Declaring bankruptcy is a significant financial decision that should not be taken lightly. In Quebec, like in many other places, it’s a process that can help individuals who are overwhelmed with debt find relief and a fresh start. But what exactly happens when you declare bankruptcy? In this article, we’ll take a close look at the process, the requirements, and the consequences.
Understanding Bankruptcy
Bankruptcy is, essentially, a legal process that allows individuals or businesses that are unable to pay their debts to eliminate or reduce them under the protection of the federal Bankruptcy and Insolvency Act. It is a right you have, allowing you to protect yourself against your creditors. It is a recourse that allows you, when no other options are available, to prevent your financial situation from getting worse, to regain control of your life and to get a fresh start.
Bankruptcy: Voluntary or Forced
Bankruptcy can either be voluntary or forced. If you make the decision to go bankrupt, it’s known as voluntary bankruptcy. Conversely, forced bankruptcy occurs when your creditors compel you to declare bankruptcy, although this is a rare occurrence.
Requirements for Bankruptcy
To be eligible to file for bankruptcy in Quebec, certain conditions must be met. You must be insolvent, which means you are unable to meet your financial obligations as they become due, and the total value of your assets would not be sufficient to enable payment of all your debts. Additionally, you must have at least $1,000 worth of debt.
The Role of the Licensed Insolvency Trustee
A Licensed Insolvency Trustee plays a crucial role in the bankruptcy process. They manage your bankruptcy, assess your situation, make recommendations, and complete all the necessary forms and procedures. They also offer consultation sessions to help you understand the causes of your bankruptcy and provide advice on budget management, credit, and debt.
Debts Included in Bankruptcy
Declaring bankruptcy can help you clear a variety of debts, including credit card balances, personal loans, unpaid taxes, and debts owed to collection agencies. However, not all debts are dischargeable. Certain debts such as alimony, child support, fines or penalties imposed by a court, and student loans (if bankruptcy is declared less than seven years after ceasing to be a student) are not erased by bankruptcy.
The Bankruptcy Process
Once you’ve declared bankruptcy, your Licensed Insolvency Trustee will manage the filing of your income tax return for the year preceding the bankruptcy, and, if they have not been filed, the ones for the two years preceding the bankruptcy. Your trustee will also sell your non-protected assets to pay back your creditors.
During this process, you are also required to attend two counselling sessions. These sessions aim to help you understand the causes of your bankruptcy and give you information on proper money management, credit, and debt.
Meeting of Creditors
Once you’ve declared bankruptcy, your trustee will contact your creditors to inform them of your bankruptcy. Depending on the circumstances of your bankruptcy, your creditors may request a meeting, which you must attend.
Discharge from Bankruptcy
The final stage of the bankruptcy process is the discharge. This means that the debts included in your bankruptcy are erased as you have followed and completed all the steps. The discharge can be either automatic or done by a court.
Bankruptcy and Credit Report
A note of your bankruptcy will be included in your credit report and will stay there for six to seven years after the date of your discharge. In the case of a second bankruptcy, that period could be extended up to 14 years.
Bankruptcy and Your Assets
One common concern about bankruptcy is whether you’ll lose all your assets. However, declaring bankruptcy does not mean that you will lose everything. In many cases, you can keep certain assets such as your RRSPs, RRIFs, and certain personal items up to a value of $7,000.
Bankruptcy and Your Business
If you’re self-employed, you might wonder whether you can continue operating your business if you file for bankruptcy. The answer is yes. However, you cannot be the administrator of an incorporated company as long as you are not discharged from bankruptcy.
Conclusion
Declaring bankruptcy is a serious financial decision with lasting consequences. However, it can also provide a fresh start for those drowning in debt. It’s essential to understand the process, the requirements, and the effects of bankruptcy before making this decision. If you’re considering bankruptcy, consulting with a Licensed Insolvency Trustee can provide valuable guidance.
