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What is Bankruptcy? Bankruptcy is a legal
proceeding that is available to a person to cope with a financial crisis. One
of the main purposes of bankruptcy legislation is to afford the opportunity
to a person, who is hopelessly burdened with debt, to free himself
of the debt and start fresh - "a new lease on life." To go into
bankruptcy it is necessary for a person to be insolvent. To be insolvent
means to -:
Will my Creditors Stop Harassing me? What does it cost? Trustee fees, filing
fees and counselling fees are regulated by the
government. The trustee normally is paid out of the funds arising from the
liquidation of the bankrupt's assets. If the bankrupt has no assets
available, then the trustee will require a retainer or require the bankrupt,
over time, to pay the trustee's fees and disbursements. In the simplest cases
this amounts to $1,347 plus GST and counselling
costs. Most firms have a payment plan that allows you to pay the costs over
time. How do I go into bankruptcy? There are two ways a
person can go into bankruptcy. The first and more common way is to have the
person make an assignment in bankruptcy (voluntarily go into bankruptcy). The
second, and rarely used way, is for creditors to ask the Court to make an
Order that a person is bankrupt. In both these cases a Trustee in Bankruptcy
is required to administer the bankruptcy. What about my wages during bankruptcy? When is my bankruptcy over? For those people who
have not been bankrupt before, an automatic discharge will take place after
nine months if the creditors, Superintendent of Bankruptcy or trustee have
not opposed your discharge and you have received counselling.
Occasionally, creditors do object and the matter goes to mediation or is
heard before a Registrar or a Judge. The discharge is usually granted where
the bankrupt is only earning sufficient income to keep himself and his
dependants reasonably provided for. It is the discharge of the bankrupt, with
minor exceptions, that cancels the bankrupt's debts. In the event that you
have been bankrupt before, your discharge will not be automatic and must be
heard before a Judge or a Registrar. Who Will Know? In a bankruptcy, where
there are significant assets, a notice is placed in the "legals" section of the newspaper notifying creditors
of the date of the meeting of creditors. If there are minimal assets, the
creditors are notified by mail only - there is no advertisement in the "legals" section of the newspaper. Any legal filing
of a bankruptcy is a public document which the general public has access to.
From this documentation, the Credit Bureau is notified and the bankruptcy is
recorded and will remain on your credit record for 6 years. This does not
mean that you cannot obtain credit during this time. Any granting of credit
is the responsibility of the creditor to approve. How is my spouse affected? Your spouse, whether
common law or married will not be affected by your bankruptcy if he or she is
not responsible for any of your debt (did not sign an agreement or contract
for any of your debt). If they have a supplemental credit card they are
probably responsible for that debt. Your spouse's credit rating will not be
affected by your bankruptcyand any assets in the
spouse's name will not be part of the bankruptcy. If your spouse is
responsible for any of your debt or has his own debt then the spouse may have
to file bankruptcy too. Can my bank refuse to let me open a bank account
or cancel my existing account? No. They cannot. If your bank cancels or refuses
to open a bank account for you because you have been or are in bankruptcy
they are breaking the laws of the land. For more information and to lodge a
complaint please refer to this page. What do I do if I have Canadian debt but now
live in a foreign country? You have a number of options, and may even be
able to file Canadian bankruptcy from that foreign country. How much am I allowed to keep? The property exempt from
seizure is set by the provinces and territories as follows:
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What don't I keep? In a bankruptcy,
assets in excess of your allowed personal exemption, such as, real estate,
automobiles and boats that are the property of the bankrupt as at the date of
bankruptcy and anything that the bankrupt acquires during the bankruptcy
vests in the trustee for the benefit of the creditors of the bankrupt. This
would include inheritances received or to which the bankrupt might become
entitled, by the death of someone during the time of the bankruptcy. It also
includes such things as lottery winnings and anything that the bankrupt might
accumulate, such as assets bought with any surplus income. Tax refunds
