁶.

There are different types of bankruptcies, including ¹³:

1. Chapter 7 Bankruptcy: Allows you to dispose of unsecured debts, such as credit card balances and medical bills ¹³. It involves selling off some assets to pay off debts and discharging the remaining debt ¹⁴.
2. Chapter 11 Bankruptcy: Often used by businesses to reorganize and remain in business ¹³.
3. Chapter 13 Bankruptcy: For individuals who make too much money to qualify for Chapter 7 bankruptcy, allowing them to create workable debt repayment plans in installments over a three-to-five-year period ¹³. It restructures debts in a way that allows the debtor to pay off a portion or all of the debt over a period of three to five years ¹⁴.

Benefits of filing for bankruptcy include debt elimination, protection from legal action, property protection, discrimination protection, and potential debt restructuring ¹⁰. However, disadvantages include ruined credit for up to 10 years, property loss under Chapter 7 provisions, career limitations, costly legal and court fees, and potential emotional toll ¹⁰. Bankruptcy remains on credit reports for 7 to 10 years, depending on the type of bankruptcy filed ¹⁰, making it more difficult for individuals or businesses to borrow in the future ^10 12.

Common Causes of Bankruptcy in Saskatchewan

Several factors contribute to the rising number of bankruptcies in Saskatchewan. According to a study, 62% of insolvent debtors cited over-extension of credit and financial mismanagement as the primary cause of their financial difficulties ²³. Job loss or stagnant income was listed as a cause of insolvency by 31% of insolvent debtors, while 19% reported health issues and 14% cited relationship breakdown as contributing factors ²³. The increased prevalence of high-risk, high-cost debt, such as payday loans and quick cash installment loans, also contributes to insolvency risk ²³.

Other common causes of bankruptcy in Saskatchewan include:

1. Unexpected disasters, such as major car or home repairs, house fires, or death in the family, if there is inadequate insurance and savings ²⁴.
2. Income reduction or job loss, which can result in reliance on credit cards to pay bills, potentially leading to bankruptcy ²⁴.
3. Illness or medical problems, which can affect both income and living expenses, leading to bankruptcy without sufficient insurance or savings ²⁵.
4. Separation or divorce, which can double living expenses and make it difficult to pay off debts, especially if legal costs are involved ²⁵.
5. Financial mismanagement, including over-spending and excessive use of credit, is the most common cause of bankruptcy ²⁵.

Seasonal employment, failed business ventures, gambling addiction, and failure to pay taxes are also factors that can contribute to personal bankruptcy in Saskatchewan ^1 25. Fluctuating income throughout the year can make it challenging to save money and stick to a budget, potentially leading to bankruptcy if a financial disaster occurs during the offseason ²⁵. A new business venture that doesn’t work out as planned can lead to personal bankruptcy if the director is personally responsible for the business debt ¹. Problem gambling can rapidly spiral out of control, with borrowing to pay gambling debts leading to severe financial problems ²⁵. Finally, not paying income taxes can be a sign of a serious underlying financial problem that may potentially lead to bankruptcy ²⁵.

Impact of Bankruptcy on Individuals and Businesses

Bankruptcy can have a significant and long-lasting impact on an individual’s credit record, with the potential to remain on a debtor’s credit report for up to 14 years ¹. This extended period of time can make it challenging for individuals to secure loans, credit cards, or even rental agreements, as their credit history will reflect the bankruptcy filing.

Despite the negative consequences, the bankruptcy process is designed to provide relief and support for individuals facing personal money management crises due to unforeseen circumstances such as ¹⁷:

• Job loss
• Divorce
• Death of a spouse
• Severe illness

These unexpected life events can lead to financial strain and overwhelming debt, making it difficult for individuals to meet their financial obligations. By filing for bankruptcy, individuals can receive assistance in managing their debts and potentially discharge some of their unsecured debts, allowing them to start fresh financially ¹⁷.

However, it is essential for individuals considering bankruptcy to understand the long-term implications and explore alternative debt relief options before making a decision. Seeking guidance from a Licensed Insolvency Trustee can help individuals navigate the bankruptcy process and determine the best course of action for their specific financial situation ¹.

Bankruptcy Laws in Saskatchewan

The Bankruptcy and Insolvency Act is the primary legislation governing bankruptcy in Saskatchewan and throughout Canada ²⁶. This Act provides a framework for debtors to make proposals to creditors to pay debts over time, usually at a reduced amount ¹. It also outlines the role of a bankruptcy trustee, who takes charge of the debtor’s property and distributes the proceeds among creditors in accordance with the Act ¹.

