Exemptions In British Columbia:
- No limit on clothing for you or your dependents all clothing is exempt from bankruptcy
- Household furnishings and appliances up to $4,000
- One motor vehicle up to $5,000 unless you are behind on child support payments, in which case the limit is $2,000
- Work tools and work-related property up to $10,000
- No limit on medical and dental aids for you or your dependents
Calculating Your Current Monthly Income
Your current monthly income under the means test is based on your monthly income in the 6 months before your bankruptcy filing. This doesnât include the month your bankruptcy case is filed in. For example, someone filing Chapter 7 bankruptcy in July calculates their current monthly income based on how much they earned from January 1 to June 30.
Step 1: Add up all income from the last 6 months.
Your monthly income is calculated by adding up all countable gross income you received in the 6 month period youâre using for your means test. Gross income is not the same as your take-home income. Itâs before taxes and other deductions are taken out.
Countable income includes income from wages, alimony, child support, rental income, and any other money you receive on a regular basis. Social security income is not added when calculating your current monthly income. If your only source of household income is SSI or SSDI, you pass the Chapter 7 means test without having to do any math.
Step 2: Divide the result by 6.
Step 3: Use your current monthly income to determine your annual income.
Take your current monthly income as calculated and multiply it by 12. This is your annual income according to the means test calculation. Compare that number to the annual income for your household size in your state.
What’s The Difference Between State And Federal Chapter 7 Bankruptcy Exemptions
What you can exempt, and what your exemption limits are, is determined by the state you live in — or have recently lived in. There are federal bankruptcy exemptions and state bankruptcy exemptions that can be combined with the federal nonbankruptcy exemptions.
While the majority of states require you to use their Chapter 7 bankruptcy exemptions, sixteen states allow you to choose between the federal bankruptcy exemptions and your state’s exemptions. If you happen to live in one of the states that allow you to choose between the two sets of exemptions, it’s important to know that you canât choose some exemptions from one set, and some from another. You have to pick one complete set or the other.
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Key Concepts On Surplus Income
In summary, the more you make the more you pay, and the longer you are required to make the payments. Lets review these calculations in more detail.
How do the surplus income rules work ?
The government sets a threshold for what you are allowed to earn each month, based on the size of your family. Here are the limits set for 2021, based on your family size:
Heres an example of how the calculation works:
Joe is single, with no dependents. He earns $400 per week. In a typical four payday month he earns $400 x 4 = $1,600 after tax. He is allowed to earn $2,248, so Joe is below the surplus limit, so he is not required to make any surplus income payments to the trustee during his bankruptcy.
What Are The State Bankruptcy Exemptions
The Bankruptcy Code allows states to create their own rules for bankruptcy exemptions. States can enact state-specific exemptions for bankruptcy cases.
States may allow debtors to choose between state and federal bankruptcy exemptions or require debtors to use the state bankruptcy exemptions. Therefore, it depends on which state you live in whether you can use state bankruptcy exemptions or federal bankruptcy exemptions.
If you live in a state for 730 days or longer before filing Chapter 7, you must follow the state laws regarding bankruptcy exemptions. However, if you have not lived in the same state for at least two years before filing bankruptcy, you use the state laws of the state in which you resided for the greater portion of 180 days before the 730-day period.
The type and amount of exemptions under state laws vary. Some states have lower cash exemptions compared to other states. Many states have wildcard exemptions that can help you protect excess cash. It just depends on the state.
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What Are Bankruptcy Trustee Fees
All bankruptcy trustee fees are regulated by the federal government and are included as part of your bankruptcy or consumer proposal payments.
Most personal bankruptcies in Ontario are summary administrations. Fees in a summary administration are based on a government tariff set our under Rule 128 of the Bankruptcy & Insolvency Act and are based largely on a percentage of realizations in a bankrupts estate. These fees are paid before distribution is made to the creditors so it is effectively the creditors who are paying the bankruptcy trustees fees. These fees are calculated as:
- 100% of the first $975
- 35% up to the next $2,000
- 50% of receipts over $2,000.
- Reimbursement for credit counselling fees, filing fees, and administration costs.
You are not required to pay an extra fee to the trustee. The trustee receives their fee out of the monthly contributions you are making. For example, if you are required to pay $200 per month based on your income that is all you pay. There are no extra fees because the trustee receives their fee out of that $200 per month payment.
What Debts Does Someone In Their 30s Filing Insolvency Eliminate
So, who does file bankruptcy in their 30s? Based on our data, the average 30-something filing insolvency owes more than $55,000 in non-mortgage debt.
