How Does Bankruptcy Work?

How Does Bankruptcy Work

Bankruptcy in Canada starts with realizing you need professional help to deal with your debts and seeking an initial consultation with a local bankruptcy trustee such as one you can find at Bankruptcy Canada.

Once you have met with a trustee and have made the decision to go bankrupt you will have to return to the trustee’s office and you will review and sign the official bankruptcy forms that are needed to declare you bankrupt.

Once the forms are signed your trustee will submit your bankruptcy forms to the Office of the Superintendent of Bankruptcy which will officially declare you bankrupt.

How does bankruptcy work?

Immediately upon becoming bankrupt there will be an immediate and automatic “stay of proceedings” put in place, which provides you with the bankruptcy protection you need and stops your creditors from contacting you or making any collection attempts against you.

Wage garnishments, law suits, and all attempts at collecting on your debt will be stopped, and your creditors and collection agencies will even be prevented from contacting you at all.

Your trustee will also send a notice to your creditors informing them of your bankruptcy.

All of your unsecured creditors must be included in your bankruptcy (you cannot pick and choose which debts to include in bankruptcy) and they must be notified of your bankruptcy so they can have a chance to submit a proof of claim against your debts.

Secured debts in your bankruptcy are treated differently and the debt cannot be eliminated by filing for bankruptcy; you must keep paying the required payments to keep the debt although you also have the chance of giving up the asset in bankruptcy and you will not have to continue making payments.

Your bankruptcy trustee will file your tax return for you for the year of your bankruptcy filing, although any tax refund you are owed will be collected by the trustee and held for distribution amongst your creditors.

What Are My Responsibilities During Bankruptcy?

Bankruptcy works by giving you a release of your debts in return for certain responsibilities the bankrupt must complete. Mainly, the bankrupt person will have to assign their property that is not protected to the trustee. Some of the other duties of a bankrupt include:

* Provide your trustee with a copy of your pay stubs so they can have proof of your income;
* Attend two bankruptcy counselling meetings with your trustee to learn about budgeting and money management so you can avoid bankruptcy in the future.
* Make surplus income payments if your income is over a certain level set by the government based on your number of dependents (your family size).

A bankrupt in Canada is eligible for an automatic discharge from bankruptcy in 9 months if this is your first bankruptcy and you have no surplus income. Most debtors are first time bankrupts with no extra income so most bankrupts are out of bankruptcy in the 9 month period.

If you have any questions about this or other aspects of bankruptcy or consumer proposals you can set up a FREE consultation with our trustees, who are in every province and territory in Canada:

If you still have questions you can ask our licensed insolvency trustee your questions in confidence. Our bankruptcy blog also covers many topics on bankruptcy in Canada.