The Act includes several key provisions:

1. Section 178(1) sets out certain debts that are not released by an order of discharge, such as fines, penalties, restitution orders, child support payments, and alimony payments set out in a court order or agreement, as well as any debt arising out of fraud ¹.
2. Student loans are not dischargeable for a period of 10 years from when the bankrupt ceased to be a full or part-time student ¹.
3. The Act covers various aspects of bankruptcy, including Her Majesty, duty of good faith, administrative officials, bankruptcy orders and assignments, proposals, property of the bankrupt, administration of estates, bankrupts, courts and procedure, offences, miscellaneous provisions, orderly payment of debts, secured creditors and receivers, and securities firm bankruptcies ²⁶.
4. It also includes provisions for cross-border insolvencies ²⁶.

The Act defines various terms used within it, such as ‘affidavit’, ‘aircraft objects’, ‘application’, ‘assignment’, ‘bank’, ‘bankrupt’, ‘bankruptcy’, ‘bargaining agent’, ‘child’, ‘claim provable in bankruptcy’, ‘collective agreement’, ‘common-law partner’, ‘common-law partnership’, ‘corporation’, ‘court’, ‘creditor’, ‘current assets’, ‘date of the bankruptcy’, ‘date of the initial bankruptcy event’, ‘debtor’, ‘director’, ‘eligible financial contract’, ‘equity claim’, ‘equity interest’, ‘executing officer’, ‘financial collateral’, ‘General Rules’, ‘income trust’, ‘insolvent person’, ‘legal counsel’, ‘locality of a debtor’, ‘Minister’, ‘net termination value’, ‘official receiver’, ‘person’, ‘prescribed’, ‘property’, ‘proposal’, ‘public utility’, ‘resolution’, ‘secured creditor’, ‘settlement’, ‘shareholder’, ‘sheriff’, ‘special resolution’, ‘Superintendent’, ‘Superintendent of Financial Institutions’, ‘time of the bankruptcy’, ‘title transfer credit support agreement’, and ‘transfer at undervalue’ ¹⁸. It also includes provisions related to the designation of beneficiaries in insurance contracts and the Superintendent’s division office ¹⁸.

The Bankruptcy Process in Saskatchewan

The bankruptcy process in Saskatchewan is a 10-step process conducted by a Licensed Insolvency Trustee (formerly known as a Bankruptcy Trustee) ²⁷. Trustees are licensed to conduct business by the Superintendent of Bankruptcy and must follow strict guidelines and procedures ²⁷. The only way to file bankruptcy is through the services of a Licensed Insolvency Trustee ²⁷.

To apply for bankruptcy, a debtor must be unable to pay his or her debts, and those debts must total more than $1,000 ¹. The bankruptcy process in Saskatchewan involves the following steps ²⁸:

1. Determine if Bankruptcy is Necessary
2. File Paperwork with a Trustee
3. Sale of Assets
4. Creditors Notified
5. Stay of Proceedings
6. Objection to Discharge
7. Bankruptcy Counselling
8. Reporting to the Office of the Superintendent of Bankruptcy (OSB)
9. Discharge Process
10. Life After Bankruptcy Discharge

A bankruptcy trustee is responsible for most of the bankruptcy process, but in some cases, a person who is bankrupt may be required to participate in a court hearing ¹. Hearings are required to resolve three types of cases ¹:

1. Where the bankrupt person seeks to end the bankruptcy (also known as “discharging” it) and he or she has been bankrupt more than once
2. Where the bankrupt person and the trustee cannot agree about an aspect of the bankruptcy administration
3. Where the bankrupt person’s discharge from bankruptcy is opposed by a creditor, by the bankruptcy trustee, or by the Office of the Superintendent of Bankruptcy

Trustees file income tax returns for the year prior to bankruptcy and the period from January 1 until the day prior to filing for bankruptcy ²⁸. Any refunds or tax credits from the government are sent to the trustee and form part of your estate ²⁸. The bankruptcy process in Saskatchewan usually takes nine months ²⁹. Deciding to ask for help and undergoing financial counselling are crucial parts of the process ²⁹. A Licensed Insolvency Trustee (LIT) can provide counsel on all debt relief options and guide you through the bankruptcy process ²⁹. Many people who think they need to declare bankruptcy are able to restructure their debts by filing a consumer proposal ²⁹.

