Personal Bankruptcy in Canada
Bankruptcy Explained by a Regulated TrusteeUnder the Bankruptcy and Insolvency Act personal bankruptcy is a legal debt relief vehicle, that is designed to provide a person and their family members who are trapped in a cycle of debt that cannot be repaid protection from their creditors, such as credit card companies and the CRA (Canada Revenue Agency) for unpaid income taxes and collection actions.
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Bankruptcy is intended to give debtors who are facing debts that they are unable to repay a chance to get a fresh start so they can start rebuilding their credit and building towards a normal financial future and a comfortable retirement.
Once you have declared bankruptcy a Stay of Proceedings goes into effect, so that all action to collect on your debts will be prevented.
Your creditors and any collection agency will not be able to contact you, wage garnishments will end or will be prevented from being enacted and asset seizure will be prevented.
When going bankrupt you will receive an elimination of most of your debts and all of your unsecured debts; the only debts that are not eligible for discharge in bankruptcy are court fines, alimony and child support payments, and other debts that you can discuss with your bankruptcy trustee.
Mortgage debt is not eliminated in bankruptcy but you will be able to keep your home in most cases when going bankrupt by keeping the mortgage payments current.
Canada bankruptcy laws were written to provide a debtor overburdened with debt an opportunity to start over.
While there are certain disadvantages to bankruptcy, in most cases bankruptcy is the quickest, easiest, and the least expensive way to get out of debt and resolve your money difficulties.
Most debtors going bankrupt are able to get their bankruptcy discharge in 9 months.
To be eligible to go bankrupt you must be insolvent. To be considered insolvent you must:
• Have debts of at least $1,000 that you owe;
• Are unable to keep up the payments to service your debts or you have stopped paying on your debts;
•Your assets will not cover your debts in full if sold at a fair market value;
By filing an assignment into bankruptcy you are voluntarily entering into the bankruptcy process as a means to receive legal protection from your debts being collected and harassment from your collection agencies.
While most people file bankruptcy voluntarily, it is possible to be assigned into bankruptcy by a third party.
You are eligible for an automatic discharge from bankruptcy in most cases, but you must complete your duties and make all the necessary payments to the trustee in order for the automatic discharge to take effect.
The trustee will explain the duties you need to complete – such as attending the two mandatory debt counselling sessions with your trustee, providing your trustee with income tax information, and providing your trustee with statements of your income and expenses – and the payments that you will need to make to her each month in order to receive the automatic discharge that is your right.
If you are facing a third bankruptcy or if you owe more than $200,000 with 75% of your debt being income tax debt then an application to the court must be made to receive your discharge from your bankruptcy case (and your debts.)
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A qualifed trustee will have the skill to help you get a successful discharge if this is the case.
The length of your bankruptcy case will vary depending on whether you have “surplus income” that exceeds the guidelines as set by the Superintendent of Bankruptcy for living expenses depending on the number of dependent people living in your household, and whether it is your first or second bankruptcy.
A first time bankrupt with no surplus income will be eligible for their automatic discharge from bankruptcy in 9 months.
If the first time debtor has surplus income then the bankruptcy will be extended to 21 months.
If you are declaring bankruptcy for the second time and you have no surplus income in your household then the bankruptcy length will be 24 months and if you have surplus income in your bankruptcy you will be bankrupt for 36 months.
A third bankruptcy is also possible.
If you arrange a confidential insolvency evaluation with a bankruptcy trustee they will help you review your net monthly income and help you calculate whether you have excess income or not by explaining if your net income is greater or under the guidelines established by the Superintendent of Bankruptcy.
That way, you can know exactly how long your bankruptcy will last and the fees that will be required for your bankruptcy case before you have to make the decision to declare bankruptcy!
Steps in a Bankruptcy Filing
The bankruptcy process can be confusing and it can be hard to understand the benefits and advantages of bankruptcy when you are unsure of how the process can work.
We have extensive knowledge in guiding people through their personal bankruptcy case.