- 88% are in trouble with credit cards
- 41% turn to high-cost payday loans for cash
- 30% are still repaying student loans
- 42% have a secured car loan or lease
- 33% owe taxes to CRA
The average monthly take-home income of a client in their 30s is $2,700. If in a 2-parent household, the average household income is $4,300. The problem is that most of their income is used for debt repayment.
How can you afford to pay for rent or a mortgage, keep up with living costs and save money if half of your income is used up to pay interest? You cant. What happens if you continue down this path is that your debt will continue to grow as you use more and more credit to balance your budget.
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Disadvantages Of Going Bankrupt
To apply to go bankrupt youll need to pay a £680 fee. Other disadvantages of going bankrupt include:
- if your income is high enough, youll be asked to make payments towards your debts for 3 years
- it will be more difficult to take out credit while you’re bankrupt and your credit rating will be affected for 6 years
- if you want to take out a loan of more than £500, you have to tell the lender youre bankrupt – youll break the law if you dont
- if you own your home, it might have to be sold – this depends on how much it’s worth after any amounts secured on it are repaid
- if you rent your home, your landlord could end your tenancy
- some of your possessions might have to be sold if they are not ‘exempt goods’
- some jobs dont let people who have been made bankrupt carry on working
- if you own a business it might be closed down and the assets sold off
- going bankrupt can affect your immigration status
- your bankruptcy will be published publicly
Consequences For Failing To Report An Income Increase
If your income has grown, for whatever reason, do not be tempted to hide it from the bankruptcy court. You may think the change is not much and that you can safely pocket it. However, the change may be enough to alter your payment schedule or eligibility for a Chapter 7 proceeding. If you fail to report an income increase, your bankruptcy case could be dismissed and you would be back to being overwhelmed with your debt. Your creditors would have the right to demand payment on their own schedule and now the courtâs payment plan.
In some cases, you could be charged with bankruptcy fraud, which is a criminal offense. It could lead to fines and imprisonment.
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How Bad Is Filing For Bankruptcy
One of the main reasons why debtors avoid seeking the help of a Licensed Insolvency Trustee is because of the stigma that people associate with bankruptcy. People often equate bankruptcy with feelings of shame or guilt. They may feel like filing for bankruptcy is morally wrong. But this type of thinking doesnt help you move forward and is never part of the solution. In fact, it may be the reason why youre delaying asking for help.
Cash Protected Through Exemption May Be Lost Through Right Of Setoff
Even if you can protect your cash through a bankruptcy exemption, you may lose it to a creditor through the right of setoff. If you have money on deposit with the same institution from which you have borrowed money, that creditor can usually seize your deposit assets to offset the loan. For example, if you have a checking account with the same bank that you owe money to on a credit card, when you file bankruptcy the bank may seize your cash in the account to offset your credit card debt.
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But I Like My Bank Why Should I Go Through This Hassle
Because if you keep your bank account in bankruptcy, your creditors could take money from you. You need to make sure that they cant put through debits from your bank account after your bankruptcy starts.
If you bank at a bank, and have a credit card with the same bank, it is very easy for the credit card company to debit your account if you dont make your payment on time. Even another bank where you owe money can debit your account, if you have given them permission to do so.
When you first apply for a loan or credit card, most lending agreements give the lender the right to take money out of your bank account if you are in default. It increases their chances of getting paid.
Opening a new account may be a nuisance, because you have many items automated for your convenience: your paycheque deposit and many of your household bills . It will take time to contact everyone to switch over all the items in your account, but the change will let you keep better control of your money.
How Much Does Your State Say You Can Keep
Most states have exemption statutes that tell you what property you can keep when you file bankruptcy. Find your state bankruptcy exemptions.) As long as your state law says you can “exempt” the property, and you indicate your wish to do so in your petition , then the bankruptcy trustee cannot take the funds. So, your first step is to find out what your state says you can exempt.
Most states that allow you to exempt bank account funds put a limit on the amount you can keep. So if you have $15,000 in your account and your state allows you to exempt $5,000, you’ll have to turn over $10,000 to the bankruptcy trustee.
Even if your state does not have a special exemption for bank account funds, it might have a wildcard exemption that allows you to exempt any type of property up to a certain dollar amount. You could use a wildcard exemption to protect all or some of the money in a bank account.
Also keep in mind that if the money in your account comes from a source that is exempted in bankruptcy, and you can trace those funds from the source, then you may be able to keep them. For example, if you have money in your account that is from child support payments, you can most likely exempt that money.
