Filing Bankruptcy in Ontario
A Guide to Ontario Bankruptcy
When filing bankruptcy in Ontario, it is important to be aware of the law on bankruptcy throughout Canada, as well as the specifics of bankruptcy in Ontario.
The Bankruptcy and Insolvency Act governs bankruptcy in Canada, but there are also some rules in Ontario that are set at the provincial level.
There are some key pieces of legislation that define things such as assets that are exempt from bankruptcy and the statute of limitations for debts that have been sold to a collector.
If you live, do business or own property in Ontario, you can file for bankruptcy in the province.
But first, it’s important to understand everything about how bankruptcy in Ontario works.
Debt and Bankruptcy in Ontario
What is the state of debt in Ontario, and how many people are filing bankruptcy?
You might be curious about whether you have an average amount of debt or if you have more or less than most people.
Data from Equifax Canada shows that the average amount of consumer debt (non-mortgage) in Ontario, in the first quarter of 2019, was $23,032.
While this is higher than some other provinces, such as Quebec and Manitoba, it is broadly in line with the average amount of debt in most provinces.
It is about $900 more than the average amount of debt in the entire Eastern Region.
The 90-day-plus delinquency rate was 0.99%, which is the lowest of all provinces apart from British Columbia.
As for mortgage debt, the average amount in 2016 was $280,000 in Toronto, $206,000 in Ottawa, and $145,000 in the rest of Ontario.
When it comes to student debt, students in Ontario and the Maritimes have the highest average amount in Canada, with more than $28,000 in student debt.
These statistics don’t make any difference to your own finances, but they might give you some perspective.
Perhaps you are worrying that you have an above-average amount of debt or you’re trying to make a decision about bankruptcy, but you’re not sure if it’s the right choice.
These numbers could help you to see how you compare to other people, but remember that they are just averages.
If you’re wondering about bankruptcy, more than 14,600 people filed bankruptcy in Ontario in 2018, which is roughly 1% of the population.
However, this was less than 40% of the people who were classified as insolvent.
The average debt at the time of filing was $98,577.12, and the average assets valued at $30,774.14.
Acts Governing Bankruptcy Law in Ontario
There are several key pieces of legislation that dictate bankruptcy law in Ontario.
- The Ontario Executions Act defines assets that are exempt from bankruptcy, in addition to those in the Bankruptcy and Insolvency Act, which means that you do not have to surrender them when you file for bankruptcy.
- The Ontario Limitations Act sets the statute of limitations for debts that have been sent to a collector, which is two years for most debts. If a debt has passed the statute of limitations, this means that you might not need to file bankruptcy to deal with it. You should speak to a debt expert to discuss the best thing to do.
- The Personal Property Security Act requires creditors to register their interest in property that you use as collateral against a loan. This allows Licensed Insolvency Trustees to search the database to check if there are any creditors with an interest in your property before they sell it.
Which Types of Debt Does Bankruptcy Help With?
Bankruptcy allows you to discharge many of your debts, but not all of them can be erased through filing bankruptcy.
Some of your debts will remain, and you will still need to manage paying them off.
Some of the types of debt that won’t be discharged include student debts that are less than seven years old (from the time you finished education), secured debts, child support and alimony, and any legal fines.
While the Ontario Limitations Act defines the statute of limitations for most debts, some debts are not included.
These include government-guaranteed student loans, taxes, and court-ordered debts.
Some of these debts remain even if you declare bankruptcy, but others can be discharged, such as student loans more than seven years old and taxes if there is no lien placed on your property.
Assets Exempt from Bankruptcy
The Ontario Executions Act sets out assets that you are allowed to keep when you file for bankruptcy.
This is to ensure you still have the things that you need to live a reasonably comfortable lifestyle, which makes it easier to turn your finances around.
Below are the assets you are allowed to keep under the Bankruptcy and Insolvency Act and the Ontario Executions Act:
- Your home (primary residence) if there is no more than $10,000 in equity;
- One vehicle with a value under $6,600;
- $13,150 of furniture and appliances;
- $11,300 of tools of the trade – any business equipment that you use;
- Clothing for you and your family (dependents);
- Medical equipment/devices for you and your family;
- Some types of life insurance;
- Savings in Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIF) and Savings and Profit Sharing Plan (SPSP) funds. However, this doesn’t include contributions from the previous 12 months.
Can You Keep Your Home When You File for Bankruptcy in Ontario?
As you can see from the list above, your home is exempt from bankruptcy if you have no more than $10,000 in equity.
This means that if the current market value of your home minus the remaining balance of your mortgage, as well as any tax arrears or liens on the property, is $10,000 or less, you shouldn’t be in danger of losing your home.
