Bankruptcy Costs and Fees in Canada: What is the Cost to Go Bankrupt?
What are the Costs and Fees of Going Bankrupt?
If you are considering voluntary bankruptcy, it’s important to know the costs and fees involved.
When it comes to cost, there are three major components to consider:
- Monthly contributions required to cover the cost of administration;
- Surplus income payments;
- Assets you get to keep, or lose, under Canadian bankruptcy law.
We explore these in further detail below.
Monthly contributions required to cover the cost of administration
$1,800.00 is the minimum cost to file for bankruptcy, for a first-time application.
The cost can be spread across $200 instalments over a 9-month period.
Administration costs include government fees, mailing costs and the bankruptcy trustees time.
The trustee fees are regulated by the federal government.
You are not required to pay any extra fees to the trustee.
The trustee will receive their fees purely out of the monthly contributions you’re making.
When it comes to surplus income, the general rule to apply is, as your earning capacity increases, so will your required repayments, which go towards the benefit of your creditors.
In bankruptcy law, the government sets net monthly income thresholds for individuals and families, which are based off what they deem to be a reasonable standard of living in Canada.
Every dollar you earn above the threshold is considered surplus income and 50% of this income goes towards additional creditor payments.
For example, if your threshold is $3,000.00 per month and you earn $500.00 above this limit, you would be required to make a surplus income payment of $250.00.
You might be wondering; how will the trustee know if I earn additional income?
Well, law requires you to submit monthly wage slips to your trustee, so they can monitor your income levels throughout the bankruptcy.
If they see a surplus, 50% will be taken for additional payments.
You may also be wondering about the income thresholds. According to (2019 Bankruptcy Surplus Income Limits | Loans Canada, 2020), the thresholds as at 2019, are as follows:
|Family Size||Monthly Income Threshold|
It’s important to note that surplus income amounts will also affect how long you’ll be bankrupt for.
If it’s your first time filing for bankruptcy and you have no surplus income, your bankruptcy will likely last 9 months, however, with surplus income, your bankruptcy will last for 21 months.
These time periods are extended if you’re filing bankruptcy for a second time, specifically, if you have no surplus income, you’ll remain bankrupt for 24 months, however, if you do have surplus income, you’ll remain bankrupt for 36 months.
Some would argue that the assets you lose during a bankruptcy is by far the biggest cost.
Unfortunately, this is the only way to be absolved of your debts.
There are several assets you’ll lose during a bankruptcy and these are detailed below:
- Home Equity, if the equity is greater than the amount set by the exemptions in your province or territory;
- Liquid investments, such as savings bonds;
- Any tax refunds for prior years, which haven’t been filed yet;
- RRSP contributions you’ve made in the last year, prior to your bankruptcy filing and;
- The value of any unencumbered vehicles you own (over a provincial exemption limit).
It’s important to remember that the role of the trustee is to liquidate your assets, thus turning them into cash, so your creditors can be paid back.
Throughout this process, you can negotiate with the trustee if you wish to keep certain assets, noting that you will need to provide the income from another source.
For example, if you wanted to keep your vehicle, you would need to provide the trustee with the equivalent cash this vehicle would bring to your creditors.
Under this scenario, you would keep your car and the creditors would receive the cash equivalent of the asset.
This process of negotiation can be wrapped up in what’s known as a ‘consumer proposal’.
When it comes to assets, many people believe they’ll lose every asset they own.
However, the government has set in place specific rules around what you can keep and what must be sold, so your creditors can be reimbursed.
If you’re seeking further information on the above, please contact us for assistance.