We have helped thousands of people just like you get the relief from debt you need, deserve, and are entitled too under the bankruptcy laws of Canada.
The Licensed trustee in bankruptcy of Bankruptcy Canada can explain the steps in a bankruptcy during your initial consultation meeting.
Our trustee will guide you through the entire bankruptcy process, from the first consultation to your discharge.
We will make sure that you have the guidance that you need to successfully complete your bankruptcy in a timely manner.
Briefly, the steps in a personal bankruptcy in Canada are:
• Contact a licensed and regulated trustee for a consultation. Most trustees will offer this consultation for free without any obligation.
• Meet with the trustee for your first confidential evaluation.
At this meeting you will review all of your options with the trustee and work together to asses whether bankruptcy is the right choice for you;
• Return to meet with the trustee to completely go over all of the bankruptcy papers and over the steps in a bankruptcy again.
At this meeting you will also sign the paperwork to declare bankruptcy;
• The paperwork is sent to the Superintendent of Bankruptcy by the trustee and a notice of your bankruptcy filing is sent to your creditors by the trustee;
• Now that you are bankrupt your creditors will be barred from contacting you and you will no longer have to make any payments on your unsecured debts; if you decided to keep your mortgage going or your car you will have to continue making the required payments to keep the loans up to date;
• During the bankruptcy, which is usually 9 months long, you will have to complete your duties, such as reporting to your trustee your income and making an expense statement, and attending two separate counselling meetings with the trustee so he can teach you tricks and tips for managing your finances in the future so you can stay debt free and save for a retirement;
• If you act in good faith by completing all of your required duties, turn over your assets for sale if necessary, and make all the required payments to the trustee on time, and it was your first bankruptcy filing you will receive your automatic discharge in nine months.
You will receive your discharge papers, your debts will no longer exist, and you can begin taking steps to rebuild your credit rating.
What are the Advantages and Disadvantages?
Pros & Cons of Going Bankrupt
Bankruptcy is a legal process that you have the right to take advantage of if you are insolvent, and for many people it is their best chance at a fresh start.
While there are certainly many benefits of bankruptcy it must be stated that there are also certain drawbacks to bankruptcy.
For most people declaring bankruptcy, however, most of these disadvantages do not exist or are minimized.
Your trustee will be honest and straightforward with you, as this is a requirement of our professional ethics code.
You will always receive the best advice of your trustee, so no matter what you are told by your trustee, you can feel comfortable following their advice.
Since the trustee is also required to tell you how you can avoid bankruptcy if possible, you have nothing to worry about when speaking with a trustee about making the decision to claim bankruptcy.
What are the Causes?
People file bankruptcy for many different reasons although there are certain causes of personal bankruptcy that are more common than others.
The most common causes of money problems that lead to bankruptcy are:
* Loss of a job;
* Personal business failure;
* Medical bills and/or loss of income from being out of work.
Personal bankruptcy is available for honest but unfortunate debtors who overwhelming debt and need a fresh financial start.
Many people only turn to filing personal bankruptcy after struggling to repay their debts; sometimes for years.
It Does Not Mean You Lose Everything
Many people are under the misconception that if they declare personal bankruptcy they will not be able to keep anything they own and that they will lose everything in a bankruptcy.
Fortunately, this simply is not true.
Each province sets a list of assets that you are allowed to keep when going bankrupt and in fact most debtors filing for personal bankruptcy are able to keep all of their assets.
Bankrupt debtors can even keep their car and house when declaring bankruptcy.
It Gives You a Fresh Start
When you declare personal bankruptcy in Canada you will receive an Automatic Stay of Proceedings which prevents your creditors from taking collection action to collect their debts.
Collection agencies will stop calling.
Wage garnishments will stop and interest of your debts stop accruing.
When you receive your bankruptcy discharge all your eligible debts will be erased.
As a legal process under the BIA, personal bankruptcy will eliminate most (and in many cases all) of your debts and the bankruptcy process will give you a fresh start and allow you to rebuild your credit.
When is It Right For Me?
