What are the Steps in the Bankruptcy Process?
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The bankruptcy process in Canada is fairly straightforward.
You are required to use the services of a Licensed Insolvency Trustee in order to begin the bankruptcy process.
Step 1 in the Bankruptcy Process; Realize that you need help:
The first step in the bankruptcy process is realizing that you are facing money problems and that you need professional help to get your finances back on track. Admitting this fact is the hardest part of the entire bankruptcy process for the vast majority of individuals.
After you have made the decision to seek help with your debt you will need to set up a free, confidential consultation with a local insolvency trustee from your area.
The trustee will help you review your financial situation and give you the pros and cons of each debt relief option available to you.
Depending on your amount of debt and/or income, certain bankruptcy alternatives might not be viable for you.
Your trustee will help you make an informed decision on whether bankruptcy is the best choice for you or if there is a better option based on your personal finances.
Step 3 in the Bankruptcy Process – Fill out an application:
If you and your trustee decide to proceed with going bankrupt the next step will be to fill out the application.
Your trustee will provide you the application and will give you the time to complete the application, which should take 20 minutes or so to be completely filled out.
If you are uncomfortable with filling out the form on your own your trustee can arrange for someone to help guide you through the application paperwork.
Step 4 in the Bankruptcy Process – The bankruptcy is filed:
When you have completed your application form and return it to your trustee you will file for bankruptcy.
After the trustee receives your filled out application form he or she will begin preparing the documents that must be signed to declare bankruptcy.
The trustee will file your documents with the Office of the Superintendent of Bankruptcy (OSB) and once this occurs you will officially be bankrupt.
When you go bankrupt you will receive your automatic stay, which is a legal order that prevents your creditors from contacting you for any reason, and will stop wage garnishments and allow you to breathe again.
Harassing phone calls will stop, your wage garnishment will end, or wage garnishments that are being considered will halt, and your creditors won’t be able to collect on your debts at this point of the bankruptcy process.
Step 5 in the Bankruptcy Process – Creditors are notified:
At this point in the process your trustee will notify the creditors that were included in your bankruptcy paperwork (your unsecured creditors) that you have filed for bankruptcy.
In rare cases, your creditors might call for a creditors’ meeting, that you must attend.
The purpose of the creditors’ meeting is to give your creditors an opportunity to learn more about your financial situation and the details of your bankruptcy.
Step 6 in the Bankruptcy Process – Non-exempt Assets Will be Sold:
Before you sign the documents to go bankrupt your trustee will explain to you any assets you own that you will lose in bankruptcy.
At this point in the bankruptcy process, your trustee will collect these assets from you and then sell the property and distribute the funds among your creditors.
Your trustee might not bother with selling non-exempt assets if s/he thinks there will be no net gain realized; for example, if you have a car that is not protected by the bankruptcy exemptions that is worth $1,000, your trustee will likely allow you to keep the car if it would take $1,000 or more to prepare the vehicle for sale.
Step 7 in the Bankruptcy Process – Required Payments are Made to the Trustee:
A bankrupt must make regular payments to their trustee to cover the administrative costs of filing bankruptcy and your Trustee’s time.
If you have a high income you might be required to pray surplus income payments. The cost of filing bankruptcy will vary for each debtor.
Step 8 in the Bankruptcy Process – Attend the Required Credit Counselling Sessions:
As part of your bankruptcy duties you will be required to attend two credit counselling sessions that will help you understand the causes of your bankruptcy and help you manage your money successfully in the future so you can avoid bankruptcy.
The credit counselling can be done one-on-one with your trustee or you can attend a group counselling session with other debtors who are working with your trustee.
Step 9 in the Bankruptcy Process – Final Reporting:
If you do not complete all of your bankruptcy duties your trustee will prepare a report to give to the OSB and your creditors before you receive your bankruptcy discharge, and you might be required to attend a court hearing.
However, most debtors receive an automatic discharge and this reporting is not required.
Step 10 in the Bankruptcy Process – The final step in the bankruptcy process is to receive your discharge:
Once you have received your bankruptcy discharge your debts (those that were included in your bankruptcy) will be eliminated and you will have a chance to begin rebuilding your financial life.
The bankruptcy discharge is what releases you from the legal obligation to repay your debts.
In rare cases, a discharge hearing may be required and will happen only if the OSB or one of your creditors objects to your bankruptcy discharge.