Bankruptcy is a structured legal process that provides a lifeline for individuals or businesses submerged in unmanageable debt. It is a complex yet helpful path that can offer a fresh start to those grappling with financial distress. This guide will help you understand how bankruptcy works in Ontario, Canada, under the Bankruptcy & Insolvency Act of Canada.
The Bankruptcy Process: A Closer Look
The bankruptcy process involves several stages, each playing a crucial role in achieving the end goal – debt relief. Here’s a detailed look at the process.
Appointment of a Bankruptcy Trustee
Upon filing for bankruptcy, a Licensed Insolvency Trustee is designated to manage the debtor’s non-exempt assets and liaise with the creditors.
Credit Counselling and Monthly Payments
The debtor is mandated to partake in credit counselling sessions and remit monthly payments to the trustee over a specified period, typically ranging from nine months to five years.
Discharge from Bankruptcy
Upon completion of the stipulated period, the debtor is generally granted a discharge from bankruptcy, relieving them from the obligation to pay any remaining debts.
While bankruptcy does have its repercussions, such as potential loss of assets and impacts on credit scores, it can be a beneficial tool for those facing severe financial problems.
The Impact of Filing Bankruptcy
The moment bankruptcy is filed, the court issues a “stay of proceedings”, causing an immediate halt to all debt collection activities. This includes wage garnishment and communication attempts by creditors.
The Role of Bankruptcy Law
Bankruptcy law serves to facilitate debt relief and financial counselling for both individuals and businesses while ensuring fair treatment of creditors.
How to File for Bankruptcy in Ontario
In Ontario, the process of filing for bankruptcy is conducted through a Licensed Insolvency Trustee. Here’s what you can expect from the trustee:
- Explanation of the bankruptcy process.
- Guidance on how bankruptcy can help your situation.
- Information on what assets you may need to surrender.
- Exploration of alternatives like consumer proposals.
- Answers to all your bankruptcy-related questions.
What You Retain in Bankruptcy
Despite popular misconceptions, filing for bankruptcy does not mean losing everything. You are usually allowed to keep:
- Personal clothing.
- Furniture and appliances up to a certain value.
- Motor vehicles up to a certain value.
- Tools required for employment.
- Farming equipment up to a certain value.
- Pension plans, life insurance policies, and certain RRSPs.
However, it’s important to note that laws and regulations pertaining to the Bankruptcy Act can change over time.
What You Surrender in Bankruptcy
In the bankruptcy process, the debtor, referred to as “the bankrupt”, is required to surrender certain non-exempt assets to the trustee. These can include:
- Homes with equity.
- Vehicles valued over a certain limit.
- Savings accounts like TFSA’s, RESP’s and any cash in accounts.
- Items that can be liquidated for cash.
For those with valuable assets and a steady income, a consumer proposal could be a viable alternative to bankruptcy, as it does not necessitate the surrender of property.
Debts Erased in Bankruptcy
When you file for bankruptcy, the court grants a “Stay of Proceedings”, resulting in:
- Cancellation of all loan debts.
- Cancellation of unpaid credit card debt.
- Suspension of wage garnishments.
- Prohibition of creditor contact.
The Bankruptcy and Insolvency Act is designed to offer individuals with no reasonable prospect of settling their debts a chance to start anew, with certain conditions.
The Role of the Trustee
The insolvency trustee’s responsibilities include explaining and guiding the debtor through the process, filing all necessary bankruptcy forms and paperwork, and assisting in the liquidation of any non-exempt assets.
The insolvency trustee also negotiates settlement agreements, communicates with creditors, and provides credit counselling, including suggesting alternatives like consumer proposals.
Your Obligations as a Bankrupt
As a bankrupt individual, you are required to:
- Attend creditor meetings.
- Provide tax information.
- Report all income and living expenses monthly.
- Make payments if you have surplus income.
- Participate in credit counselling sessions.
- Inform lenders of your bankrupt status if borrowing over a certain amount.
- Refrain from being a company director.
If you’re filing for the first time and have no surplus income, you may be eligible for a discharge in nine months, which signifies the cancellation of all your debts.
Life After Bankruptcy
Following discharge, a record of your bankruptcy remains on your credit report for a minimum of six years. However, this doesn’t necessarily mean you’ll be denied credit during this period. It also presents an opportunity to rebuild your credit rating and move past this chapter of your life.
