Filing Bankruptcy in Canada
How to File Bankruptcy: Speak to a Licensed Insolvency Trustee About Filing Personal Bankruptcy
How Do You Go About Declaring Bankruptcy?
A person may go into bankruptcy in two different manners:
* Making an assignment into bankruptcy, which is what happens when a person voluntarily becomes bankrupt.
* In rare cases a person can be forced into bankruptcy by their creditors if the creditors (who you owe money) request the bankruptcy Court to declare a person bankrupt.
Whether you voluntarily become bankrupt or are assigned into bankruptcy by the court you need the assistance of a Licensed Trustee in Bankruptcy / Licensed Insolvency Trustee to administer your bankruptcy estate.
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Finding a Licensed Insolvency Trustee
to Assist in The Bankruptcy Process
If you owe money and are considering bankruptcy you likely have many questions about bankruptcy such as what is bankruptcy, what is a licensed insolvency trustee, what can I keep?, how long does bankruptcy last?, and what does it cost to go bankrupt?
If your overwhelming debt is so high that you are considering bankruptcy you can set up a free meeting with a local bankruptcy trustee (Licensed Insolvency Trustee) to learn more about declaring bankruptcy in Canada.
A LIT is a highly trained, experienced ethical individual who has been licensed by the OSB (Office of the Superintendent of Bankruptcy) to administer to bankruptcies for individuals and businesses.
One of our government licensed trustees will provide you with an initial consultation and will help you evaluate your finances and debts and will explain the pros and cons of filing for bankruptcy and might be able to help you explore other bankruptcy alternatives that can help you get out of debt.
You can always trust the advice of your LIT / bankruptcy trustee because they are ethically required to give you their best advice.
Do I Need to go Bankrupt?
Your trustee will help you assess your debt and will discuss your financial situation and assets with you to help you determine if filing for bankruptcy is right for you or whether you have other options.
Please take this filled out Bankruptcy Form to the meeting so that the trustee has all your relevant information and can, therefore, give you the best advice.
Am I Eligible For Filing For Bankruptcy?
In order to be eligible for bankruptcy in Canada you must owe at least $1,000 and be unable to pay your debts as they become due.
What Are My Duties During Bankruptcy?
If you claim bankruptcy you will be required to complete certain duties in order to successfully complete your bankruptcy and receive your bankruptcy discharge.
Duties you must complete when filing for bankruptcy include turning over any assets you are required to the trustee and assisting the trustee with realizing a return on these assets, attending two credit counselling sessions with the trustee (you have the choice of attending these meetings with the trustee alone or with a group of other bankrupts), providing your trustee with any required information the trustee requests, providing the trustee with information to make your tax returns, providing your LIT with proof of your monthly income, and making the required payments each month to the trustee to cover your bankruptcy administrative costs.
At the end of the 7th month of your bankruptcy (or at a later date if you have claimed bankruptcy a second time) the trustee will calculate your average income over the last 7 months to determine if you have surplus income requirements that must be paid.
You need to turn over your credit cards to your trustee.
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What Happens if I Declare Bankruptcy?
If you decide that you should declare bankruptcy as the best option for getting your fresh financial start then you and the LIT will work together to administer the process, which starts when you complete the required forms and the LIT submits these documents with the Office of the Superintendent of Bankruptcy.
Once the documents have been submitted by the trustee you will be formally in bankruptcy.
One of the main benefits of going bankrupt is that your trustee will deal with your creditors for you once you have become bankrupt.
Your Insolvency Trustee Administers The Insolvency Process
Your LIT will guide you through the entire bankruptcy process from start to finish if you decide that filing for bankruptcy is the best option for getting your fresh financial start.
The trustee will help you prepare your bankruptcy paperwork, and will submit the paperwork to the OSB which will officially start your bankruptcy.
Your Licensed Insolvency Trustee will generally administer your bankruptcy, will collect your payments, calculate any surplus income payments (if required), and will collect any of the assets that you will lose and will sell these assets and distribute the funds to your creditors.
Many debtors lose no assets when claiming bankruptcy, and your trustee will explain any assets that you will lose before you make the decision about filing for bankruptcy.
You can explore bankruptcy alternatives which will allow you keep assets that might be lost in a bankruptcy.
Who Will Know I’ve Gone Bankrupt?
Although bankruptcy records are publicly accessible, in almost all cases no one other than your creditors will find out about your bankruptcy unless you tell them.
In rare cases a notice in the legals section of the newspaper will appear but this is only in the case of a bankruptcy with many high-value assets.
How to File Bankruptcy in Canada
The first thing you must determine is if you are having severe enough financial problems to warrant going bankrupt to become debt free.
At this point you should find a trustee in bankruptcy, who is required to declare bankruptcy as only a trustee can administer a bankruptcy filing in Canada.
Once you have set up an appointment to meet with a local Licensed Insolvency Trustee(LIT) you should be prepared to bring details about your income, assets, expenses and debts to help your trustee review your debt situation.
With all of the necessary information your trustee can also help outline the alternatives to bankruptcy that could help with your debt problems.
You can ask the trustee all of the questions you need to have answered, and take as much time as you need to make a comfortable decision about whether to claim bankruptcy.
Once you have taken the time to review all of your options and the information you have received from the trustee you will have to decide whether bankruptcy is right for you.
The decision is completely up to you but your trustee can provide as much help and advice as you need.
If you decide to go bankrupt you will need to provide the trustee with your personal information such as your name, address and birth date, a list of who you owe money (your creditors), and what you own (your assets).
The trustee will begin preparing your bankruptcy paperwork and you will attend a second meeting with the trustee to review your paperwork.
When you are ready to sign the paperwork you will sign the papers and the trustee will submit the papers to the OSB and you will officially be bankrupt.
Once you have become bankrupt you won’t have to deal with your unsecured creditors, payments will be made directly to the trustee rather than your creditors, your wage garnishments will stop and you will not be harassed in any way by your creditors and they cannot collect from you.
This is accomplished through the legal order know as the “automatic stay.”
Once you have become bankrupt the LIT will send a notification of your bankruptcy to your creditors.
You will also be required to surrender any assets you own that are not protected by the bankruptcy exemptions to the trustee to be sold.
Many debtors will have all of their assets protected by the exemptions in their province so bankruptcy gives a fresh start with dignity.
If any of your assets need to be sold the trustee will sell your assets and hold the money raised by the sale in a trust.
As part of your bankruptcy duties you will also be required to attend two financial counselling meetings with your LIT.
These two meetings must be completed before you can receive your bankruptcy discharge.
At these meetings you will learn how to manage your financial affairs and the causes of your bankruptcy so you can avoid bankruptcy in the future.
You might be required to attend a meeting of your creditors that is intended to give your creditors information about your bankruptcy and tell the LIT how to proceed in the bankruptcy.
A creditors meeting is called only in rare cases, but if it is requested you will be required to attend the meeting.
Certain bankrupt debtors will also be required to make surplus income payments.
If your income is over a certain level set by the government you will be required to pay a portion of your surplus income to your LIT for distribution to your creditors through your bankruptcy estate.
Receiving Your Bankruptcy Discharge
In order to be released from your legal obligation to repay debt that existed at the date of your bankruptcy you need to receive your bankruptcy discharge.
In order to receive your bankruptcy discharge you must complete all of your duties and make the required payments.
A bankruptcy discharge can be received in as little as nine months if you are a first time bankrupt with no surplus income.
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How Bankruptcy Works in Canada
Filing for bankruptcy can be a daunting process, but it can also provide a much-needed fresh start for your finances. In Canada, bankruptcy is a legal process that allows debtors to assign non-exempt assets to their creditors in exchange for being discharged from most of their debts. This process is regulated by the Bankruptcy and Insolvency Act, which aims to help honest, but unfortunate, debtors obtain relief from their debts.
Reasons for Filing Bankruptcy
Bankruptcy can offer several benefits and solutions for individuals facing overwhelming debt. Some of the key reasons why people choose to file for bankruptcy in Canada include:
Elimination of Unsecured Debts: Filing for bankruptcy can help eliminate most unsecured debts, such as credit card bills, medical bills, and payday loans. This can provide significant relief and allow individuals to regain control of their financial situation.