Anybody who is insolvent (that is who owes at least $1,000 and is unable to repay their debts as they become due) in Canada and have made every attempt to solve your money problems might want to consider personal bankruptcy as a solution to their debt problems.
Before you can decide if bankruptcy is right for you it is important you seek the help of a Licensed Insolvency Trustee (LIT) and attend an initial consultation meeting with the Trustee to have a complete review of your money problems to give you the bankruptcy information you need to make an informed decision about filing bankruptcy.
A good LIT (Licensed Insolvency Trustee) should offer a no-charge initial bankruptcy evaluations to give you answers to your questions about bankruptcy and help you explore any bankruptcy alternatives that could work based on your financial situation.
The advantages of filing bankruptcy with a qualified bankruptcy trustee include:
• Immediately after you have been declared bankrupt by signing the paperwork a legal order known as a stay of proceedings will go into effect.
This stay of proceedings order is what provides you protection from your creditors calling to harass you, or starting or finishing any collection actions.
No attempts to collect from you can be made, and your trustee will deal with your creditors.
The CRA cannot collect on your GST debt or tax debt, your credit card companies cannot demand any payments, and your bank cannot remove funds from your bank account under a garnishment order;
• Your unsecured creditors will be required to communicate directly with your trustee, and only with your trustee;
Your wages will be protected from seizure, as will anything you own that is protected by the bankruptcy exemptions.
Most people in bankruptcy own very little and they are able to keep everything they own;
• Your unsecured creditors cannot prevent you from going bankrupt because there is no voting process that is needed for your bankruptcy to gain acceptance;
• Bankruptcy is quick, cheap, and provides a chance for a new beginning to your financial life so you can get your finances back on the right track;
• You can eliminate all of your unsecured debts without changing the cost of your bankruptcy, as the cost of a bankruptcy is based on your income, and if you have been bankrupt in the past or not.
To be fair we must also explain the disadvantages of bankruptcy. These disadvantages include:
• Your bankruptcy filing record will remain on your credit report for 6 (six) years from the date of your discharge from bankruptcy; this will increase to fourteen (14) years if you have multiple bankruptcies;
• You must disclose to the lender that you are in bankruptcy to borrow more than $1,000;
• Your non-exempt assets will have to be turned over to the trustee so he can sell these assets and distribute the funds to your creditors;
• You are not allowed to keep any credit card in a bankruptcy, although for many people this can be seen as an advantage;
• The tax refunds for 12 months prior to going bankrupt must be surrendered to the trustee. Any other outstanding tax refunds must also be given to the trustee;
• An undischarged bankrupt cannot act as a director of a corporation;
• Your bankruptcy will cost more if you have surplus income as determined by the guidelines of the Superintendent of Bankruptcy.
You can learn more about the pros and cons of bankruptcy by scheduling a risk free, confidential evaluation with a personal bankruptcy trustee.
If any of these disadvantages worry you, such as you have assets you want to keep that would have to be turned over in a bankruptcy, our trustee will help you examine the alternatives to bankruptcy that might fit your financial situation.
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What is Bankrupt?
People from all walks of life file bankruptcy.
Individuals usually assign themselves into bankruptcy in order to get a fresh financial start.
These are some of the factors that can lead to a bankruptcy:
* The debtor owes more than his or her assets and income can support;
* there are a large number of creditors, which makes it too difficult to attempt an informal proposal;
* The debtor is having his or her salary garnished or attached by one or more creditors, being harassed by creditors, being constantly examined, or having other proceedings taken against him or her;
* The debt cannot be paid off in any reasonable time.
Deceased persons and minors can also assign themselves into bankruptcy.
A deceased person’s estate might be placed into bankruptcy if there are not enough assets available to pay all the debt of the estate.
The bankruptcy would allow the orderly payment of the creditors in the priorities established in the Bankruptcy and Insolvency Act.
A minor might file for bankruptcy if, for example, the minor were responsible for a car accident and had no ability to pay for the resulting damages.
