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.
What Happens To My Tax Debts
While bankruptcy can deal with tax debts owed to the CRA, it is important you speak with a Licensed Insolvency Trustee before the CRA takes any action against you, such as placing a lien on your property.
The CRA has powerful collection powers, and they often act quickly to collect on your unpaid tax debts.
Bankruptcy In The United States
Like the economy, bankruptcy filings in the U.S. rise and fall. In fact, they are like dance partners where one goes, the other usually follows.
Bankruptcy peaked with just more than two million filings in 2005. That is the same year the Bankruptcy Abuse Prevention and Consumer Protection Act was passed. That law was meant to stem the tide of consumers and businesses too eager to simply walk away from their debts.
The number of filings dropped 70% in 2006, but then the Great Recession brought the economy to its knees and bankruptcy filings spiked to 1.6 million in 2010. They retreated again as the economy improved, but the COVID-19 pandemic easily could reverse the trend in 2021. It seems inevitable that many individuals and small businesses will declare bankruptcy.
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What Can The Debtor Do If A Creditor Attempts To Collect A Discharged Debt After The Case Is Concluded
If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The bankruptcy court will often do so to ensure that the discharge is not violated. The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.
Grounds For Denial Of A Debt Discharge
The grounds for denying an individual debtor a discharge in a Chapter 7 case are narrow. They are construed against the moving party .
Among other reasons, the court may deny the debtor a discharge if it finds that the debtor:
- Failed to keep or produce adequate books or financial records
- Failed to explain any loss of assets
- Committed a bankruptcy crime such as perjury
- Failed to obey a lawful order of the bankruptcy court
- Fraudulently transferred, concealed, or destroyed property that would have become the property of the estate
- Failed to complete an approved instructional course concerning financial management
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Issues With Reaffirming Debts
If your current money balance is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship. The court may decide not to approve the reaffirmation agreement. Unless you are represented by an attorney, the bankruptcy judge must approve the reaffirmation agreement.
If you are represented by an attorney for the reaffirmation agreement, the attorney must certify in writing that they have advised you about:
- The legal effect and consequences of the agreement
- What happens if you default under the agreement
The attorney must also certify that:
- You were fully informed and voluntarily made the agreement
- Reaffirmation of the debt will not create an undue hardship for you or your dependents
The Bankruptcy Code requires a reaffirmation hearing if you have not been represented by an attorney during the agreement’s negotiating, or if the court disapproves of the reaffirmation agreement.
You may repay any debt voluntarily, however, whether or not a reaffirmation agreement exists. If you plan to repay debt, you may want to consider a Chapter 13 bankruptcy repayment plan.
Can Hmrc Debt Be Included In Bankruptcy
A common misunderstanding is that HMRC debt is treated differently to other debts. Tax debts are unsecured so they are included in Bankruptcy. They can be managed in exactly the same way as other debts such as credit cards or loans.
This is of particular significance to self-employed people and company directors who often build up large debts with HMRC. These could be in the form of self assessment tax arrears, VAT or debts arising from overturned tax management schemes.
Overpayment of tax credits is also an HMRC debt. This can be an issue which effects employed or self-employed people. These debts can get very large if an over payment of benefits has been going on for a long time.
If you go bankrupt HMRC debt is dealt with in the same way as any other unsecured credit. It is not treated preferentially.
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Who Can Be Made Bankrupt
A bankruptcy order can be made for one of three reasons:
- you cant pay what you owe and want to declare yourself bankrupt
- your creditors apply to make you bankrupt because you owe them £5000 or more
- an insolvency practitioner makes you bankrupt because youve broken the terms of an individual voluntary arrangement
Can Anything Prevent My Bankruptcy Discharge
Your creditors, your trustee, or the Superintendent of Bankruptcy can object your discharge and prevent you from getting discharged from bankruptcy if you do not complete your required duties.
Your creditor can also oppose your discharge if they feel your transactions before bankruptcy were fraudulent.
Finally, your discharge can be opposed if you have commited an offence under the Bankruptcy & Insolvency Act.
Should your discharge be opposed, you will be required to attend bankruptcy court where the registrar or a bankruptcy judge will lay out the conditions of your discharge.
Generally, you will be required to be bankrupt for longer and make additional payments to receive your discharge.
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How Does Bankruptcy Affect Your Credit Score
An important consequence of filing for bankruptcy is the negative impact on your .
However, this does not mean that you will never be able to borrow again.
A bankruptcy filing results in an R9 credit rating on your credit report. This will remain on your report for six years after youve been discharged from bankruptcy.
An important part of your financial recovery during the bankruptcy process is devoted to credit counselling and money management. You will learn how to budget, set financial goals and manage credit so that you avoid debt problems in the future. These important tools will help you improve your credit.
What Happens To Your Pension
Most pension schemes arent included in your bankruptcy and they cant be claimed by the trustee.
