Filing for Bankruptcy
Bankruptcy allows an honest but unfortunate debtor to be released from the burden of debt. It is a legal process legislated by the federal government and administered by Licensed Insolvency Trustees, professionals who must be impartial, and is based on fairness to both you and your creditors. It allows you a financial fresh start when other options are not possible.
Upon filing a bankruptcy almost all legal actions such as wage garnishment and collections calls by unsecured creditors, including government agencies, must stop. You no longer pay your unsecured creditors. In Canada, outstanding income tax is usually an unsecured debt. Payments on secured debts, such as a house mortgage or car loan, typically continue if you can afford to keep those assets.
You do not automatically lose your assets. Although some assets must be liquidated and the proceeds used to pay creditors, you are entitled to keep certain exempt possessions, such as household goods, a vehicle, house equity and tools of the trade, if the values are below the amount set by provincial legislation. The Trustee will explain what assets you can keep when reviewing your options with you.
Your main duties during the period of bankruptcy include filing monthly reports of Income and Expenses, paying a percentage of net income if it exceeds the government standard threshold (surplus income), attending two (2) one-on-one financial counselling sessions as well as paying the bankruptcy costs, which are set by the government. Those costs are typically paid by way of assets, tax refunds, surplus income and/or flexible monthly payments.
At the conclusion of the process you’ll receive a discharge, which legally erases the debts that were stopped when you filed the bankruptcy. If this is your first bankruptcy, you may be automatically discharged after 9 months if you have completed all required duties. Some individuals remain in bankruptcy for longer periods depending on certain factors. The Trustee will explain how your situation affects the length of the bankruptcy period when reviewing your options with you.
To determine whether Bankruptcy is the right solution for you starts with the complimentary consultation, where we will present all available options and answer all of your questions, many of which will be unique to your situation.
Here are some of the more common concerns and questions that will be answered at the consultation:
- Student Loans
- Issues regarding 2nd or 3rd time bankruptcy
- The impact on consumer credit ratings, mortgages, pensions, RRSP’s etc.
- Duties required during the bankruptcy process
- Cost of bankruptcy proceeding
- What happens with tax returns?
- What happens with ongoing payments for services; utilities, cell phones, cable, etc.?
- What affect will this have on my spouse or partner?
- Will my employer find out?
- Do you advertise my bankruptcy information?
What Steps are Involved in Filing for Bankruptcy?
Most unsecured debts are discharged through bankruptcy. This includes credit cards, lines of credit, and even tax obligations. Some debts, however, cannot be discharged through bankruptcy, and these include child support payments and student loans that are less than 7 years old. Your licensed insolvency trustee (LIT) can help you to determine which of your financial obligations can be eliminated through bankruptcy.
- File monthly reports
- Update your LIT of any changes to your financial situation
- Make monthly payments of any surplus amounts
- Pay administrative fees
How long does it take to have a bankruptcy discharged?
First time bankruptcies can be automatically discharged in as little as 9 months in some cases. Subsequent bankruptcies take considerably longer, and can last as long as 3 years. Being compliant in your reporting obligations and ensuring that your payments remain up to date can help you to discharge your bankruptcy as early as possible. Failure to comply with your obligations, however, can lead to extended terms and further repercussions imposed by the Court, so it’s important to stay on track throughout the process.
What types of debts are discharged through bankruptcy?
Most unsecured debts are discharged through bankruptcy. This includes credit cards, lines of credit, and even tax obligations. Some debts, however, cannot be discharged through bankruptcy, and these include child support payments and student loans that are less than 7 years old. Your LIT can help you to determine which of your financial obligations can be eliminated through bankruptcy.