Types of Personal Bankruptcy
Bankruptcy is a legal proceeding that relieves an insolvent person or debtor of his or her financial debts.
In Canada, personal bankruptcies are governed by the Bankruptcy and Insolvency Act, which allows for two types of bankruptcies:
Summary Administration (Streamlined) Bankruptcy
A summary administration bankruptcy (also known as a streamlined bankruptcy) deals with consumer bankruptcies where the realizable assets of the bankrupt, after the claims of secured creditors are deducted, will not exceed $10,000.
The vast majority of personal bankruptcies are summary administration bankruptcies.
A summary administration bankruptcy has streamlined procedures that attempt to reduce the expenses related to the bankruptcy.
These include the following:
* Notice of the bankruptcy is not required to be published in a local newspaper;
* All notices, statements, and other documents are sent by ordinary mail;
* A first meeting of creditors is required to be called by the trustee within 30 days after the date of the bankruptcy only if it is requested by the official receiver or by creditors who have in the aggregate at least 25 percent in value of the proven claims;
* There are no inspectors unless the creditors decide to appoint them. If no inspectors are appointed, the trustee administers the bankruptcy;
* Court attendance is kept to a minimum;
* The trustee’s fees are set by a tariff and capped.
Ordinary Administration Bankruptcy
In an ordinary administration bankruptcy, the individual’s assets will exceed $10,000.
All corporate bankruptcies are also ordinary administration bankruptcies and must adhere to the full bankruptcy procedure as outlined in the Bankruptcy and Insolvency Act.
How a Person Goes Into Bankruptcy
There are two ways a person can go into bankruptcy.
The first and more common way is to have the person make an assignment in bankruptcy.
This means that you voluntarily place yourself into bankruptcy.
The second, and rarely used, way is for creditors to ask the court to make an order that a person is bankrupt.
In both these cases a trustee in bankruptcy is required to administer the bankruptcy and you will need to make an appointment to see one.
Meeting With the Trustee
Before you meet with the trustee, he or she will likely ask you to fill out a form setting out your pertinent financial information.
This makes the meeting more productive.
The first meeting is free and last approximately an hour.
The trustee or an administrator will review your financial information, discuss any options, explain how bankruptcy or a proposal works, and answer your questions.
The meeting is non-judgemental and is conducted in a pressure-free manner.
What Happens Next?
The debtor usually thinks things over a day or two before making up his or her mind.
Once you decide to go bankrupt, you will contact the trustee’s office and tell them to proceed.
It only takes a day or two for the trustee to prepare the documents before you go to the trustee’s office to sign them.
The trustee will immediately file the documents with the Office of the Superintendent of Bankruptcy.
You are bankrupt when the documents are filed.
Stay of Proceedings
There are a number of immediate advantages for a person assigning himself or herself into bankruptcy because of the stay of proceedings that goes into effect immediately upon the bankruptcy being filed.
The stay of proceedings protects the person filing bankruptcy in the following ways:
* Unsecured creditors are not allowed to take any collection action;
* Wage garnishees are stopped;
* No legal actions can be taken against you;
* Telephone calls from creditors are stopped;
* Repossessions are stopped.
What Happens During the Bankruptcy?
During the bankruptcy, you must keep the trustee informed as to where you are living.
You must also respond to the trustee’s requests, assist him or her as required, and provide whatever information is requested.
The Licensed Insolvency Trustee (bankruptcy trustee) will instruct you to provide him or her with reports as to earnings and living expenses and any change in your or your family’s situation.
In most personal bankruptcies, a meeting of creditors is not required unless requested by the Superintendent of Bankruptcy or creditors with an aggregate of at least 25 percent of the proven claims.
What Happens After Bankruptcy?
Most debt is erased when a person is discharged from bankruptcy, except for the following:
* Fines that are court imposed;
* Debt related to stolen items;
* Assets obtained by fraudulently representing yourself;
* Spousal and child support payments;
* Damages levied by the court for certain serious crimes;
* Student loans if the bankruptcy is filed prior to or within seven years after the finish of studies.
