Understanding Bankruptcies in New Brunswick: A Step-by-Step Guide

Bankruptcy is a legal process that provides relief to individuals and businesses struggling with overwhelming debt. In New Brunswick, Canada, bankruptcies are governed by the Bankruptcy and Insolvency Act, which outlines the procedures and regulations for filing for bankruptcy ¹. While the Bankruptcy Court – District of New Jersey handles bankruptcy cases in New Brunswick, New Jersey ², this article will focus on the bankruptcy process in New Brunswick, Canada, and how it can help those facing financial hardship find a path towards debt relief.

Understanding the causes, impacts, and alternatives to bankruptcy is crucial for anyone considering this option in New Brunswick. This article will provide a step-by-step guide to the bankruptcy process, exploring the concept of bankruptcy, its causes, and its effects on individuals. It will also discuss alternative debt relief options, such as debt consolidation and financial counselling, and present a statistical overview of bankruptcies in New Brunswick. By the end of this article, readers will have a comprehensive understanding of how to file for bankruptcy and what to expect throughout the process.

The Concept of Bankruptcy

Bankruptcy is a legal process that offers protection from unsecured creditors ⁶. Upon discharge, all unsecured debts are erased, excluding fines, penalties, child support, or student loans less than 7 years old ^6 17 19. Bankruptcy laws help people who can no longer pay their creditors get a fresh start by liquidating their assets to pay their debts, or by creating a repayment plan ^7 10. These laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation ⁷.

The Bankruptcy and Insolvency Act, a part of the Revised Statutes of Canada (R.S.C.), 1985, governs bankruptcies in all Canadian provinces and territories ^8 18 19. It consists of several parts, including:

• Administrative Officials
• Bankruptcy Orders and Assignments
• Proposals
• Property of the Bankrupt
• Administration of Estates
• Bankrupts
• Courts and Procedure
• Offences
• Miscellaneous Provisions
• Orderly Payment of Debts
• Secured Creditors and Receivers
• Securities Firm Bankruptcies
• Cross-border Insolvencies ⁸

There are two main types of personal bankruptcy in Canada and the United States:

1. Chapter 7 (Straight or Liquidation Bankruptcy): This involves selling off some assets to pay off what you can and discharging the rest of your debts ^9 12 17. In a Chapter 7 bankruptcy, a debtor surrenders non-exempt property to a bankruptcy trustee, who then liquidates the property and distributes the proceeds to the debtor’s unsecured creditors ¹².
2. Chapter 13 (Reorganization or Wage Earner Plan Bankruptcy): This restructures debts in a way that allows you to pay off a portion of what you owe over a period of three to five years ^{9 12 15 17}. Only individuals with a regular source of income may file under Chapter 13, and there are some limited income and debt qualifications ^12 15.

Bankruptcies in New Brunswick

In New Brunswick, individuals who are insolvent and owe at least $1,000 can file for bankruptcy ²⁰. To declare bankruptcy, consumers must meet with a professional Licensed Insolvency Trustee, who will guide them through the process and help determine if bankruptcy is the best option for their financial situation ^16 21.

Several Licensed Insolvency Trustees operate in New Brunswick, including:

• MNP LTD: With over 50 years of experience, MNP LTD provides reliable and confidential solutions to debt problems in New Brunswick ²¹. They offer personal insolvency counselling, Bankruptcy, Consumer Proposal, Debt Consolidation, and other Debt Solutions ²¹.
• Grant Thornton Limited: This firm has multiple locations across New Brunswick, including Bathurst, Boiestown, Bouctouche, Campbellton, Grand Falls, Kedgwick, Minto, Miramichi, Perth-Andover, Riverview, Saint John, St. Stephen, Sussex, and Woodstock ²⁰.
• Allan Marshall & Associates Inc.: With locations in Fredericton, Moncton, and Saint John, this firm provides bankruptcy services to residents of New Brunswick ²⁰.

Despite having a lower average consumer debt compared to the national average, New Brunswick has witnessed a rise in bankruptcy filings, with a 10.7% increase between August 2022 and September 2022 ²². Individuals who cannot afford their monthly debt payments and owe at least $1,000 in unsecured debts may be eligible for bankruptcy ²². Other debt relief options available in New Brunswick include Consumer Proposal and Debt Consolidation ²¹.