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Debts That Can And Cant Be Discharged In Chapter 7 Bankruptcy
Chapter 7 should dismiss most of the debts you owe, but there are some hard-and-fast debts that cant be discharged in Chapter 7.
The list of non-dischargeable debts includes:
- Child support
- Student loans must prove undue hardship
- HOA fees if you surrender your home or condo
- Any other form of unsecured debt.
What Happens To Your Assets
Its a common misconception that if you file for bankruptcy, youll lose all your assets. In reality, many assets are exempt from seizure, such as personal belongings, furniture, tools of the trade, etc. These exemptions vary from province to province.
RRSPs are also exempt from seizure, except for contributions made in the last year. However, you will lose your tax refund for the year, plus any tax refunds from previous years that you have not yet received.
In most cases, you can keep your home and your vehicle during bankruptcy. If you have built up a lot of equity in your house or have other expensive assets that arent exempt in your province, you may consider filing a consumer proposal instead, which has no impact on your assets.
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What Income Should You Include In Your Current Monthly Income
You must include all of your income, whether it is taxed or not, except the following:
- payments you received under the Social Security Act
- payments to victims of war crimes or crimes against humanity, and
- payments to victims of international or domestic terrorism.
Here are some examples of income you should include :
- wages, salary, tips, bonuses, overtime, and commissions
- net income from the operation of a business, profession, or farm
- interest, dividends, and royalties
- net income from rents and other real property income
- pension and retirement income
- regular contributions to the household expenses of the debtor or the debtor’s dependents, including child or spousal support
- regular contributions by the debtor’s spouse
- unemployment compensation
- annuity payments.
Attorney Fees Are Expensive
It could take a long time for someone to tuck away enough funds for a Chapter 7 filing the national average to hire a bankruptcy lawyer in the U.S. is about $1,500 according to Upsolve, a nonprofit that helps low-income families file for bankruptcy for free. The cost of hiring a bankruptcy attorney can vary and largely depends on factors such as the complexity of your case. Plus, Chapter 7 attorneys typically require payment in full before theyll file a case.
The costs to file bankruptcy dont stop there. You might also need to dole out cash for court filing fees, credit counseling and a financial management course.
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Can You Keep Stocks If You File Bankruptcy
For many people, particularly during these trying economic times, their debt has grown so much out of their control that the only way out of the financial troubles is to file for bankruptcy protection. For those filing for bankruptcy who also own stocks, it’s important to know how filing will affect equity holdings. Whether you get to keep the stocks or not depends on the type of bankruptcy protection that you seek. A bankruptcy lawyer can help advise you if bankruptcy is right for you and, if so, what type of filing you are best making.
If you own stocks, you may be forced to sell them as part of your bankruptcy filings. Whether or not you will be forced to sell your assets to pay back your debt depends largely on the specific type of bankruptcy which you are filing for.
Using Bankruptcy Exemptions To Protect Cash
When you file for Chapter 7 bankruptcy, you agree that in exchange for a bankruptcy discharge, the bankruptcy trustee appointed to administer your matter can take property to pay back unsecured creditors. But, if an item of property or an amount of money is exempt under the bankruptcy exemption laws, you can keep it.
The exemptions available to you will depend on the law in your state. Some state exemptions specifically cover an amount of cash . Other states have wildcard exemptions or general personal property exemptions that allow you to protect any type of property up to a certain dollar limit, including cash.
Example. Suppose that your state doesn’t exempt cash, but has a $3,000 wildcard exemption. You have $4,000 in cash. You can protect $3,000 using the wildcard exemption but will probably have to turn over the remaining $1,000.
Surplus Income Rule Can Increase Payments
The general concept of a surplus income payment is the more money you earn the more money you pay into your bankruptcy for the benefit of your creditors.
The government has set net monthly income thresholds, for a person or a family, to maintain a reasonable standard of living in Canada. Every dollar that a bankrupt makes above this income threshold, is subject to a surplus income payment of 50%. For example, if your income is $400 above the limit, you would be required to make a surplus income payment of $200.
Each month you will be required to send your bankruptcy trustee a copy of your paystub, so they can calculate your net income and determine if any surplus income payments are required, and if so how much they will be.
- A first bankruptcy will last for a minimum period of nine months.
- If on average you are paying more than $100 per month in surplus income payments, then your bankruptcy will be extended for an additional 12 months.
However, in the event that you are also paying child support, or have significant medical expenses, then your income will be reduced by these amounts, reducing your surplus income total.
To calculate what your potential surplus income might be, try out our surplus income bankruptcy calculator.