What Does bankruptcy cost?
In a straightforward (summary administration) bankruptcy, the government regulates trustee fees, filing fees, and counselling fees.
In the simplest cases this amounts to $1,800.
Many trustees have payment plans that allow you to pay the costs over the nine months of the bankruptcy.
Our Bankruptcy Calculator will tell you the exact cost of your bankruptcy and how long you will be in bankruptcy.
The other administration fees are taken from excess income payments.
If there is no excess income, the bankrupt will usually make these payments monthly so that they are paid in full before the nine month discharge date.
How Excess Income Payments are Calculated
The trustee calculates the amount that the bankrupt person must pay into the bankruptcy estate each month while in bankruptcy, based on the Superintendent of Bankruptcy’s standards.
Let’s look at an example.
Mike is a single person with a monthly take home pay of $2,462 (after taxes and other payroll deductions).
Because he is in bankruptcy, he does not have to make payments on any debt.
The Superintendent‘s standards say that Mike needs $2062 to live on.
This leaves an excess of $400.
Fifty percent percent of the excess (or $200) must be paid into the bankruptcy estate monthly.
This amount is known as the surplus income payment.
The excess income calculations are adjusted for things such as:
* Income that fluctuates, such as income for commission sales people;
* Child support payments;
* Spousal support payments;
* Child care expenses;
* Expenses associated with a medical condition;
* Court-imposed fines or penalties that are in process of being paid;
* Expenses permitted by the Income Tax Act (or similar provincial legislation) that are a condition of employment; or
* Any other debt where a stay of proceedings has been lifted by the courtand a recourse authorized.
How Will My Spouse Be Affected?
One of the most common questions trustees are asked is how a bankruptcy will affect a husband or wife.
Your spouse, whether common-law or married, will not be affected by your bankruptcy if he or she is not responsible for any of your debt (i.e., did not sign an agreement or contract for any of your debt).
If your spouse is responsible for any of your debt or has his or her own debt, then your spouse may also have to file for bankruptcy.
Your spouse’s income will come into play when the calculation is made on the monthly payments that are required to be paid into the bankruptcy estate.
Here is an example:
Bankrupt’s income (take-home pay) = $2,600
Spouse’s income: (take-home pay) = $1,000
Number in family: 3
Monthly surplus income calculation per 2015 Superintendent’s standards
($3,600 – $3,197 = $403) at 50% = $201.50
Percentage of bankrupt’s income of the family income is
($2,600/$3,600)x 100 = 72.2%
$201.50 x 72.2% = $146
In this example, the bankrupt is required to pay $146 per month into the bankruptcy estate.
If the spouse not filing bankruptcy decides to not divulge their income to the trustee, the following payment would be required to the bankruptcy estate:
$2,600 – $1.598.50 = $1,001.5
at 50% = $501 a month
Who Will Know of My Filing?
In a bankruptcy where there are significant assets, a notice is placed in the “Legal Notices” section of the newspaper, notifying creditors of the date of the meeting of creditors.
If there are minimal assets, the creditors are notified by mail only and there is no advertisement in the newspaper.
Any legal filing of a bankruptcy is a public document which the general public has access to.
From this documentation, the credit bureau is notified and the bankruptcy is recorded and will remain on your credit record for six years after your discharge date.
What if I Have Canadian Debt but am Living in Another Country?
Canadians living abroad can go into bankruptcy for their Canadian debt in the following ways:
* They can go bankrupt in their new country of residence.
This will free them of the Canadian debt for as long as they live in that country.
If they return to Canada, that debt will have survived and they will still owe money;
* They can re-establish residency in Canada and then go bankrupt in Canada;
* They can go bankrupt under Canadian law while still living in their new country of residence if they have property in Canada (e.g., money, goods, things in action, or land) or they have carried on business in Canada in the preceding year.
Common Bankruptcy Myths Explained: Are The Stories You Heard About Bankruptcy True?
Learn the Facts Here!
