What is Bankruptcy?

Frequently Asked Questions

Bankruptcy might be the right option for you if you have little to no assets and the amount owing is beyond what you could expect to pay back in seven years time.

What is bankruptcy?

Bankruptcy is a formal, legally binding process, whereby you would file an assignment into bankruptcy which would eliminate most if not all of your outstanding tax and unsecured debt obligations.

What debts are not eliminated by bankruptcy?

  1. Fines imposed by a court;
  2. Money owing for things stolen;
  3. Things obtained by misrepresentation;
  4. Spousal support (alimony) or child support;
  5. Awards of damages by a court for intentionally inflicting bodily harm or sexual assault;
  6. Student loans that are less than 7 years old, (however, some student loans, older than 5 years but less than 7, may be eliminated based on hardship);
  7. Money owing due to fraud;
  8. Mortgages or lines of credit on real property that you continue to keep;
  9. Car loans on vehicles you continue to keep.

When is bankruptcy appropriate?

To find out if bankruptcy (or a different option) is the right choice for you, set up a meeting with one of our debt experts to discuss your personal circumstances.

We will evaluate your financial situation and explains the pros and cons of the various options that could help you solve your financial problems.

What protection does bankruptcy offer?

Bankruptcy provides a stay of proceedings and halts any legal actions that have been commenced against you. It would halt any garnishments against your wages and bank accounts. In addition, it would halt any harassing collections calls and collection letters.

What assets am I allowed to keep in bankruptcy?

Each province and territory has its own laws indicating what is exempt from seizure. For further information please visit this blog.

What responsibilities does bankruptcy entail?

If you file an assignment into bankruptcy, you must:

  • Provide complete financial disclosure including your sources of income, assets and liabilities;
  • Attend any meeting of creditors, if a meeting is requested (see below);
  • attend two counselling sessions;
  • advise of any change in your address, employment, income, assets, etc.;
  • pay surplus income if required;
  • generally be responsive and assist with any information that is needed or requested by your trustee.

How does bankruptcy work?

  1. We would work with you to discuss your current financial situation, to review your exempt and non-exempt assets and prepare your bankruptcy cost outline.  If you would like to keep certain non-exempt assets, such as your house, we would have any such non-exempt assets appraised by appraisers of our choosing. Once we have the complete financial picture put together, we would confirm with you all the details of what assets can be kept, which can be purchased from the trustee and what amount you would need to pay for surplus income, if required, during bankruptcy.
  2. Thereafter, you would sign the necessary paperwork with a trustee of our choosing in our offices or in the trustee’s office with one of our representatives.
  3. The trustee would file the assignment with the Office of the Superintendant of Bankruptcy (OSB).
  4. The trustee would forward a package to your creditors informing them of your assignment into bankruptcy, this package would also provide your creditors with a Notice of Claim, which your creditors would complete and return to the trustee in order to validate any debts they claim owing to them.
  5. If you decided not to keep certain non-exempt assets the trustee would seize such assets and sell them off with any proceeds of the sale being distributed to your creditors on a pro-rata basis.
  6. If your household income is above a certain amount per month you will need to pay half of the surplus income to the trustee.

What is Surplus income?

In addition to paying the trustee’s fees, you may be required to make additional payments to your trustee for distribution to your creditors. These are called surplus income payments.

Surplus income is the part of your earnings that exceeds the amount of income a family needs to maintain a reasonable standard of living. This amount is set by the OSB annually. The larger your family, the more you are allowed to keep; the more you earn, the more you are required to contribute.

If you have surplus income and it is more than $200 per month, then you will be required to contribute 50 percent of that amount to the trustee to be divided amongst your creditors.

What is a discharge from bankruptcy?

Being discharged from bankruptcy is the event that brings the bankruptcy to its end. It is what releases you from the obligation to pay any of your debts you had as of the date you filed for bankruptcy.

Timing of your discharge from bankruptcy (automatic discharge)

If this is your first bankruptcy and you are not required to make surplus income payments, because your surplus income is less than $200 per month, you will be eligible for an automatic discharge from bankruptcy in nine months. If your surplus income is higher, your bankruptcy will be extended to 21 months and you will be required to make payments from your surplus income.

Your discharge from bankruptcy will happen automatically if

  • the discharge is not opposed by the trustee, a creditor or the Office of the Superintendent of Bankruptcy;
  • you have attended the mandatory financial counselling sessions; and
  • this is your first or second bankruptcy.

