What is Bankruptcy in Canada?
How Can Personal Bankruptcy in Canada Give Me a Fresh Financial Start?
Personal bankruptcy is a way for an individual or business to get a chance for a fresh financial start when they are hopelessly burdened with debts they are unable to repay.
What is Bankruptcy?
Personal bankruptcy is a legal process that is governed over by federal law which is known as the Bankruptcy & Insolvency Act (BIA).
The purpose of bankruptcy is to give a well-meaning debtor who has honestly fallen into debt a chance to receive relief from his or her debts while also ensuring that creditors (the people to whom the debtor owes money) are treated fairly and impartially.
As soon as you file bankruptcy you will receive an automatic “stay of proceedings” which is a legal order that prevents your creditors from contacting you, stops wage garnishments or other collection actions and stops any legal action from taking place against you.
The concept behind Canadian bankruptcy is pretty straightforward: You will surrender any of your non-exempt assets (bankruptcy exemptions are the assets you can keep when going bankruptcy, which vary from province to province) to the Licensed Insolvency Trustee you choose to work with in exchange for a relief from your debts.
Usually, the debtor going bankruptcy will have few, if any assets, that they will lose; if you have significant assets the trustee will help you explore further options that can give you debt relief and allow you to keep your assets.
Who Can File For Personal Bankruptcy?
In order to be eligible for bankruptcy in Canada you must have lived or done business in Canada within the past 12 months and must be insolvent.
Insolvent means that you are unable to pay your debts as they become due and you have debts of at least $1,000.
What is a Licensed Insolvency Trustee?
A Licensed Insolvency Trustee (LIT) is a federally licensed debt relief professional who is the only professional who can administer a bankruptcy case in Canada; you need to use the services of a LIT to go bankrupt. You cannot use any other professional or file for bankruptcy yourself.
The LIT’s fees are regulated by the government and are the same regardless of which trustee you decide to work with.
All of the Licensed Insolvency Trustees that are partnered with Bankruptcy Canada are friendly, caring and highly experienced professionals who will offer you a risk free and confidential evaluation to discuss what is bankruptcy and help you explore all of the debt relief options that would be suitable in your financial situation.
In many cases the trustee can help you find a way to avoid bankruptcy.
Length of Bankruptcy – How Long Does Bankruptcy Last?
Most bankruptcies will result in an automatic discharge from bankruptcy in 9 months.
In order to receive this automatic discharge in the nine month period you must complete certain duties (that your trustee will advise you on and help you complete) such as completing two counselling sessions with the trustee and you must not have been bankrupt before; a second bankruptcy is extended to 24 months in the case of a second bankruptcy with no surplus income payments required; or 36 months if surplus income payments are required.
A first time bankruptcy will be extended by 12 months to 21 months if you are a first time bankrupt with surplus income payments to be made.
The record of your bankruptcy will also remain on your credit report for several years following your discharge from bankruptcy, although your trustee will provide you with tips on rebuilding your credit that will allow you to qualify for a mortgage (which is known as the hardest credit to qualify for) in as little as two years after your bankruptcy discharge.
This means that having bankruptcy on your credit report won’t impact your credit score if you work hard at following the advice of the trustee.
Will all of my debts be discharged by filing for bankruptcy?
Some of your debts will not be erased when filing for bankruptcy. The reason for this is that personal bankruptcy is only intended to deal with unsecured debts. Unsecured debts are debts that are not “secured” by an asset – credit card debt, personal loan debt, overdraft charges, income taxes owed etc are all unsecured debts.
Your secured debts – your mortgage or a car loan, for example – cannot be included in bankruptcy. If you have a shortfall from the value of the asset to what you owe you can include the shortfall in bankruptcy although your credit can recover the asset if you go bankrupt as you have given the asset as collateral to receive the loan.
Certain unsecured debts are not eligible to be eliminated in bankruptcy either:
- Student loans if you have been out of school for less than 7 years (you may apply for a hardship application if you have not reached the 7 year period although there is no guarantee the application will be accepted);
- Alimony payments;
- Child support payments;
- Debts that have arisen from fraud;
- Certain other debts.
A licensed insolvency trustee can help you understand if all of your debts will be discharged or not by going bankrupt; the vast majority of bankrupts are able to eliminate all of their debts.
Will I Lose Everything if I go Bankrupt?
Fortunately the answer to this question is: “No!”
This is one of the most common myths that our trustees have to debunk and, fortunately, it is not true; when you file for bankruptcy you will be able to keep certain assets that are set out under the provincial bankruptcy exemptions.
Bankruptcy is intended to give you a fresh start and part of this fresh start is to allow you to retain your dignity and the assets needed to survive in some level of comfort.
The exemptions list is determined by each province or territory.
For example, in BC you can keep up to $12,000 in equity in your home, while in Ontario you may keep a motor vehicle worth up to $6,600.
Your LIT will help you determine what assets you will be able to keep.
If you have assets that you would lose in bankruptcy, the trustee can help you explore bankruptcy alternatives, such as making a consumer proposal that will allow you to keep your assets and get debt relief.
What is the cost of going bankrupt?
The cost of going bankrupt is set by the federal government and costs $200 a month for 9 months (a total of $1,800) in most cases, although the cost might be increased if you are required to make surplus income payments or you have been bankrupt before, which will increase the time you are in bankrupt, meaning you’ll pay $200 (if you have no surplus income payments necessary) for 21 months (a total of $4,200) instead of 9 months.
All fees, including the trustee’s fee, are included in the $200 monthly payment.
What is Surplus Income in Bankruptcy?
Surplus income is required if you make more than the threshold income level set by the government for your family size. The idea behind surplus income is that if you make more than you need to provide for your family, you should pay a portion of your extra (surplus) income to the bankruptcy estate for distribution to the creditors; bankruptcy is intended to be fair for the debtors and the creditors.
If you would like to learn more about filing for bankruptcy and how it would impact you booking a confidential and risk free personal bankruptcy consultation with a local Licensed Insolvency Trustee from your area is a secure and easy step to learn more about how bankruptcy will impact your personal financial situation and whether there are any possible bankruptcy alternatives that could help you avoid bankruptcy.
Your Trustee will answer your questions and will go over your unique situation to help advise you on whether bankruptcy is the right solution for you or if another insolvency option – such as a consumer proposal – could be a viable alternative to bankruptcy.
You don’t need to delay! The consultation is risk free, confidential and also carries no obligation to continue working with the trustee, or filing bankruptcy if you feel bankruptcy is not the right solution for you. The trustee is here to help you and will not force you into any decision. Seek trusted and caring professional insolvency advice today.