However, if the amount exceeds that, you might have your property seized so that it can be sold to pay your debts.
If you’re a homeowner with a lot of equity in your home, selling your home might be a better alternative compared to bankruptcy.
There could also be other options that help you to manage your debts, such as a debt management plan or a consumer proposal.
Is Bankruptcy the Right Debt Relief Option?
Deciding whether bankruptcy is the right debt relief option for you can be difficult.
There are various debt solutions available to you if you are having problems repaying your debts, and it’s important to consider every possibility before deciding which one is right for you.
If you’re thinking about filing bankruptcy in Ontario, you need to understand the pros and cons of doing it, and whether another option could be a better choice.
Bankruptcy will affect your credit, and it will be a matter of public record.
Bankruptcy certainly has advantages if you are struggling with debt.
When you can’t make your payments, bankruptcy carries out the process of paying as much as possible before discharging your debts.
Any remaining unsecured debts will no longer be payable, and you can eventually start again.
You will no longer have to worry about your debts, and creditors will have to stop contacting you as soon as you file bankruptcy.
However, bankruptcy means having to give up some of your assets, if you have them.
It means having to follow the duties and responsibilities required of you, such as attending credit counselling, and it will remain on your credit report for six years after you have been discharged (for a first bankruptcy).
Bankruptcy is a serious decision to make, and you need to think about it carefully before deciding if it’s right for you.
It will have consequences for your finances and your borrowing potential for years, although you will eventually be able to start rebuilding your credit.
Make sure you look at the alternatives to bankruptcy before deciding if it’s the right choice.
Your options include credit counselling, debt consolidation, a debt management plan, and filing a consumer proposal.
If you’re not sure which option might be right for you, you can speak to an expert who can look at your finances and make a recommendation.
This might include a credit counsellor or a Licensed Insolvency Trustee.
An LIT is needed to file a consumer proposal or a bankruptcy.
How to File Bankruptcy in Ontario
If you do want to file bankruptcy in Ontario, you need to work with a Licensed Insolvency Trustee.
It is legally required to use an LIT to file bankruptcy; they will help you with paperwork and make sure you understand your options for dealing with debt before you file bankruptcy.
It’s also their job to ensure you understand your duties and responsibilities after you have filed for bankruptcy.
After you have got in touch with a trustee, you need to meet them in person for a free consultation.
The trustee will take a look at your finances and review your budget, assets and liabilities to determine if you are insolvent.
You need to be insolvent and owe at least $1,000 in unsecured loans to be eligible to file for bankruptcy.
Being insolvent means that you can’t meet your monthly obligations for your debts and that your debts exceed the value of your assets.
The trustee prepares the paperwork for bankruptcy, and you sign it before they send it.
The trustee then sends the paperwork to the Office of the Superintendent of Bankruptcy.
As soon as bankruptcy has been filed, there is an automatic stay of proceedings.
This means that your creditors are no longer allowed to contact you, and all attempts to collect your debts must be stopped.
No new actions to collect repayment for your debts can be started and current ones, such as wage garnishment, must be stopped too.
The benefit of this is that it takes the pressure off and can immediately help to improve your financial situation and make you feel less stressed too.
Within five days of filing the paperwork for bankruptcy, your trustee will also send the paperwork to your creditors.
Sometimes your creditors might call a meeting, but these are much more common with consumer proposals than bankruptcies.
Your Duties in Bankruptcy
When you file bankruptcy, you have a number of duties that you must fulfill.
You will need to surrender your assets, apart from those that are exceptions under federal and provincial law.
Your assets are used to pay your creditors or part of what you owe them.
You will be required to surrender any personal property not included in the exemptions, and you might also be asked to surrender your credit cards, except for any employer-issued cards.
You also need to provide information about your income and taxes.
You will give your tax information to your trustee, and you will have to report your income each month during bankruptcy.
You might be required to make surplus income payments if you earn money above what is allowed by law during bankruptcy.
You are required to attend two credit counselling sessions, which give you the tools and knowledge that you need to manage your money better in the future.
You can be eligible for discharge nine months from the date you file bankruptcy if you attend your first session within 60 days and your second session within 210 days.
You are also required to pay your trustee to administer your bankruptcy trust and stay in touch with them, providing anything that they request of you.
You must notify potential lenders that you are bankrupt (for credit of $500 or more), and you must not serve as a company director.
If you are thinking about bankruptcy in Ontario, be sure to research your options and take the time to understand which ones could be right for you.
When you have a consultation with a trustee, they can help you to decide if bankruptcy is the best course for you or if there might be a better option.
You can find a local trustee through our free search.