Causes of Increased Bankruptcies

Several factors have contributed to the rise in bankruptcies in New Brunswick:

1. Economic Factors:
   • Increased unemployment rates leading to inability to pay debts ²³.
   • High cost of living and stagnant wages reducing purchasing power ²³.
   • High interest rates making loans more expensive and harder to pay off ^23 24.
   • Real estate market crash leading to loss of home equity and increased mortgage defaults ²³.
   • Small businesses struggling to stay afloat due to economic downturns and increased competition ²³.
   • Persistent inflation causing a wave of bankruptcies ²⁴.
   • Substantial debt accumulated during a period of easy money ²⁴.
   • Increased number of ‘zombie companies’ posing a significant drag on the economy ²⁴.
2. Personal Factors:
   • Excessive use of credit cards and personal loans contributing to unsustainable debt levels ²³.
   • Lack of financial literacy skills resulting in poor financial decision-making ²³.
   • High medical costs forcing individuals into bankruptcy, especially those without health insurance ^23 25.
   • Job loss, unaffordable mortgage, overspending, divorce, and helping other family members financially are other factors for bankruptcy ²⁵.
   • The rates of people 65 and older filing for bankruptcy have increased by three times from 1991 through 2018 ²⁵.
   • Those 55 and older now account for 20% of all bankruptcy filings ²⁵.
   • 8% of those who file for bankruptcy have filed at least once before, responsible for 16% of all bankruptcy cases ²⁵.
3. Recent Trends:
   • The rise in bankruptcy rates is attributed to the depletion of pandemic funds, high inflation, a slower world economy, increased cost of capital, and the rapid increase in interest rates ²⁶.
   • Despite the increase in bankruptcies, the unemployment rate remains low and the economy is still growing ²⁶.
   • In 2015, Statistics Canada changed the way it counts business units, resulting in an increase of 1 million Canadian businesses and lowering the business insolvency rate ²⁷.

Bankruptcy Process in New Brunswick

The bankruptcy process in New Brunswick involves several steps:

1. Consultation with a Licensed Insolvency Trustee (LIT):
   • Seek help from an LIT as soon as financial troubles arise, as early intervention provides more options ⁶.
   • LITs are regulated by the Canadian Federal Government and can help with the full range of debt relief options, not just bankruptcy ²³.
   • Trustees are available in various locations across New Brunswick, including Acadian Peninsula, Bathurst, Boiestown, Bouctouche, Campbellton, Fredericton, Grand Falls, Kedgwick, Minto, Miramichi, Moncton, Perth-Andover, Riverview, Saint John, St. Stephen, Sussex, and Woodstock ²⁰.
   • During the consultation, the LIT will assess your financial situation and help you understand your options ²¹.
2. Filing for Bankruptcy:
   • If bankruptcy is determined to be the best solution, the LIT will assist you in filing for bankruptcy ²⁰.
   • To qualify for bankruptcy in New Brunswick, individuals must owe at least $1,000 in unsecured debts ²².
   • Upon filing, an ‘automatic stay’ goes into effect, prohibiting creditors from taking legal action without court permission ¹⁷.
   • Certain assets, such as furniture and appliances worth up to $5,000, professional tools worth up to $6,500, necessary fuel, food, clothing, pets, one motor vehicle needed for work worth up to $6,500, health aids, a limited amount of livestock, and six months worth of feed, are exempt from seizure during bankruptcy in New Brunswick ²².
3. Completing the Bankruptcy Process:
   • The bankruptcy process in New Brunswick typically takes between 9 to 21 months to complete ²¹.
   • During this period, individuals must attend regular meetings with their LIT, credit counselling sessions, gather necessary paperwork, and make monthly payments ¹⁶.
   • The cost of bankruptcy is approximately $1,800, spread out over the 9-month period ²⁰.
   • Bankruptcy trustees’ fees are controlled by the government ²⁰.
   • Upon successful completion of the bankruptcy process, unsecured debts are discharged, providing a fresh financial start ²⁰.
   • A bankruptcy will remain on an individual’s credit record for 6 years after completion ²¹.

It is important to note that while bankruptcy can provide debt relief, it is not the only option available. LITs can help individuals explore other debt relief solutions, such as consumer proposals, which may be more suitable for their specific financial situation ^6 20.

Impact of Bankruptcy on Individuals

Filing for bankruptcy can have a significant impact on an individual’s financial life:

• Bankruptcy remains on a credit report for 7-10 years, depending on the type (Chapter 13 or Chapter 7), and may affect the filer’s ability to borrow in the future ^28 29 30. The credit score will plummet 100-200 points ²⁸, making it difficult to obtain credit or loans.
• Bankruptcy is a matter of public record, so the filer’s information is visible to family, friends, employers, and others ²⁸. This can lead to social stigma and potential difficulties in securing employment or housing.
• Not all debts may be discharged in bankruptcy, such as court-ordered alimony, child support, and certain taxes ^9 28. Additionally, non-exempt assets could be sold, with the proceeds used to pay off debts ²⁸. Those who own luxury possessions will likely lose them ²⁸.

However, bankruptcy also offers some benefits:

• It provides protection from unsecured creditors, ending collections calls, wage garnishments, and lawsuits ⁶. Once discharged (typically within 9 months for a first-time bankruptcy), unsecured debts are erased ⁶, allowing individuals to start fresh without debt ⁶.
• Bankruptcy requires financial counselling, which can help improve the filer’s financial literacy and future money management skills ⁶. This education can be crucial in preventing future financial difficulties.
• Despite the negative impact on credit scores, bankruptcy may be the best option for those already facing severe debt consequences ⁶. It allows individuals to focus on re-establishing credit and moving forward with a clean slate ⁶.

