How Bankruptcies Work in Ontario

Understanding How Ontario Bankruptcy Works

Declaring bankruptcy is a serious decision that carries significant consequences. However, for some individuals, it represents the only feasible solution to their financial woes. If you’re considering bankruptcy in Ontario, it’s essential to understand how bankruptcies work in Ontario and the process involved. This guide will help you navigate the complexities of bankruptcy law in Ontario, providing you with the knowledge you need to make an informed decision.

1. What is Bankruptcy?

Bankruptcy is a legal process designed to provide relief to individuals who are unable to meet their financial obligations. It is governed by the Bankruptcy and Insolvency Act of Canada and is overseed by a federally Licensed Insolvency Trustee. Bankruptcy offers immediate protection from creditors, halts wage garnishments and other legal actions, and commences the process of eliminating debts.

2. Do You Need a Bankruptcy Lawyer?

Although bankruptcy proceedings are typically initiated and processed by a licensed insolvency trustee, there are instances where the services of a lawyer may be required. For example, if your financial situation is particularly complex, your trustee might recommend that you work with legal counsel.

3. The Role of a Licensed Insolvency Trustee

A Licensed Insolvency Trustee (LIT) is an expert who guides you through the bankruptcy process. They offer free consultations to assess your financial situation and determine the best course of action. They also prepare necessary documents, provide financial counselling, and deal with creditors on your behalf.

4. Initiating the Bankruptcy Process

To file for bankruptcy, you must first consult a Licensed Insolvency Trustee. The trustee will review your financial situation, prepare necessary documents, guide you through the signing process, and provide financial counselling. Once the documents are signed, the trustee files them electronically with the Office of the Superintendent of Bankruptcy. This initiates the bankruptcy process, and all creditors are notified within five days of filing.

5. Responsibilities During Bankruptcy

Bankruptcy comes with certain responsibilities. These include providing tax information to your trustee for filing outstanding tax returns, submitting monthly pay stubs and proof of other income, attending two credit counselling sessions, surrendering non-exempt assets, and making necessary contributions to your bankruptcy estate.

6. Financial Counselling

As part of the bankruptcy process, you’re required to attend two financial counselling sessions. These sessions aim to help you manage your finances better in the future, covering topics like budgeting, goal-setting, and lifestyle changes.

7. Surplus Income and Monthly Payments

During bankruptcy, you may be required to make surplus income payments. Surplus income is any income you earn above the limit set by the Canadian government for a reasonable standard of living. Half of your surplus income must be paid to your trustee for the benefit of your creditors.

8. What Debts are Discharged in Bankruptcy?

Most unsecured debts can be discharged in bankruptcy. However, some debts like court-imposed fines, parking tickets, alimony or child/spousal support, debts arising from fraud, and student loans for studies within the last seven years are not dischargeable.

9. Impact on Credit Rating

Filing for bankruptcy will have a significant impact on your credit rating. It remains listed on your credit bureau record for six or seven years, depending on your region. This could potentially affect your ability to secure credit in the future.

10. Conclusion: The Bankruptcy Discharge

At the end of the bankruptcy period, you’re discharged from bankruptcy, releasing you from your legal obligation to repay the debts covered by your bankruptcy. The duration of your bankruptcy depends on various factors, including whether this is your first bankruptcy, whether you’re required to make surplus income payments, and whether you’ve completed all your duties.

Remember, understanding how bankruptcies work in Ontario is vital to making an informed decision. It’s always advisable to consult with a licensed insolvency trustee to explore all your debt relief options. Financial problems rarely disappear on their own, so the sooner you take action, the sooner you can start afresh.

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