How The Personal Bankruptcy Process Works In Ontario
Bankruptcy Process In Ontario, ON
You may be familiar with the term personal bankruptcy and know that it’s a form of debt relief for individuals.
However, you may not understand the ins and outs of the Personal Bankruptcy Process In Ontario.
When you declare bankruptcy, it’s a sign that you are no longer paying your debts as originally agreed.
Learn what bankruptcy is, the process of how it works in Ontario, and how it impacts your life.
Before diving into the details of the process, it’s best to understand more about what personal bankruptcy is and who can declare it.
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What is Personal Bankruptcy?
Personal bankruptcy is defined as a legal process governed/guided by federal law (the Bankruptcy and Insolvency Act) whose main intention is to give honest but unfortunate debtors the right to obtain relief from their debt/s while treating creditors fairly and equally.
It’s your chance as an honest and hopeless indebted person to start fresh without looming debt hanging over your head.
If you live in Ontario, Canada and are filing personal bankruptcy, then the concept of personal bankruptcy requires debtors to surrender everything they own to licensed insolvency trustees for their debts to be eliminated/cancelled.
Not only do you need to be a permanent resident of Ontario to declare for personal bankruptcy, but you also must be insolvent.
Insolvent means that you owe individuals or entities at least $1000, and you are unable to meet your debt repayment obligations.
Personal bankruptcy is a legal proceeding that requires insolvency trustees who are federally licensed in Ontario.
The overall cost for filing for bankruptcy is kept fair and balanced because the trustee fees are regulated.
Bankruptcy laws protect debtors from harassment, and there’s a stay of proceedings that prevents garnishment or any legal action from being taken against debtors.
When Will You Get Discharged of Bankruptcy?
According to Ontario bankruptcy laws, nine months is the minimum time you can be bankrupt.
After you file in Ontario, it’s possible you’ll be entitled to automatic discharge after this amount of time.
You’ll have to complete certain duties and responsibilities for this automatic discharge.
However, it needs to be your first time being bankrupt and filing for bankruptcy.
Bankruptcy remains on a person’s credit report for at least seven years, and your ability to apply for and get credit will be impacted.
Exceptions to Discharging all Debt through A Bankruptcy
There are some exceptions to discharging all debt through a bankruptcy, such as:
- Some debts aren’t erased;
- Secured debts aren’t erased;
- Some unsecured debts aren’t discharged.
Personal bankruptcy and bankruptcy as a whole focuses on unsecured debt only (i.e. credit cards, income taxes, overdrafts, personal loans etc.)
Secured debts like car loans and mortgages aren’t included because debtors give assets as collateral.
In Ontario, Canada, student loans that are less than seven years old (from the last day of study) aren’t discharged when you file for personal bankruptcy.
Also, child support and alimony aren’t discharged.
Exemptions to Surrendering Assets
Some personal assets are considered necessary for survival, and personal bankruptcy protects these.
The list is determined and prepared by provincial or territorial governments.
In Ontario, cars that are worth less than $6600 are exempt.
Personal bankruptcy in Ontario also exempts household items that are worth less than $13,150.
A house (principal residence) is only exempt where the equity is less than $10,000.
Investments, RESP’s, RRSP’s, and house assets are on the list of examples where there is no exemption.
Exceptions to Automatic Discharge after Nine Months
The personal bankruptcy laws in Ontario will require any person filing to stay bankrupt for a minimum of nine months.
You should expect it to be nine months except if:
- You abscond from your bankruptcy duties i.e. making regular surplus income payments to your trustee;
- It is not your first bankruptcy;
- Surplus income payments are required;
You should also know that the length of your bankruptcy period also depends on factors such as case details.
Surplus Income & Cost of Bankruptcy
The relationship between surplus income and the cost of bankruptcy is that surplus income increases the cost of it.
You’re going to have trustee chargers and likely a loss of assets but should also note that bankruptcy may eat into your income depending on your household size and total income.
The formula for calculating surplus income is prescribed by law, and the logic is quite simple.
If you make more money than your household requires for survival, you must use the surplus income to pay your creditors.
The more you earn, the more expensive personal bankruptcy will be for you.
Advantages & Disadvantages of Personal Bankruptcy
In addition to knowing how the process works in Ontario, it’s also important to note the main advantages and disadvantages of personal bankruptcy if you’re trying to decide if it’s the right decision for you.
Advantages of Personal Bankruptcy
- It protects you from legal action, collection action, and wage garnishees;
- Eliminates unsecured debts;
- It is fairly quick;
- It is relatively one of the cheapest options when dealing with debt.
Disadvantages of Personal Bankruptcy
- Will damage your credit history;
- You may be forced to surrender some of your personal possessions to your insolvency trustee;
- You are required to maintain extremely detailed income and expenditure records.
It’s best to contact the experts who can walk you through the process and details in your area when you’re ready to get the conversation started.
We can help you get the fresh start you deserve.
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We’ll advise you of all the available options, such as bankruptcy, a consumer proposal, or another option, and help you to get the support you need.
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