To rebuild credit after bankruptcy, consider applying for a secured credit card, getting a credit-builder loan, becoming an authorized user on a responsible person’s credit card, or getting a cosigner for a loan ⁹. Making timely payments and maintaining a low balance relative to the credit limit can help improve the credit score over time ^9 30.

Alternative Debt Relief Options

Individuals struggling with overwhelming debt should contact a Licensed Insolvency Trustee for assistance with debt relief options, as early intervention provides more alternatives to bankruptcy ⁶. These options include:

1. Negotiating with creditors and working out a payment plan ²⁹.
2. Consumer Proposal: A formal, legally binding process administered by a Licensed Insolvency Trustee, which allows individuals to pay a portion of their unsecured debt over a period of up to five years ²¹.
3. Informal Debt Settlement: Negotiating with creditors to pay a lower amount than the original debt ³².
4. Debt Consolidation: Taking out a new loan to pay off multiple debts, leaving the individual with one monthly payment, often at a lower interest rate ^32 33.
5. Debt Management Programs: Working with a nonprofit credit counselling agency to develop a repayment plan that gradually reduces debt ^34 35 36. These agencies can negotiate with creditors to accept repayment over time and potentially lower interest rates on credit card balances ^31 36.

MNP offers personal insolvency counselling to help individuals make the right choices when dealing with debt ²¹. Seeking help from a certified nonprofit credit counselling agency can provide advice and coaching to take control of debts, potentially resolving debt problems within a few years ³¹.

Additional strategies to pay down debt include:

• Finding additional sources of income, such as through the gig economy ^{33 34 35 36}.
• Using savings to pay off debts, if bankruptcy is an option ^{33 34 35 36}.
• Refinancing a home or taking out a home equity loan to provide funds for debt repayment ^{33 34 35 36}.
• Borrowing from a 401K or IRA, although this should be considered carefully ^{33 34 35 36}.
• Creating a budget and cutting out unnecessary expenses to free up funds for debt repayment ^{33 34 35 36}.

Statistical Overview of Bankruptcy in New Brunswick

• Total bankruptcy filings in Canada have risen by 16.8 percent in the twelve-month period ending Dec. 31, 2023, with business filings increasing by 40.4 percent, from 13,481 to 18,926 ³⁷.
• In the twelve-month period ending Sept. 30, 2023, bankruptcy filings in Canada rose 13 percent, with business bankruptcies rising nearly 30 percent ³⁸. Annual bankruptcy filings totaled 433,658, with business filings increasing by 29.9 percent, from 13,125 to 17,051, and non-business bankruptcy filings rising 12.4 percent to 416,607 ³⁸.
• New Brunswick has witnessed a significant increase in bankruptcy filings, with a 10.7% rise between August 2022 and September 2022, which is considerably higher than the national average of 1.9% ²². Despite this increase, the average consumer debt for New Brunswickers is $41,327, which is lower than the national average of approximately $46,577 ²².

Year	Insolvency Rate	Bankruptcy Rate	Proposal Rate
2015	7.2	4.7	2.5
2016	7.4	4.8	2.6
2017	7.2	4.1	3.2
2018	7.4	3.7	3.7
2019	8.0	3.9	4.1
2020	5.5	2.4	3.1
2021	4.6	1.9	2.7
2022	4.9	1.6	3.3

Table: Annual consumer insolvency rates in New Brunswick from 2015 to 2022 ²².

• In June 2023, New Brunswick recorded a total of 344 BIA insolvencies, with a slight decrease of 0.3% compared to June 2022 ³⁹. Bankruptcies decreased by 18.0% to 82, while proposals increased by 35.4% to 262 ³⁹.
• The Annual Consumer Insolvency Rates by Province and Economic Region from 2010-2022 (per 1,000 population aged 18 years and older) show a general decline in insolvency rates across Canada ²⁷. In 2010, the national insolvency rate was 5.1, with a bankruptcy rate of 3.5 and a proposal rate of 1.6. By 2022, the insolvency rate had dropped to 3.2, with a bankruptcy rate of 0.8 and a proposal rate of 2.5 ²⁷.

Conclusion

Filing for bankruptcy in New Brunswick is a complex process that requires careful consideration and guidance from a Licensed Insolvency Trustee. While bankruptcy can provide relief from overwhelming debt, it also has significant long-term consequences on an individual’s financial life. It is crucial for those struggling with debt to seek help early and explore alternative debt relief options, such as consumer proposals, debt consolidation, and debt management programs, which may be more suitable for their specific financial situation.

By understanding the causes, impacts, and alternatives to bankruptcy, individuals in New Brunswick can make informed decisions about their financial future. With the help of Licensed Insolvency Trustees and credit counselling agencies, those facing financial hardship can develop a plan to take control of their debts and work towards a fresh financial start. Remember, early intervention and seeking professional advice are key to finding the best solution for your unique financial circumstances.

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References

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