Alternatives to Bankruptcy

Several alternatives to bankruptcy exist for individuals facing financial difficulties in Saskatchewan and throughout Canada. These options can help debtors manage their debts without resorting to bankruptcy:

1. Liquidating personal assets: Selling non-essential assets to repay debts can be an effective strategy, but it may affect future financial stability ³⁰.
2. Personal budgeting & self-money management: This approach requires dedication and discipline but can help in debt repayment without affecting credit scores ³⁰.
3. Debt restructuring: Negotiating better interest rates with creditors may not reduce the amount owed but can make repayment easier ³⁰.
4. Debt consolidation: Bringing multiple debts under a single payment can lower interest rates and extend due dates, but qualifying for a new loan can be challenging ³⁰.
5. Debt management plans: These plans allow debtors to repay what is owed over a period of up to five years and are useful for those with multiple creditors. However, they do not reduce the total amount owed and show up on credit reports ³⁰.
6. Informal debt settlement: Negotiating a payout with each creditor can be helpful if able to pay off some debt at once, but creditors are not obligated to settle for a lesser amount ³⁰.
7. Consumer proposal: This legal agreement with creditors can reduce total debt by up to 75%, offers immediate relief from collection efforts, and is a legally binding process ³⁰. A consumer proposal is a formal offer to all creditors through the Bankruptcy and Insolvency Act, providing interest-free repayment and reducing debt by up to 80% ^32 33.

Other common bankruptcy alternatives in Canada include credit counselling services, debt consolidation loans, and debt settlement programs ^{20 31 32 33}. Debt consolidation loans combine multiple debts into a single loan with better terms and interest rates, but qualification depends on credit score and income ^32 33. Credit counselling societies and non-profit credit counsellors offer repayment on new terms, impacting credit ratings for a certain period ³².

Choosing the right debt solution requires understanding your options and determining the best path to become debt-free ³¹. It is essential to carefully consider the advantages and disadvantages of each alternative before making a decision, as the most appropriate option will depend on an individual’s unique financial situation and goals.

Rebuilding After Bankruptcy

After filing for bankruptcy, it is crucial to focus on rebuilding your credit and financial stability. Here are some steps to help you get back on track:

1. Keep up with payments on existing loans and credit cards to reestablish your credit ³⁴.
2. Apply for a new line of credit, such as a credit builder loan, secured credit card, or become an authorized user on a credit card to establish a new line of credit and improve your credit score ³⁴.
3. Maintain job stability and consistent income to appear more favorable to lenders ³⁴.
4. Regularly check credit reports and credit scores for errors, and dispute any inaccuracies to potentially raise your credit score ³⁴.
5. Build an emergency fund by setting aside a portion of your income and cutting back on nonessential costs ³⁴.
6. Stick to a budget by monitoring your spending habits and making necessary adjustments, utilizing money management apps, auto-saving options, or a manual journal to track your spending ³⁴.
7. Maintain a low debt-to-income ratio and make timely credit card payments to rebuild your credit score ³⁴.

When it comes to financing after bankruptcy, keep in mind that:

• Chapter 7 filers can finance a car the day after filing, while Chapter 13 filers may need trustee permission ³⁴.
• For a conventional mortgage, most experts recommend waiting 18 to 24 months after discharge and expect higher interest rates ³⁴.
• Chapter 13 filers can apply for an FHA-insured mortgage after one year of timely payments, while Chapter 7 filers must wait two years ³⁴.

To further improve your credit, consider:

• Pulling a copy of your credit reports and VantageScore credit score ³⁵.
• Ensuring credit reports are accurate ³⁵.
• Prioritizing making future payments on time ³⁵.
• Opening a new line of credit after feeling financially stable ³⁵.
• Avoiding credit repair companies and considering working with a reputable credit counselling agency ³⁵.

Remember, responsible borrowing and repayment of debt help improve credit scores over time ³⁵. Creating a budget, rebuilding credit, saving and investing, and seeking professional help are all essential steps in the process of rebuilding after bankruptcy ¹⁹.

Conclusion

Bankruptcy can be a challenging and overwhelming process for individuals and businesses facing financial difficulties in Saskatchewan. By understanding the common causes, impact, laws, and alternatives surrounding bankruptcy, those struggling with debt can make informed decisions about their financial future. Although bankruptcy may provide relief from overwhelming debt, it is essential to consider the long-term consequences and explore alternative options before making a decision.

Rebuilding after bankruptcy requires dedication, discipline, and a focus on reestablishing credit and financial stability. By taking proactive steps such as maintaining existing payments, establishing new lines of credit, sticking to a budget, and seeking professional help when needed, individuals can work towards a more secure financial future. With the right guidance and a commitment to responsible financial management, it is possible to overcome the challenges of bankruptcy and achieve long-term financial success.

FAQs

What items are exempt from being taken in a bankruptcy case? Certain assets are protected from creditors during bankruptcy, including essential household furnishings, Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and any funds invested in retirement vehicles, with the exception of contributions made within the last year. Additionally, tools necessary for your profession cannot be seized.

Which type of bankruptcy filing is most advantageous? Chapter 7 bankruptcy is often preferred by many individuals because it is relatively fast, typically granting a discharge of qualifying debts within approximately four months. Moreover, filers are usually able to retain most, if not all, of their property and are not required to adhere to a three- to five-year repayment plan as is mandated in a Chapter 13 bankruptcy.

References

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