Are you feeling overwhelmed by debt? Unsure about the ins and outs of personal bankruptcy? Whether you’re seeking to understand the basics or are ready to navigate the process, this comprehensive guide aims to clarify all the aspects of personal bankruptcy for British Columbia residents.
Understanding Personal Bankruptcy
Personal bankruptcy is a legal status for an individual unable to honor their financial obligations. Governed by both federal law and British Columbia’s provincial regulations, the process involves surrendering assets to a Licensed Insolvency Trustee who, in turn, provides relief from existing debts. It’s a pathway to a fresh financial start, ensuring fair treatment of creditors.
Identifying Financial Trouble
Financial trouble can stem from various scenarios, including job loss, divorce, health issues, change in household income, or poor money management. Here are some warning signs that you might be heading towards financial trouble:
- Maxed-out credit cards.
- Using one credit card for paying another’s bill.
- Missed loan or mortgage payments.
- Collection agents are calling or threatening you with legal action.
Eligibility for Bankruptcy
To file for personal bankruptcy in British Columbia, you must live or operate a business in Canada and be insolvent. To qualify as insolvent, you must:
- Owe at least $1,000.
- Unable to pay bills as due.
- Have stopped paying current debts.
- Have more debts than your assets’ realizable value.
Bankruptcy Proceedings
Once you decide to file for bankruptcy, you must do it through a licensed British Columbia bankruptcy trustee. The trustee prepares the necessary government forms, which are then filed with the Office of the Superintendent of Bankruptcy. All your creditors are notified within five business days of filing, directing them to the trustee for any claims.
Post-Bankruptcy Scenario
After filing for bankruptcy, a “stay of proceedings” is placed. This act halts ongoing collection actions and prevents new ones from beginning. However, it only applies to unsecured debts. Creditors holding your assets as collateral may still foreclose your home or seize the asset if you don’t continue loan payments.
During this “stay of proceedings,” the following occurs:
- Your non-exempt assets are handed over to the trustee.
- The trustee converts those assets into cash by selling them.
- You’re required to pay a minimum contribution towards your bankruptcy and an additional payment, known as a surplus income payment, based on your income.
- The proceeds from the sale of your assets and your payments are then distributed among your creditors.
Bankruptcy Duration
As a first-time bankrupt, if you fulfill all duties, you may be discharged from bankruptcy after nine months. For repeat bankrupts, the duration is extended to a minimum of twenty-four months.
Surviving Debts Post-Bankruptcy
While personal bankruptcy generally provides a fresh start free from all debts, certain obligations remain, including:
- Child support payments.
- Spousal maintenance.
- Debts obtained through fraudulent means or misrepresentations.
- Court-imposed fines or penalties.
- Student loans where schooling was completed less than 7 years prior to filing bankruptcy.
- Non-declared debts that would defraud creditors.
Exempted Assets in Bankruptcy
The law allows you to retain certain exempt assets when filing for personal bankruptcy in British Columbia, including:
- $12,000 equity in your home if you live in the Greater Vancouver Regional District or Victoria.
- $9,000 equity in your home for other areas of the province.
- $4,000 worth of household items.
- $5,000 equity in your vehicle.
- $10,000 worth of tools used for your job.
- Any necessary clothing.
- Required medical aids for yourself or dependents.
Impact on Spouses
Your bankruptcy does not affect your spouse unless the debts are mutual. The only time a bill collector can come after your spouse is if they co-signed or guaranteed your debt. However, your bankruptcy might indirectly affect your spouse, limiting your ability to qualify as a co-signor in the future.
Duties During Bankruptcy
Filing for bankruptcy demands the performance of certain duties for your bankruptcy to be discharged and debts eliminated:
- Surrender any non-exempt assets and credit cards.
- Attend two credit counselling sessions.
- Report your income and specified expenses to the trustee each month.
- Provide necessary information for tax return filing.
- Make monthly payments towards the cost of administering your estate.
- Provide the trustee with other financial information as required.
Bankruptcy and Credit Report
Bankruptcy stays on your credit report for at least six years after your discharge. The length varies between credit bureaus, but it generally means you can face difficulty borrowing for six or seven years. However, your credit could be repaired even faster if you’re gainfully employed or have a security deposit or down payment.
Rebuilding Credit After Bankruptcy
To rebuild your credit after bankruptcy, consider the following steps:
- Start saving money.
- Use some of your savings to get a secured credit card.
- Continue saving and invest in an RRSP.
- Use your tax refund to repay your RRSP loan.
- Once you have saved enough, use that money as the down payment on a car.
Bankruptcy Costs
Filing for bankruptcy involves certain costs:
- You must contribute to your bankruptcy estate to cover government filing fees, mailing costs, court fees, and other administrative costs.
- You are required to pay a portion of your “surplus income” into your estate.
- You will lose all of your non-exempt assets.
- You will lose any tax refunds and GST credits you would otherwise receive during the bankruptcy period.
- You will lose any windfalls you receive or become entitled to during the bankruptcy period.
Getting Started
Filing for personal bankruptcy in British Columbia should be a last resort to your financial problem, and the team at Bankruptcy Canada is here to help. Call us today to learn more about your options.
Do you have questions about Personal Bankruptcy FAQ? Feel free to contact us for further assistance.