To ensure that a greater percentage of debts are repaid to creditors, the following are the standards set out for when to expect that an automatic discharge will occur.

Timing of your discharge from bankruptcy (automatic discharge)

First bankruptcy Timing of discharge
Not required to make surplus income payments (surplus income is less than $200 per month) 9 months after filing
Surplus income is greater than $200 per month 21 months after filing

 

Timing of your discharge from bankruptcy (automatic discharge)

Second bankruptcy Timing of discharge
Not required to make surplus income payments (surplus income is less than $200 per month) 24 months after filing
Surplus income is greater than $200 per month 36 months after filing

Discharge hearing (non-automatic discharge)

If you do not qualify for an automatic discharge, the trustee will ask the court to hear your application for discharge. The court will then schedule a date for the discharge hearing.

I didn’t get my discharge from bankruptcy. How do I obtain one?

We often receive calls from individuals that have gone bankrupt on their own, did not use our representation, and did not receive an automatic discharge.

There are various reasons why you may not have been automatically discharged. They could range from something as simple as you failed to attend the two counselling sessions to something more complex as your creditors have challenged your discharge based on the fact that they have proof that you committed an offence under the Bankruptcy and Insolvency Act. An example of this would be: you transferred your house solely into your spouse’ ownership in an attempt to protect it from your creditors or hide it from your trustee.

In such instances, where we have been retained, we have been very successful at the discharge hearing and were able to get our clients discharged.

If this is the situation you find yourself in, I invite you to contact our office to discuss your options at 1-866-570-9988.

What is the Impact of bankruptcy on my credit rating?

A person who declares bankruptcy is assigned the lowest possible credit rating (credit score) of an R9.

The information in your credit report that affects your credit score is usually removed after a certain period of time. The amount of time depends on the type of information and where you live. Generally, it will be removed after six or seven years for a first bankruptcy, and after 14 years for subsequent bankruptcies.

Whether you can obtain credit after your discharge from bankruptcy will depend on your ability to convince lenders of your financial maturity and ability to repay the debt. There are no guarantees—no one is required to give you credit. However, there are measures that we utilize to assist our clients to rebuild their credit.

What is the impact of bankruptcy on my house or car?

Bankruptcies generally do not affect the rights of secured creditors. If you have decided to keep a non-exempt asset and you have continued to make the payments your ownership of such asset should not be affected initially.  You may have trouble refinancing your mortgage when it matures however, so typically it is best to renew your mortgage at that time, rather than shopping around for a new lender, who will require you to go through the entire application process, which would include pulling your credit report.

What is the impact of bankruptcy on my spouse?

Your debts are your own; however, if you and your spouse have a joint (co-signed) debt, and you file for bankruptcy, the creditor will look to your spouse to cover the entire amount of debt outstanding and if your spouse does not make the necessary payments the creditor may pursue legal action against them.

Only the portion of assets that you own is included in your bankruptcy. So, if you own assets jointly with your spouse, your portion may have to be sold and distributed to your creditors. Thus, a house that is solely in your spouse’s name would not be an asset to be divided in your bankruptcy.  However, if you recently transferred the house out of your ownership this would be viewed as fraud and, if not disclosed, would be an offence under the Bankruptcy and Insolvency Act, and would result in you not receiving your automatic discharge.

Your bankruptcy would not affect your spouse’s credit rating, as long as your spouse continues to keep up to date on the necessary payments to which they co-signed.

What is the impact of bankruptcy on someone who co-signed my loan?

Anyone who co-signed a loan for you will still be responsible for making the loan payments after you go bankrupt.

What is the impact of bankruptcy on my Wages?

Wages are not affected by bankruptcy; however, if you have surplus income, then you would be required to pay half of such amount to the trustee.

What is the impact of bankruptcy on student loan debt?

There are programs available to help if you are experiencing financial difficulty because of student loans.

The Government of Canada’s Repayment Assistance Plan helps those with federal student loans pay back what they can reasonably afford. If you have a student loan issued by your provincial or territorial government, contact the appropriate student financial assistance office to find out about their repayment assistance programs.

A discharge from bankruptcy will release you from your obligation to repay your student loans if you filed for bankruptcy at least seven years after you stopped being a part-time or full-time student. In the event that repaying the student loan will result in undue hardship, and provided you have made efforts to repay your loans, the court can reduce this period to five years.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply