Bankruptcy: A Guide to Filing Bankruptcy in Canada
A Guide to Bankruptcy in Canada
When you are struggling with debts, bankruptcy is one of the options that you have available to address your financial difficulties.
Going bankrupt is a process that is designed to eliminate most of your debts, and may sometimes get rid of all of the debt that you hold.
Bankruptcy in Canada is legislated by the Bankruptcy and Insolvency Act, which is administrated by the Office of the Superintendent of Bankruptcy.
A bankruptcy in Canada must be filed and managed by a Licensed Insolvency Trustee (LIT), which was previously called a Bankruptcy Trustee.
Anyone who is considering bankruptcy or looking for debt solutions should be sure to understand what bankruptcy involves to help them decide if it’s right for them.
Canadian bankruptcy involves the sale of your assets to pay off your creditors.
Most debts can be dealt with by filing for bankruptcy, but there are some which will remain, such as some student debts.
Types of Bankruptcy
There are two types of personal bankruptcy in Canada: a summary administration or an ordinary administration bankruptcy.
Which one you should file depends on the value of your assets.
If the value of your assets when they are sold doesn’t exceed $15,000, you will be required to file a summary administration bankruptcy.
An ordinary administration bankruptcy is for individuals, as well as businesses, with assets that have a value totalling more than $15,000.
The Bankruptcy Process in Canada
A Licensed Insolvency Trustee carries out the process of going bankrupt.
The first step in the process is to find an LIT to help, and they will begin by discussing options for dealing with debt, looking at their client’s finances, and ensuring bankruptcy is the right option.
They help with filling out the necessary paperwork, which they submit to the Office of the Superintendent of Bankruptcy.
There is then an automatic stay of proceedings, which means that unsecured creditors can’t begin or continue with any legal action.
The trustee will notify your creditors of the bankruptcy within five business days.
When you file bankruptcy, you and your trustee have duties and responsibilities that must be completed.
Your trustee will ensure you are aware of the duties that you have to carry out.
- Attending a meeting of creditors if required;
- Attending an Official Receiver’s examination if requested;
- Going to two credit counselling sessions;
- Reporting your income to your trustee each month, complete with proof;
- Make monthly payments to your trustee, which will be distributed to your creditors.
When you will be discharged from bankruptcy depends on a few factors, such as whether you have gone bankrupt before.
If it is your first time filing and you aren’t required to make surplus income payments, you could be discharged in nine months, or in 24 months if it’s your second time filing.
If you do need to make surplus income payments, it will take between 21 and 36 months.
It’s important that all of your duties are fulfilled and payments made for you to be successfully discharged.
What Happens to Your Assets?
When you file bankruptcy in Canada, your assets are used to help pay off your creditors.
However, there are some assets that you are allowed to keep, including things that you need for daily essentials.
In some categories, there are set limits for the value of what you are allowed to keep.
What you can keep depends on the province, but there is usually no limit on personal effects, such as clothing.
Some things that you may be allowed to keep include furniture, a vehicle or any tools you use for work or your business.
Bankruptcy isn’t intended to take away everything that you own and leave you with nothing.
Filing Bankruptcy When You Are Married
When you file a bankruptcy, it only concerns your own debts, even if you are married or have a common-law partner.
However, if you have co-signed any loans with someone (even someone who is not your spouse), they will become solely responsible for the debt if you file for bankruptcy.
If you owe debts relating to divorce, such as alimony or child support payments, these won’t be discharged in bankruptcy.
You will still be responsible for paying them.
Bankruptcy and Your Home
Many people are concerned about their home if they file bankruptcy.
Going bankrupt doesn’t necessarily mean that you won’t be able to keep your home.
However, there are various factors that need to be taken into account to determine what will happen to it.
You are likely to be able to keep your home if your mortgage payments are up to date, and you have little or no equity in your home.
The amount of equity that you can have in your home varies by province, so it’s important to know the rules in your province.
However, even if your equity exceeds the limit, you may be able to keep your home by making arrangements to repay the equity in your home.
Other options can also be the right choice, including selling your home or filing a consumer proposal instead of filing a bankruptcy.
When to Go Bankrupt
The question of when to go bankrupt is one that can be tricky to answer.
The bankruptcy process is one that’s designed to help you deal with your debts when you are unable to pay them.
If the payments are piling up, creditors are chasing you, and you’re struggling with other expenses, going bankrupt could be the right option for you.
A Licensed Insolvency Trustee will help you to determine whether bankruptcy could help you or if you should consider other options.
Where to Start
If you think that going bankrupt could help you with your financial difficulties, you should start by finding a Licensed Insolvency Trustee.
These professionals must be used to file bankruptcy, but they will also take a look at your finances and explain what options are available to you.
If you need an LIT, you can find a local professional through our site.