What Must I Do During Bankruptcy? : An Overview of the Bankrupt's Duties
Bankruptcy might seem like a dirty word but, for many Canadians, it can be the best-case scenario.
After all, unlike debt solutions with high interest and ongoing terms, bankruptcy is a fresh financial start.
It can certainly seem like the most attractive option in cases of –
- Unsecured debts;
- Credit actions;
- Escalating financial commitments;
- And more.
Hence why an astounding 125,878 Canadians file for bankruptcy each year.
If you’re considering joining them, however, the bankruptcy landscape can seem uncertain.
After all, while there’s a great deal of information about consolidation loans, bankruptcy remains in the shadows.
Luckily, if you’ve been asking yourself, ‘what must I do during bankruptcy?’ then you needn’t look any further.
We’ve put together a comprehensive guide to help you through what we know can be a difficult time.
The first steps during bankruptcy
Contacting an insolvency trustee
The main thing to remember here is that you aren’t alone.
By contacting an insolvency trustee as soon as you begin bankruptcy, you can buy yourself untold peace of mind.
As well as helping to explain your options, your trustee will be the person to begin your claim by filing your paperwork with the Official Receiver.
Filling the right forms
Speaking of paperwork, you’ll need to fill out two forms at this stage of the process.
These are –
Your assignment – A document stating that you’re handing over all property to your trustee.
Your statement of affairs – A list of your assets, liabilities, income, and expenses
The trustee will likely prepare this information, but you must ensure you read and sign these statements, as they are ultimately your declarations.
A state of surrender
At this stage, you’re also legally obliged to surrender all your credit cards and any non-exempt assets to your trustee.
This must happen early in the bankruptcy process to show your willingness, and ensure that you don’t continue spending after you file those statements.
Ending the tax year
Bankruptcy is treated as the end of your tax year.
As such, you must provide your trustee with any T-4 slips to complete a secondary tax return before making your claim.
Income tax debt can then be deducted from your bankruptcy, or paid separately in some instances.
Completion of duties
At this stage, you’re legally declared bankrupt, but the process is far from over.
Appendix I of the Act declares that you must also complete specific bankruptcy duties, including –
Attending a creditors meeting (if applicable)
Some bankruptcy claims lead to a creditors meeting, when your creditors will ask about your bankruptcy.
Legally, you must attend this meeting, which will typically take place in your trustee’s office.
At this stage, creditors can also choose to vote on your trustee’s appointment, and even substitute a trustee of their choice.
However, in most instances, such a meeting won’t be necessary.
Examination with the Official Receiver
In around 1 in 300 bankruptcies, individuals are asked to attend an examination with the Official Receiver.
During this meeting, they are asked questions under oath regarding the causes for their bankruptcy, including the nature of any debts.
It may sound daunting, but your trustee will meet with you ahead of time, and prepare you for what questions you can expect, and how best to answer.
Eligibility for an automatic nine-month discharge relies on your attending two credit counselling sessions.
These can take whatever form you like (one-on-one, with your trustee, or as part of a group session), but your first appointment must take place within 10-60 days of starting the bankruptcy process.
Your second session should then follow no more than 210 days after that date.
Note that these sessions will cost you $85 each, but can prove invaluable for teaching you better money management and budgeting skills moving forward.
Bankruptcy: the beginning of a better financial life
Speaking of moving forward, you’ll also want to start thinking about your financial future.
This can be difficult considering that, initially, you’ll need to send monthly income reports and address updates to your trustee.
However, if you take each of the steps mentioned, you will eventually be eligible for discharge.
Typically, this happens at the nine-month mark if all goes well and you complete your bankruptcy duties in a timely manner.
Then, you can start making plans to rebuild your finances on far better footing than they were on previously.