How Does Personal Bankruptcy Work in Canada?

How Does Personal Bankruptcy Work in CanadaPersonal Bankruptcy in Canada is a legal process that offers relief from burdensome debts. It is governed by the Canadian Bankruptcy and Insolvency Act, and administered by a Licensed Insolvency Trustee. This guide will provide a comprehensive understanding of the process, its implications, and alternatives.

The Concept of Personal Bankruptcy in Canada

Bankruptcy is a legally sanctioned resolution for individuals unable to repay their debts. The procedure falls under the Bankruptcy and Insolvency Act and is typically considered as a last resort when all other options have been exhausted. It’s important to note that the American bankruptcy terms such as Chapter 7, 11, and 13 are not applicable in Canada.

The Criteria for Declaring Bankruptcy

To qualify for personal bankruptcy in Canada, you must be classified as an insolvent person. This implies that you should:

  1. Owe a minimum of $1,000 in unsecured debt.
  2. Be unable to meet your debt obligations as they become due.
  3. Owe more in debt than the total value of your assets.
  4. Reside, conduct business, or possess property in Canada.

The Process of Declaring Bankruptcy

Declaring bankruptcy involves a 10-step process that requires the services of a Licensed Insolvency Trustee. These trustees are licensed by the Superintendent of Bankruptcy and follow strict guidelines and procedures to guide you through the process.

Understanding Your Financial Situation

The first step is to understand the severity of your financial crisis. If you’re missing payments on your secured and unsecured debts, have maxed out your credit cards, or have accounts assigned to collection agencies, it’s time to seek professional advice.

Consulting a Licensed Insolvency Trustee

A professional Credit Counsellor can refer you to a Licensed Insolvency Trustee if bankruptcy seems like a viable option. The trustee will guide you throughout the process, from paperwork to rebuilding your credit post-bankruptcy.

Filing for Bankruptcy

Once you decide to file for bankruptcy, your trustee will prepare the necessary paperwork based on your income, assets, debts, and overall circumstances. Once the court accepts your bankruptcy filing, creditors will stop their collection attempts, and any legal actions or wage garnishments will cease.

Implications of Bankruptcy on Assets and Debts

Bankruptcy affects your assets and debts. Although each province has certain exempted assets, you may need to sell or cash in additional assets to pay towards your debts. Not all unsecured debts can be included in bankruptcy—student loans less than seven years old, family support payments and arrears, and court fines are notable exceptions.

The Path to Discharge and Recovery

Maintaining constant communication with your trustee is crucial for obtaining your discharge. Post-discharge, you are responsible for covering the trustee’s fees and other administrative charges. You are also required to provide a monthly income statement to your trustee and attend credit counselling sessions.

Cost of Bankruptcy

Bankruptcy can significantly impact your credit score, and rebuilding it requires diligent effort. Lenders may hesitate to lend money if you had previously declared bankruptcy.

Duration of Bankruptcy

The duration of bankruptcy varies based on whether you’re a first-time bankrupt person and your income level. A first-time bankrupt person with no surplus income could be discharged in 9 months, while those with surplus income will have the process extended to 21 months.

The Aftermath of Bankruptcy

Once you’re discharged from bankruptcy, you’re released from your obligation to repay the remaining debts. Despite the initial dip in your credit score, you can eventually apply for credit. However, you must declare your bankruptcy status if you apply for credit exceeding $1,000.

Alternatives to Bankruptcy

Before choosing bankruptcy, it’s crucial to explore other options. These include debt management plans, debt consolidation, debt settlement, or consumer proposals. A professional trustee can help you make an informed decision.

The Final Verdict

Declaring bankruptcy is a significant decision that requires careful thought and consideration. It’s crucial to understand the process, its implications, and alternatives. Consult a Licensed Insolvency Trustee to explore your options and decide if personal bankruptcy is the right choice for you.

Seeking Professional Help

If you’re considering bankruptcy, it’s crucial to seek help from a skilled Licensed Insolvency Trustee. They can provide valuable insights and guide you through the process, ensuring you make the best decision for your financial future.

Wrapping Up

Understanding how personal bankruptcy works in Canada is the first step towards making an informed decision. Whether you choose to declare bankruptcy or explore other alternatives, the goal is to find a solution that offers you relief from your debts and allows you to start afresh financially.

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