Understanding the Legal Consequences of Declaring Bankruptcy
Bankruptcy declaration is often seen as a lifeline for individuals who find themselves drowning in debt. However, it’s essential to understand the legal implications that come with this financial decision. This article delves into the legal aspects surrounding bankruptcy, aiming to provide a comprehensive guide to those considering this path.
Introduction to Bankruptcy
Bankruptcy is a legal process where a person – burdened with insurmountable debt – gets a chance to start over financially. The Bankruptcy and Insolvency Act (BIA) is the primary law governing these proceedings. While bankruptcy can halt collection calls and threats of legal action from creditors, it also comes with its own set of legal implications.
The Immediate Legal Impact of Bankruptcy: Stay of Proceedings
When an individual files for bankruptcy, an automatic Stay of Proceedings is triggered. This legal provision halts any collection efforts or court actions initiated by unsecured creditors. This includes asset seizures, sales, and in some cases, wage garnishment.
The Requirement to Surrender Non-Exempt Assets
Filing for bankruptcy necessitates the surrender of the debtor’s property to a Licensed Insolvency Trustee (LIT), who then uses these assets to repay the creditors. However, this surrender does not include assets that are exempt under federal and provincial legislation. The specifics of these exemptions are often dependent on the individual’s situation and location.
Surplus Income Payments and Bankruptcy
Surplus income, or income that exceeds the government-set limit, may be subjected to additional payments during bankruptcy. The duration and amount of these payments are contingent upon the individual’s income level and the number of times they have filed for bankruptcy.
- First-time bankrupt individuals with surplus income are required to make payments over 21 months.
- For repeated bankruptcies, these payments extend over 36 months.
- Disagreements over surplus income valuations can be mediated by the Office of the Superintendent of Bankruptcy (OSB), and if necessary, taken to court for resolution.
Duties and Responsibilities During Bankruptcy
During bankruptcy, individuals are required to comply with certain obligations under Section 158 of the BIA. These include:
- Delivering all non-exempt properties and credit cards to the LIT.
- Attending mandatory financial counselling sessions.
- Reporting monthly income and expenses to the LIT.
- Making all required surplus income payments.
- Keeping the LIT informed about their residential address until the bankruptcy process is complete.
- Failure to meet these responsibilities could lead to the LIT opposing the individual’s discharge from bankruptcy and bringing their case before the courts.
Possible Opposition to Bankruptcy Discharge
The discharge from bankruptcy may be opposed by creditors, the OSB, or the LIT on grounds such as alleged misconduct or noncompliance with bankruptcy duties. The opposition takes the form of a formal document and results in a court hearing.
Courts have several options when dealing with a disputed discharge. They can grant an absolute discharge, impose conditions on the discharge, suspend the discharge for a certain period, adjourn the hearing, or even refuse the discharge.
Annulling an Assignment in Bankruptcy
Annulling a bankruptcy assignment can only be done through a court order, and this is usually possible only before the individual receives their discharge from bankruptcy. An alternative to annulling is making a proposal to the creditors, which, if accepted, effectively cancels the bankruptcy process.
Impact on Credit Bureau Report
Bankruptcies are recorded on an individual’s credit report for a number of years, depending on the provincial laws and the number of bankruptcies. In Ontario, for example, Equifax keeps a record of a first-time bankruptcy for six years from the date of discharge, and 14 years for subsequent bankruptcies. TransUnion follows a similar pattern.
Seeking Professional Guidance
Given the complex legal implications of filing for bankruptcy, it’s advisable to seek the guidance of a Licensed Insolvency Trustee. They can provide a comprehensive review of your financial situation, explain the bankruptcy process, and assist you in making an informed decision.
To summarize, while bankruptcy can provide a fresh financial start for many individuals, it’s not a decision to be taken lightly. Understanding the legal implications of filing for bankruptcy is critical to navigating this challenging process.
