Filing for Bankruptcy When Unemployed: A Comprehensive Guide
The question, “Can I file for bankruptcy if I am unemployed?” has become increasingly common, especially amidst the financial strain brought upon by the global pandemic. Many have found themselves jobless, relying solely on unemployment benefits for survival. In such instances, declaring bankruptcy can provide a much-needed financial reset.
Understanding Bankruptcy During Unemployment
Filing for bankruptcy while unemployed does not necessarily pose a significant hurdle in the application process. The repercussions of your unemployment largely depend on how your bankruptcy case plays out.
Surplus Income and Bankruptcy
The Bankruptcy and Insolvency Act dictates the contributions you make into your estate when declaring bankruptcy. These are based on your assets and income, with amounts calculated on a sliding scale in proportion to your income threshold.
If unemployment benefits are your sole source of income, or your income is below a certain threshold, it’s plausible that your only contributions to the bankruptcy would be any assets not covered by applicable provincial exemptions.
However, should your income rise above that threshold, the Trustee will calculate any additional payment as directed by the Office of the Superintendent of Bankruptcy.
Surplus income requirements are calculated twice during the bankruptcy process — initially when you submit your assignment in bankruptcy and again shortly before your eligibility for automatic discharge.
If you gain employment or receive any financial windfall during your bankruptcy, it’s probable that this extra income could trigger a surplus income requirement and extend the length of your bankruptcy.
Bankruptcy Duration
The time frame for bankruptcy and the length of payments also vary depending on whether this is your first bankruptcy. Here is a table that delineates how long a person will be bankrupt, depending on their individual situation:
Bankruptcy Occurrence / No Surplus Income / Surplus Income
First-time / 9 months / 21 months
Second-time / 24 months / 36 months
Third-time / Determined by the court in all cases. / Determined by the court in all cases.
It’s advisable to consult a Licensed Insolvency Trustee as soon as you suspect that you may be insolvent to navigate the complexities of the Bankruptcy and Insolvency Act.
Income Beyond the Obvious
Throughout your bankruptcy, you will be required to submit monthly income and expense reports, which the Trustee will use to calculate your surplus income requirements. Even when jobless, various other income sources can trigger payments owed in the event of bankruptcy.
For instance, if you own any properties, the rental income will be considered when assessing bankruptcy costs, as would dividends on any shares. Furthermore, money received from your Employment Insurance policy or pension will be included in the calculation. Other assets and income could include vehicles, tools of the trade, RRSP contributions, home equity, and more.
The Trustee may require you to pay the value of these into your bankruptcy to benefit your creditors. If you’d rather not sell, you will be accountable for paying the amount that would have been given to your creditors if the items had been sold. Understandably, most people cannot afford to pay the amounts necessary to retain their assets.
Based on your income or assets, the Trustee may suggest another route such as a Consumer Proposal that might be more beneficial. The Trustee will assist you in factoring in all aspects to make a fully informed decision about the most suitable route forward given your unique financial situation.
Designing Your Debt-Free Future
Being unemployed and buried in debt can feel overwhelming, but you are not alone. Debt is not a sign of failure, and there is no blanket solution that fits all situations. Bankruptcy is one of several options available to you. Ultimately, the decision of what’s best for you and your family lies in your hands as you strive towards a more fulfilling, debt-free future.
