In Alberta, facing an overwhelming debt can push you to consider bankruptcy. This article explores what happens when you claim bankruptcy in Alberta by dissecting the procedure and its implications. With the assistance of a trustworthy insolvency trustee, you can confidently tread the bankruptcy path and achieve a new financial beginning.
Understanding Bankruptcy
Bankruptcy is a legal procedure that offers debt relief to individuals or businesses unable to settle their outstanding debts. In Alberta, the Bankruptcy and Insolvency Act, supervised and regulated through the office of the Superintendent of bankruptcy, governs bankruptcy. Consequently, bankruptcy is a federally regulated debt relief option with guidelines and regulations that must be followed.
Personal Bankruptcy: What does it entail?
In a personal bankruptcy in Alberta, you must relinquish some assets to settle debts, and depending on your income, you may have to share a portion of your income with creditors.
Assets and Income in Bankruptcy
In Alberta, the law permits you to retain certain assets during bankruptcy:
- Clothing and personal effects up to a set amount.
- Household furnishings and appliances.
- Tools or trade property used to secure your income to a max value of $10,000.
- One family vehicle up to a maximum value of $5000.
- Your share of up to $40,000 of equity in your principal residence.
- You may also be eligible to retain your RRSPs, RESPs, pensions, and life insurance policies.
These amounts may vary based on your province of residency and where you file for bankruptcy. A Licensed Insolvency Trustee can guide you through what you can keep and what must be sold and handed to your creditors during bankruptcy.
Bankruptcy Cost: Can I afford it?
If you have no assets, the cost of a first-time bankruptcy in Alberta is roughly $1800. However, the value of assets you must forfeit during a bankruptcy, such as a recreational vehicle or a luxury car, will increase the cost of your bankruptcy. Moreover, if your income changes during your bankruptcy, your changing income must be reported to your Licensed Insolvency Trustee, and the terms of your bankruptcy may be altered.
What debts are included in a bankruptcy?
Typically, bankruptcy does not include your secured debt, including housing or vehicles. Certain forms of debt may not be included in your bankruptcy, such as debt from fraud or theft, court-imposed fines, restitution orders, alimony or child support obligations, or student debt under seven years old.
Bankruptcy and Credit Score: How long will it show?
Several factors determine the length of your bankruptcy, including your income and whether you have filed for bankruptcy previously. If this is your first bankruptcy, the time from your bankruptcy to discharge is a minimum of nine months. Typically, your bankruptcy will show on your credit report for six years from the discharge date.
Filing Bankruptcy: The Process
Understanding what debt you have and to whom you owe the debts is the first step. In Canada, only a Licensed Insolvency Trustee can help you handle your bankruptcy. During your bankruptcy program, you must complete credit counselling, which involves meeting with a credit or financial counselor to understand your debts. The goal here is to build essential skills like budgeting and debt management to ensure you don’t find yourself in the same situation again.
Your trustee will use the proceeds from the sale of any assets and repay your creditors. In some cases, you may be required to make payments to your trustee to repay a portion of the debt owed. The amount will vary depending on your circumstance, including your income, the value of your assets, and the total debt owed. After you have completed the required payments and fulfilled all obligations, you will be discharged from bankruptcy. Your trustee will provide you with a certificate of discharge that releases you from the obligation of repaying the debt, allowing you to start regaining your credit.
Alternatives to Bankruptcy
Bankruptcy is often seen as the last resort in debt relief options. In many cases, bankruptcy is not the ideal option, and your Licensed Insolvency Trustee will help you explore other options, including debt consolidation loans, Credit counselling, debt management plans, and consumer proposals.
A consumer proposal, like bankruptcy, is offered through a Licensed Insolvency Trustee but allows you to repay a portion of your debt over a set amount of time. Your trustee will negotiate with your creditors on your behalf based on your financial situation and what you can afford to pay back. Once agreed upon between your creditors and yourself, a financial plan will be set with you making a monthly payment for up to five years. At this point, your debt has been paid off, and you can start rebuilding your credit, making it a good option for those with a stable income who do not want to file for bankruptcy.
Your Licensed Insolvency Trustee will explain the benefits and downsides to all debt relief options. Part of their job is to ensure that you understand the options available to you and are comfortable with the debt relief program chosen.
Filing for bankruptcy in Alberta can be a complex and overwhelming process, but with the help of a Licensed Insolvency Trustee, you can navigate the bankruptcy process with confidence and achieve a fresh financial start. If you are living in Alberta and plan to file for bankruptcy, we have offices that can assist you through the bankruptcy process.
Bankruptcy in Alberta is an impactful decision that requires professional guidance. Hence, whether it is your first time or a repeat experience, the guidance of a Licensed Insolvency Trustee is invaluable.
Frequently Asked Questions
- What are the requirements to file bankruptcy in Alberta?
To file for bankruptcy in Alberta, you must be insolvent, meaning that you owe at least $1000 and are unable to pay your debts. You must be a resident of Alberta or have conducted business in Alberta within the last 12 months.
- What are the consequences of filing bankruptcy in Alberta?
In Alberta, when you file for bankruptcy, you may be required to surrender some of your assets, including home or vehicle, recreational vehicles, campers, etc. There will be a negative impact on your credit score during your bankruptcy. You may experience difficulty obtaining credit during or following your bankruptcy and may impact your ability to obtain specific employment, insurance policies, or loans.
- How will filing for bankruptcy in Alberta affect my taxes?
When you file for bankruptcy in Alberta, you will be required to pay taxes on any forgiven debt, and your tax refunds may be seized by your trustee to pay off your creditors. If you owe taxes to the Canada Revenue Agency, they will be treated as an unsecured debt in your bankruptcy. Your Licensed Insolvency Trustee will be able to help you with your CRA debt.
- Will I be able to operate a business if I file for personal bankruptcy in Alberta?
It may be possible to continue operating your business after filing bankruptcy in Alberta. You will need to talk to your Licensed Insolvency Trustee to obtain permission and comply with all outlined requirements. These may include maintaining accurate financial records and reporting your income to your Licensed Insolvency Trustee.
Bankruptcy is a significant step, but with the right guidance, it can lead to a fresh financial start. Knowing what happens when you claim bankruptcy in Alberta is the first step towards taking back control of your financial freedom.