outstanding, as at the date of the bankruptcy, also vest in the trustee for
the benefit of the creditors. Income Tax law requires a bankrupt to file two
tax returns for the year of the bankruptcy. The first (pre bankruptcy tax
return) covers the period January 1st through to the date of bankruptcy. The
second (post bankruptcy tax return) covers the period starting with the date
of the bankruptcy and ending December 31st. Pre bankruptcy tax rebates vest
in the trustee for the benefit of the creditors. You will be asked to
volunteer any refunds, receivable from your post bankruptcy return, to the
trustee for distribution to the creditors. While you are not legally obliged
to give up these funds, the trustee or creditors may apply for a Court Order
in this respect or it may be reported to the Court at the time of your
discharge. What if I have the cash flow to make a proposal? If a person has the
ability to make a proposal (i.e. his or her income exceeds living expenses),
then he or she should consider making a proposal. If any person files for
bankruptcy when he or she has the ability to make a proposal, it is the
Trustee's duty to oppose the bankrupt's discharge.In
this case, the bankrupt may be in bankruptcy up to an additional 12 months
beyond the usual 9 months.The bankrupt will be
required to make payments in each of these months. What is counselling
and do I have to take it? You must take counselling in
order to be eligible for an "automatic nine month discharge". The counselling can be one-on-one, with yourself and your
trustee, or if you prefer, it can be in a group consisting of other bankrupts
and your trustee. The first counselling session
must be held between 10 and 60 days following bankruptcy; the second counselling session must be held no later than 210 days
following the date of bankruptcy. The cost for this is $85, plus GST, for
each individual counselling session. What happens during the bankruptcy? The bankrupt must keep
the trustee informed as to where the bankrupt is living and also must respond
to the trustee's requests and assist him as required and provide whatever
information is requested. The bankrupt must also provide the trustee with
reports as to earnings and living expenses and any change in the bankrupt's
family situation. The trustee will provide the bankrupt with appropriate
forms to be filled in that will provide the trustee with the necessary information.A meeting of creditors is not required unless
requested by the Superintendent of Bankruptcy or creditors with an aggregate
of at least 25% of the proven claims.These meetings
are usually held at the office of the trustee. What about alimony and maintenance? Alimony or
maintenance payments are not affected by bankruptcy. These payments must be
kept up to date. A bankruptcy does not stop any actions for collection.
Alimony and maintenance are provable claims and will be paid as a preferred
claim for amounts incurred in the year before bankruptcy. What about student loans? If the date of
bankruptcy is more than ten years after the finish of studies, the debt will
be wiped out upon the bankrupt's discharge. A discharge from bankruptcy does
not release a student loan if the bankruptcy occurs within ten years after
finishing studies.A Court can order the discharge
from a student loan at any time after ten years of ceasing to be a student,
and after being discharged from bankruptcy, if the person has acted in good
faith and the person will continue to experience financial difficulty in
paying the student loan. What about Canada Revenue Agency (CRA) debt? CRA's position is that
they, after taking appropriate steps, can register as a secured creditor
against real property (real estate) or personal property (furniture or a
vehicle, etc.) of a debtor. What does CRA have to do in order to effect a secured claim? Ninety days after an
assessment, if there is no appeal lodged, CRA can make application to the
Federal Court to have a judgement issued.CRA then must register a secured claim under the
person's name under the Personal Property Security Registry.CRA,
if real property is involved, will also register under Land Titles. What do you do if you think that CRA is going to
register a secured position against you? If the debt is large enough, you
should see an insolvency lawyer or a Trustee immediately.A
search of the Personal Property Security Registry or land titles will reveal
whether CRA has filed a secured claim against you.You
may want to consider filing for bankruptcy or consider filing a proposal
under the Bankruptcy and Insolvency Act N.B. CRA has advised that: What debts are not erased in a bankruptcy? Certain kinds of debt
are not erased by the bankrupt's discharge. They are:
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