How Does Personal Bankruptcy Work?

Demystifying Personal Bankruptcy in Canada

If you’re overwhelmed by financial burdens and wondering, “how does personal bankruptcy work in Canada?” you’re not alone. This unique legal procedure, administered by a Licensed Insolvency Trustee (LIT), provides immediate relief from creditors and sets the stage for eradicating your debts. This comprehensive guide sheds light on this intricate process, offering you a lifeline to regain control of your financial situation.

Understanding Personal Bankruptcy

Declaring personal bankruptcy is a significant financial decision that should be considered as a last resort. It involves a legal process under the purview of a federally Licensed Insolvency Trustee. By opting for this path, you:

 

  • Obtain immediate protection from creditors,
  • Cease wage garnishments and other legal actions, and
  • Initiate the process of eliminating your debts.

Bankruptcy

Step-by-Step Guide to Filing for Bankruptcy

Step 1: Assessing Your Financial Status

Before you plunge into bankruptcy, it’s essential to evaluate your current financial condition. Ask yourself:

 

  • Have I missed mortgage or loan payments?
  • Am I using credit card advances to settle bills?
  • Am I receiving threatening calls from collection agencies?
  • Have I received a legal action notice to pay my debts?

If these concerns resonate with you, it might be time to explore viable debt relief options, including bankruptcy.

Step 2: Consulting a Licensed Insolvency Trustee (LIT)

Navigating the complexities of bankruptcy requires expert guidance. You need to consult with a Licensed Insolvency Trustee (LIT), the only professional authorized to administer government-regulated insolvency proceedings. These experts can halt ongoing and pending legal and collection actions, and explain the merits and outcomes of various debt solutions.

Step 3: Filing the Necessary Paperwork

Your LIT will assist in completing the required forms to declare bankruptcy, including an “Assignment,” declaring your bankruptcy trustee is taking control of your property for your creditors’ benefit, and a “Statement of Affairs” that lists your assets, liabilities, income, and expenses. The LIT will register your bankruptcy with the Office of the Superintendent of Bankruptcy.

Step 4: Fulfilling Bankruptcy Commitments

As bankruptcy unfolds, you’ll need to fulfill specific duties, such as attending money management counselling, filing monthly reports on your income and expenses, making necessary payments, and providing the required information for your LIT to file your personal income tax return.

Step 5: Discharge from Bankruptcy

Upon fulfilling your duties, you’ll be eligible for discharge, releasing you from the obligation to pay the debts you had when you filed for bankruptcy. The discharge period can range from nine months or longer, depending on your situation.

Step 6: Rebuilding Your Credit Score

With your debt burden lifted, you can focus on rebuilding your credit score, which will be a critical topic during your mandatory counselling sessions with your Licensed Insolvency Trustee.

The Roadblocks: Inability to Find or Afford a LIT

If you’re in a situation where you cannot find or afford a LIT, the Bankruptcy Assistance Program can lend a hand. This support is available if you’ve reached out to at least two LITs, aren’t involved in commercial activities, aren’t required to make surplus income payments, and aren’t in jail.

Coping with Creditor Harassment

If you’re being incessantly harassed by creditors, consider seeking help from an LIT or a qualified credit counsellor. They can serve as intermediaries between you and your creditor, helping to ease the pressure.

What Happens After Filing for Bankruptcy

Once the bankruptcy proceedings commence, your LIT will handle all dealings with your creditors. Following your bankruptcy declaration:

 

  • You’ll stop making payments directly to your unsecured creditors.
  • Any garnishments against your salary will cease.
  • Any lawsuits against you by your creditors will also be stopped.

Your assets will be sold by the Licensed Insolvency Trustee, your creditors will be notified, and you may have to attend a meeting of creditors. After filing for bankruptcy, a representative of the OSB may also examine you under oath.

Understanding Your Responsibilities

During bankruptcy, you’re required to disclose all information about your assets and liabilities, surrender your credit cards to the LIT, attend two counselling sessions, and if required, attend an examination at the Office of the Superintendent of Bankruptcy. Furthermore, you may be required to make additional payments to your LIT for distribution to your creditors.

The Light at the End of the Tunnel: Discharge from Bankruptcy

The discharge from bankruptcy releases you from the legal obligation to repay the debts you had as of the date you filed for bankruptcy, except for specific types of debts excluded by law. The timing of your discharge depends on several factors, including whether this is your first bankruptcy and whether you’re required to make surplus income payments.

The Impact of Bankruptcy

Declaring bankruptcy can profoundly impact your credit rating, property rights, and even your spouse or those who co-signed your loan. It can also affect your wages and student loan debt. Hence, it’s crucial to understand all the implications before you file for bankruptcy.

Final Thoughts

While declaring personal bankruptcy can offer immediate relief from your financial burdens, it should always be considered a last resort due to its long-term implications. Always seek professional advice before making this significant decision. If you’re struggling with overwhelming debt and contemplating bankruptcy in Canada, don’t hesitate to contact a Licensed Insolvency Trustee for a free consultation. With the right guidance, you can navigate this challenging process and set the stage for a brighter financial future.

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