Understanding Bankruptcy in Ontario: A Comprehensive Guide
The laws around insolvency and bankruptcy in Ontario, like the rest of Canada, are shaped by the Bankruptcy and Insolvency Act (BIA). However, certain aspects may vary across provinces. So, if you consider filing for insolvency in Ontario, it pays to understand the specifics of how bankruptcies work in Ontario. In this detailed guide, we’ll explore the cost, impact on credit score, and everything in between.
Deciphering Bankruptcy
Bankruptcy is a federally regulated legal process that comes into play when an individual or a business is unable to pay off their debts. The process can only be initiated by a Licensed Insolvency Trustee (LIT), also known as a bankruptcy trustee.
Bankruptcy is generally the last resort after exploring other avenues of debt elimination like debt settlement programs, consumer proposals, or credit counselling. It is applicable for individuals owing $1,000 or more. However, meeting this criterion doesn’t automatically qualify you for bankruptcy. It’s always recommended to explore other alternatives before filing for bankruptcy.
Let’s look at how we can assist you in managing your debts.
Hypothetical Debt Scenario
| Debt Source | Amount Owed |
|---|---|
| Capital One | $8,000 |
| CRA | $2,500 |
| Canadian Tire | $5,300 |
| Money Mart | $900 |
| Scotia Bank | $2,000 |
| Easy Financial | $600 |
| Total Debt | $19,300 |
Your potential monthly repayments can be reduced by 88%, depending on individual financial circumstances.
Navigating Bankruptcy in Ontario
The insolvency process may vary slightly across provinces. Here’s what you can expect when filing for bankruptcy in Ontario:
Initial Consultation
The first step towards bankruptcy involves meeting with a Licensed Insolvency Trustee (LIT) in Ontario. This consultation is aimed at gathering detailed information about your financial situation and your attempts at debt clearance before considering bankruptcy. Based on this information, the LIT will advise you on your options and the next steps.
Document Preparation
If you decide to proceed with bankruptcy, your LIT will prepare all necessary documents for filing. Upon your signature, these documents are filed with the Office of the Superintendent of Bankruptcy (OSB).
Notice to Creditors
Once your documents are filed with the OSB, your unsecured creditors will be informed, halting all communication and legal proceedings. This halt in proceedings is known as a stay of proceedings, which can help stop wage garnishments, among other things.
Asset Protection
Under Ontario’s bankruptcy law, your assets are safeguarded from your creditors. Some assets are exempted from your bankruptcy estate. You can negotiate with your LIT to compensate your estate for non-exempt assets.
Discharge
Upon fulfilling your obligations, you’ll be officially discharged from your debts in 9, 21, 24 or 36 months, depending on your income threshold and previous bankruptcy records.
Can Bankruptcy Clear All Debts?
While bankruptcy can clear certain debts, it’s not a solution for all types of liabilities. The unsecured debts that can typically be cleared through bankruptcy include:
- Credit card bills.
- Payday loans.
- Personal loans.
- Unsecured lines of credit.
- Retail store cards.
- Income taxes.
- Student loan debt (with some exceptions).
However, certain debts can’t be cleared through bankruptcy:
- Court-imposed fines.
- Child and spousal support.
- Debts resulting from fraud.
- Registered Retirement Income Funds.
We offer a range of debt management solutions that could help you write off up to 80% of your debts.
The Cost of Bankruptcy
The cost of filing for bankruptcy in Ontario depends on individual circumstances such as income, family size, and total assets. However, the minimum cost is around $1,825, typically paid in monthly installments of $225. This minimum contribution covers administrative costs, such as government fees.
Impact on Credit Rating
Bankruptcy can affect your credit rating. It stays on your credit report for several years and can significantly lower your credit score. The duration of this impact varies between credit bureaus, for example, six years for Equifax and seven years for TransUnion. A second bankruptcy will remain on your record for 14 years from the date of discharge.