Unfortunately, many people are misled by the myths that they are told by the media or their well-meaning, but misinformed friends, or family members.
Here you can get the truth because we have heard every myth about bankruptcy and have outlined some of the common myths and the truth to the myth to help people make an informed decision about seeing a trustee:
Myth: “I will lose everything when I go bankrupt.”
Reality: Most people that go bankrupt with our team of trustees are able to keep all of their assets because the bankruptcy exemptions in their province protect everything they own.
If your assets’ value exceeds the value that the exemptions allow you can “buy back” the equity from the trustee in the asset, whether it is a boat, car, motorcycle or any other asset, if you can afford to buy the asset.
In most cases though, debtors considering bankruptcy, will have all of their belongings protected.
You may also retain non-exempt assets by maintaining the monthly payments that are required.
Myth: “Bankruptcy lasts for 7 years.”
Reality: Bankruptcy lasts for 9 months, at the cost of $1,800 / $200 a month for the vast majority of filers and provides a much quicker way to get out of debt than most other methods for getting your debt under control.
The maximum amount of time a bankruptcy can last is 3 years, but only for a person declaring bankruptcy for a second or subsequent time, who also has excess income.
This myth probably came about because a bankruptcy will remain on your credit report for 6 years, which, when combined with the 9 months you will be in bankruptcy, becomes almost 7 years.
However, just because of the fact of having a bankruptcy on your credit report does not mean that you won’t be able to get credit.
In fact, we can show you how you will be able to get a mortgage, at the same rate as anyone else, in as little as two years after declaring bankruptcy!
Myth: “I Will Never Get Credit Again Because Bankruptcy Destroys My Credit Rating Forever.”
Reality: If you are considering bankruptcy, chances are your credit rating has already gotten as low as it can get.
Negative comments, such as a collection action, will stay on your credit rating for seven (7) years following the last date of the comment being submitted; the record of your bankruptcy will stay on your credit report for only six years, and we will give you the tools and knowledge to begin immediately rebuilding your credit once you have been discharged from bankruptcy, and even while you are still in the bankruptcy proceedings.
Most of our clients achieve an R1 credit rating, or the highest rating, within 2 years of being discharged.
Bankruptcy is usually the fastest way that a negative credit score can be repaired.
Myth: “There’s no Point in Going Bankrupt Because Most of my Debts are Tax Debt Owed to CRA and This Debt Cannot be Wiped out in Bankruptcy.”
Reality: The Canada Revenue Agency, or CRA, is legally bound to comply with the Bankruptcy and Insolvency Act and must comply with your bankruptcy.
Your GST / Income tax debt will be wiped out upon your discharge.
In fact a bankruptcy or consumer proposal – services only offered by a trustee in bankruptcy – are the only two ways of settling your Canada Revenue Agency debt.
Myth: “Everybody Will Know I Filed Bankruptcy.”
Reality: While bankruptcy filings are public records these records are not published in the local newspaper, except in the very rare case of a complicated personal bankruptcy, and most members of the public have no idea these records even exist or where to look for such records.
In addition to that, there is a fee to perform the search so nobody is going to casually search for your bankruptcy.
Your creditors will receive notice of your bankruptcy by mail and your employer will only be contacted in the case of your wages being garnished in which case the trustee will have to contact your employer to have the wage garnishee summons stopped.
Your friends, co-workers and family will only know of your bankruptcy if you decide to tell them.
There is also no need to be embarrassed about going bankrupt because many people, from all walks of life, have declared bankruptcy in the past, including some very successful and well known names.
Myth: “My Spouse Will Lose Their Assets and Their Credit Rating Will be Ruined by My Bankruptcy.”
Reality: Despite your marriage, you are separate individuals under the law with your own obligations, debt, assets and finances.
A personal bankruptcy filing will not impact your spouse unless they co-signed or guaranteed any of your loans or credit applications.
Your spouse’s income will not be impacted, although it could impact the cost and length of your bankruptcy case.
You can also file a joint bankruptcy if you so desire.