Bankruptcy Information

Is bankruptcy the right option for you? - If you are unable to pay your bills and can't make a reasonable proposal to your creditors then bankruptcy may be your best option.

No one ever wants to go bankrupt, but filing for bankruptcy is not the end of the world. The bankruptcy legislation in Canada has been designed to give an honest but unfortunate debtor an opportunity to get a fresh start and to obtain a discharge from their debts.

What is bankruptcy?

Bankruptcy is a formal process under the Bankruptcy and Insolvency Act whereby a debtor, with the help of a trustee, can obtain a discharge from most of their debts.

What happens when I go bankrupt?

When you go bankrupt all creditor action is stopped. This means that no creditor can continue any further legal or collection activity against you, including wage garnishments and harassing calls. This is what brings people in to see a trustee.

Bankruptcy is a two way street, if you want to get rid of your debts you must be prepared to give up your assets which are not exempt from seizure (see list of exempt assets below). This does not mean that you will have to give up your assets if you are able and willing to buy them back from the trustee at fair-market-value.

The rights of secured creditors are unaffected when you make an assignment in bankruptcy. This means that you have any secured creditors (ie: mortgage, car loan, etc.) you will have to continue making your payments to these creditors or surrender the encumbered asset.

Will I lose everything if I go bankrupt?

No, certain assets are exempt from seizure by a trustee in bankruptcy. These assets include the following:

• Personal effects (clothing, jewelry, personal belongings) totaling up to $5,650
• A motor vehicle (car, truck, motorcycle) valued up to $5,650
• Household furniture and appliances totaling up to $11,300
• Tools/equipment used to earn a living (tools of trade) totaling up to $11,300
• Most life insurance policies
• Majority of RRSP's and pensions

Will I lose my house if I go bankrupt?

Not necessarily, the trustee has an interest in the net equity available in your property. Net equity is the amount of money you would receive if the property were to be sold after paying off your mortgage and selling costs. Net equity determined by taking the fair-market-value (appraised value) of your property and subtracting your mortgage(s) and estimated selling costs.

The trustee and your creditors do not want to sell your property, but they must realize the net equity. One way for them to realize the net equity of the property is to sell the property. The other way they can realize the net equity is for you to pay that amount to the trustee.

If you buy-back or pay the net equity amount to the trustee then you will be able to keep your home even if you go bankrupt. In most cases people who go bankrupt are able to keep their homes.

Will I lose my car if I go bankrupt?

If you own your car outright (ie: you're not making car payments) and it has a fair-market-value of less than the exempt amount of $5,650 then you will be able to keep your vehicle and it will be unaffected by your bankruptcy.

If you own your vehicle outright and it has fair-market-value in excess of the exempt amount of $5,650 you will be able to keep your vehicle as long as you make arrangements with the trustee to pay the value in excess of the exemption.

If you are making car payments to a creditor that holds your vehicle has collateral for their loan you will have to continue making payments to that creditor in order to keep your vehicle or if you do not wish to continue making payments you will have to surrender your vehicle to the creditor. Bankruptcy does not affect the rights of secured creditors to be paid or to repossess their security.

If I go bankrupt will I ever be able to get credit again?

Yes, going bankrupt does not mean that you will never be able to get credit again. Filing for bankruptcy causes a black mark on your credit report which will make it more difficult for you to get credit. However, after you are discharged from bankruptcy you can take steps to reestablish or rebuild your credit. For more details about rebuilding your credit please "click here".

If I go bankrupt will it affect my spouse?

No, even though you may be married or you are in a common-law relationship your spouse's credit will not be affected by your filing for bankruptcy. You and your spouse are two separate legal entities, as such when you file for bankruptcy it will only affect your credit rating. It is important to note that because you and your spouse are two separate legal entities by filing for bankruptcy you will only deal with your legal obligation to pay your creditors. If you spouse has co-signed any of your debts then your bankruptcy will not prevent those creditors from pursuing your spouse.

What are the main duties of a bankrupt?

If you go bankrupt there are four main duties that you must perform:

1. You must attend two credit counseling sessions. These sessions may be done at the trustee's office or you may be referred to a third party credit counselor.
2. You must provide the trustee with monthly income and expense reports. The main purpose of these reports is to allow the trustee to monitor for Surplus Income.
3. You must provide the trustee with information to prepare and file your pre and post-bankruptcy income tax returns. If you are self-employed you may be required to prepare these returns and provide the trustee with copies.
4. You must pay the minimum bankruptcy administration fees. These fees cover all of the costs relating to your bankruptcy. The total amount of fees and payment arrangements will be determined with the trustee.

What is surplus income and how is it calculated?

When you make an assignment in bankruptcy you are no longer required to make payments to your creditors. However, some people who go bankrupt have income such that they are in a position to make some payments to their creditors. The surplus income calculation is meant to be a reasonable way to determine if you are required to make additional payments to your creditors after bankruptcy and if so how much.

Your surplus income payment (if required) is calculated by the following formula:

• NET INCOME - SUPERINTENDENT'S GUIDELINES = SURPLUS INCOME x 50% = PAYMENT
• NET INCOME: includes all income from all sources received during the month net of taxes.
• SUPERINTEDENT'S GUIDELINES: monthly amount of income determined by the Superintendent to be required for normal living expenses.
• SURPLUS INCOME: is NET INCOME minus the SUPERINDENT'S GUIDELINES
• SURPLUS INCOME PAYMENT: is 50% of the SURPLUS INCOME

How do I start the process?

Once you've decided that filing for bankruptcy is the best way for you to deal with your debts then you will need to make an appointment to see a licensed trustee in bankruptcy. Only a licensed trustee in bankruptcy can help you to file for bankruptcy.

What debts are not discharged from bankruptcy?

Certain debts are not discharged (eliminated) by filing for bankruptcy. These debts include child and spousal support, court ordered payments, fines, debts incurred through fraud or misrepresentation and student loan debts if you have not ceased being a full or part-time student for a minimum of 7 years at the time of filing for bankruptcy.

A complete listing of all debts not discharged from bankruptcy is provided in Section 178 of the Bankruptcy and Insolvency Act.

Where can I go to get more information about personal bankruptcy?

If you have additional questions or concerns please call our office to arrange a free initial consultation. If you are looking for more information on the web the best source is the Office of the Superintendent of Bankruptcy website http://www.ic.gc.ca/epic/site/bsf-osb.nsf/Intro. The Office of the Superintendent of Bankruptcy is the government agency that deals with all bankruptcy and proposal filings in Canada, as well as the licensing of trustees.

How does bankruptcy affect my credit rating?

Bankruptcy results in an R9 credit rating which is the worst and it will stay on your credit bureau report for six years after you receive your discharge from bankruptcy.