Protection from Creditors: Once the bankruptcy process starts, creditors are legally required to stop all collection actions, including wage garnishments and collection calls. This can bring immediate relief from the constant harassment of creditors.
Credit Counselling and Financial Recovery: Throughout the bankruptcy process, individuals receive credit counselling to help them develop better financial habits and money management skills. This guidance can be instrumental in rebuilding their credit score and ensuring a more stable financial future.
Fresh Start: Filing for bankruptcy gives individuals the opportunity for a fresh start, free from the burden of overwhelming debt. It allows them to focus on rebuilding their lives without the constant stress and anxiety caused by financial hardships.
Steps to Filing Bankruptcy in Canada
If you are considering filing for bankruptcy in Canada, there are several important steps you need to follow. These steps will help ensure a smooth and successful bankruptcy process:
1. Get a Free Debt Assessment
The first step is to seek professional advice and obtain a free debt assessment. You should contact a Licensed Insolvency Trustee (LIT), who will assess your financial situation and discuss the available debt relief options with you. They will help you determine whether bankruptcy is the most suitable solution for your specific circumstances.
2. Consult with a Licensed Insolvency Trustee (LIT)
Once you have decided to proceed with bankruptcy, you will need to consult with a Licensed Insolvency Trustee. An LIT is the only professional authorized to administer bankruptcies in Canada. They will guide you through the entire process, explain the potential outcomes, and ensure that your rights as a debtor are protected.
3. Complete the Required Paperwork
To declare bankruptcy, you will need to complete several forms with the assistance of your Licensed Insolvency Trustee. These forms include an “Assignment” in which you declare that your trustee is taking control of your assets on behalf of your creditors, and a “Statement of Affairs” that provides a detailed overview of your income, expenses, assets, and liabilities.
4. Fulfill Your Bankruptcy Duties
Throughout the bankruptcy process, you will be required to fulfill certain duties. These may include attending credit counselling sessions, providing monthly reports on your income and expenses, making bankruptcy payments if required, and ensuring that you notify your trustee of any significant changes to your financial situation.
5. Obtain Your Discharge
The final step in the bankruptcy process is obtaining your discharge. A discharge means that you are released from the obligation to repay the debts that were included in your bankruptcy. The length of time it takes to obtain a discharge depends on various factors, such as whether it is your first bankruptcy or if you have surplus income.
What Happens After Filing Bankruptcy?
Once you have successfully filed for bankruptcy and completed your duties, you can start rebuilding your financial life. Here are some important aspects to consider after filing bankruptcy:
While bankruptcy will have a negative impact on your credit rating, it does not mean that you cannot rebuild your credit over time. It is essential to develop healthy financial habits, such as making payments on time, keeping your credit utilization low, and gradually applying for new credit to demonstrate responsible borrowing behavior.
Establishing a Budget
During the bankruptcy process, you will receive credit counselling to help you establish a realistic budget and improve your money management skills. It is crucial to stick to your budget and prioritize your expenses to avoid falling into the same financial difficulties that led to bankruptcy.
Seeking Professional Advice
Even after obtaining your discharge, it is advisable to seek ongoing professional advice to ensure financial stability. Financial planners or credit counsellors can provide guidance on long-term financial planning, debt management, and strategies to avoid future financial hardships.
The majority of insolvencies filed in Canada now, more than 7 out of 10, are consumer proposals. We strongly recommend that Canadians consider a consumer proposal as an alternative to bankruptcy. BankruptcyCanada also offers consumer proposal services.
A consumer proposal is a debt settlement offer that you make to your creditors to resolve your debts. It is legally binding, approved by the government, and filed through a bankruptcy trustee. It is an effective way to avoid declaring bankruptcy entirely. In fact, almost 80% of insolvency filings are consumer proposals.
With a consumer proposal, you offer to pay a portion of your debts to your creditors. Similar to bankruptcy, a consumer proposal provides legal protection from your creditors, stopping wage garnishments and collection calls. However, unlike bankruptcy, you can retain all of your assets, such as your house, car, and investments. Additionally, the payment amount does not increase if your income goes up.