Bankruptcy

To be eligible to declare bankruptcy in Canada, there are some requirements you must meet:

• You have to owe at least $1,000 in unsecured debt, or;
• Your debt must be greater than the value of your assets, or;
• You’re unable to pay the debts as they become due

Contrary to what many people think, the bare minimum of $1,000 owing is enough to declare bankruptcy, although that doesn’t mean you should. Only a Licensed Insolvency Trustee can advise you as to your best option, given your particular circumstance.

Bankruptcy can eliminate most of your debts, which can include your unsecured debts, such as: 

• Credit cards
• Medical bills
• Payday loans
• Bank loans
• Lines of credit
• Income tax debts
• Student loans (if you’ve been out of school for more than seven years)

Certain debts cannot be eliminated by declaring bankruptcy. Debts that are not eliminated by bankruptcy include the following:

• Alimony
• Spousal or child support 
• Court-imposed fines
• Debt arising from fraud or misrepresentation
• Student loans if you haven’t been out of school for seven years
• Court imposed restitution orders

When you declare bankruptcy, the equity in your non-exempt assets may be liquidated or realized on by the Trustee, and used to repay the money that you owe your creditors. The process is simple: any assets of value that you own when you file will be used to pay towards your debts, and your debt will be forgiven. 

The common items that you may lose when declaring bankruptcy include the following:

• An inheritance 
• Valuable artwork
• Stocks, bonds, and investments
• Tax refunds for the year of bankruptcy, and any years prior that you haven’t yet received
• Equity in your home above your provincial exemption

If you follow and complete the duties assigned to you during your bankruptcy, and your trustee, creditors, and the Office of the Superintendent of Bankruptcy (OSB) don’t object to your discharge, you may be out of the bankruptcy process as soon as nine months, if this is your first bankruptcy. 

Getting discharged from bankruptcy essentially means that you’re no longer bankrupt. You will no longer be responsible for the debts that were included in the bankruptcy, and you’re free to start rebuilding your credit. If you don’t complete your duties, and therefore are not discharged, your trustee will eventually be discharged from your file. If you remain undischarged, creditors will be free to contact you again and collect any outstanding debts.

For first-time bankruptcy, you can get out in nine months if you don’t have any earnings above the income guidelines that are set by the government, known as surplus income, and your other duties are complete. It would take 21 months to be discharged if you do have surplus income payments to make. The process can be longer if you declare bankruptcy for a second time: 24 months if you don’t have any surplus income and 36 months if you do. If you fulfill all of the duties that you must follow, your discharge can happen automatically at the timeframes outlined.

When you declare bankruptcy, your credit rating will fall. This will only be temporary, as the information about your bankruptcy will appear on your credit report for the period of time during your bankruptcy plus only 6 years after your bankruptcy discharge. For some people, bankruptcy showing on their credit report may be something they want to avoid. If you want to avoid bankruptcy, a consumer proposal may be an alternative choice.

Once you have filed a bankruptcy, all creditors and collection agencies are required by law to stop contacting you. The term that’s often used for when collection agencies cannot contact you is referred to as a Stay of Proceedings. In addition, a creditor is not allowed to implement a wage garnishment for debts that are part of the bankruptcy.

After you’ve declared bankruptcy, the Licensed Insolvency Trustee will notify your creditors, which is usually done electronically. There are certain cases where a Meeting of Creditors is required. If the meeting is requested, you must attend. The purpose of this meeting is to:

• Allow the creditors to get information about your bankruptcy filing;
• Approve the particular LIT that has been appointed;
• Appoint inspectors who are expected to assist with the bankruptcy claim, if desired; and
• Allow the creditors to give direction to the LIT.

You may have to face an examination under oath, which will be conducted by a representative from the Office of the Superintendent of Bankruptcy. The purpose of this examination is to see what actions you have taken before filing for bankruptcy, the reasons that caused your bankruptcy, and to confirm any property that you have acquired before or after you’ve filed.

Depending on your financial situation, some people may inquire about a consumer proposal instead. With a consumer proposal, your debts can be consolidated into one simple monthly payment made to the Trustee.  A Consumer Proposal generally avoids the loss of secured assets, or assets that might otherwise be lost in a bankruptcy,  which can be an appealing choice for those who has assets they don’t want to give up. The consumer proposal option might not work for everyone, but it is an option you should discuss with your Licensed Insolvency Trustee.