The pension scheme must be a UK state pension scheme or a scheme approved or registered by HM Revenue & Customs. Approved or registered pension schemes are usually:
- occupational pension schemes approved for tax purposes
- personal pensions approved for tax purposes
- stakeholder pensions
- retirement annuity contracts
If your pension scheme is not an approved or registered scheme you may be able to exclude it from your bankruptcy by:
- applying to the court for an exclusion order, or
- making a qualifying agreement
If your pension is part of the bankruptcy, it can be used to make payments to your creditors.
Pension Payments
Payments made to you from your pension scheme, including any lump sums, before the end of your bankruptcy can be used as part of an Income Payments Agreement or Income Payments Order . This will involve you paying some of your debt with your income.
If you are able to take money from your pension following changes to the law in April 2015, but have chosen not to do so, the trustee may look at the value of your available pension fund. If this would give you access to enough money to make a different arrangement to pay your creditors, the trustee can ask the court to cancel the bankruptcy.
Death benefits
Bankruptcies before May 2000
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Your Arizona Bankruptcy Lawyer Can Try To Work Out The Best Arrangement With The Trustee
If you know you want to file bankruptcy, the only question left is whether you want to do it yourself or hire an attorney. Having an Arizona bankruptcy lawyer by your side is probably for the best. When it comes to your bankruptcy petition, if you fill one form out wrong, the whole thing can be dismissed. This can cost you a lot of time and a lot of money. Your Arizona bankruptcy lawyer will make sure it is done properly the first time.
If you do have certain debts that you want to keep out of the bankruptcy, your attorney can try to work it out. For example, if you want to keep your home, the trustee may allow you to keep your mortgage. The same may go for a car loan depending on how much equity you have in the vehicle. What you should do is talk to an experienced Arizona bankruptcy lawyer as soon as possible.
What Happens To Your Information
Any previous name included in the bankruptcy petition will appear on the bankruptcy order, and in the:
- notice of your bankruptcy, which is permanently recorded in the Gazette but excluded from search engine results one year and three months after publication
- Individual Insolvency Register which will be removed within three months of your discharge
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Role Of The Case Trustee
When a chapter 7 petition is filed, the U.S. trustee appoints an impartial case trustee to administer the case and liquidate the debtor’s nonexempt assets. 11 U.S.C. §§ 701, 704. If all the debtor’s assets are exempt or subject to valid liens, the trustee will normally file a “no asset” report with the court, and there will be no distribution to unsecured creditors. Most chapter 7 cases involving individual debtors are no asset cases. But if the case appears to be an “asset” case at the outset, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002. A governmental unit, however, has 180 days from the date the case is filed to file a claim. 11 U.S.C. § 502. In the typical no asset chapter 7 case, there is no need for creditors to file proofs of claim because there will be no distribution. If the trustee later recovers assets for distribution to unsecured creditors, the Bankruptcy Court will provide notice to creditors and will allow additional time to file proofs of claim. Although a secured creditor does not need to file a proof of claim in a chapter 7 case to preserve its security interest or lien, there may be other reasons to file a claim. A creditor in a chapter 7 case who has a lien on the debtor’s property should consult an attorney for advice.
Mortgage & Secured Loans Are Excluded In Bankruptcy
The approach to secured debt differs from unsecured debt. A secured debt is a loan that has an asset or collateral involved, a mortgage or car loan, for example.
Secured debts are an exception to debts you can discharge through bankruptcy.
Here is what you need to know about secured debts and bankruptcy:
First, no secured lender is permitted to cancel your loan based on a declaration of bankruptcy alone.
As long as you continue to make your monthly mortgage or car loan payment you can keep those assets. If you are current on your mortgage, you should also be able to renew your mortgage with your existing lender, although that decision is ultimately up to your lender.
If you are drowning in other types of debt, you may find filing bankruptcy helps improve your finances enough to be able to keep up with your monthly car and house payments.
Home equity is an asset in your bankruptcy. If you have a significant amount of equity in your home, then bankruptcy may not be the right solution to eliminate your debt. You may want to use that equity to consolidate or restructure your debts through a consumer proposal instead.
A consumer proposal is a way to keep your assets and still eliminate debt. Book a free consultation for a review of your debts and situation today.
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Get Rid Of Unsecured Debt
When you cant pay off your debts, its time to consider options. Declaring bankruptcy is just one solution to clear your debt problems.
Its time to deal with the stress of overwhelming debts. Contact us today for a free debt assessment with a Licensed Insolvency Trustee to review the types of debt you are dealing with, your budget, and let us help you develop a debt elimination plan.
Some Secured Debts Are Dischargeable In Chapter 7
Any secured debt can be discharged. However, the attached lien won’t go away. The creditor will retain the right to recover the property as long as the debt remains unpaid. For instance, you can discharge a mortgage or car loan, but you’ll need to give up the house or vehicle.
If you don’t want or need the secured property, it can be to your advantage to let the creditor take it back. You’ll do this by indicating your intent to surrender the property when you fill out your bankruptcy paperwork. You don’t have to deliver the property to the creditor, but you must cooperate with the creditor’s repossession. Sometimes creditors won’t bother to repossess small items because it’s not worth the expense of picking it up.
If, however, the creditor failed to take a security interest in the property, you might be able to keep the property. An example would be if a car dealer forgot to place a lien on your car and the value of your car is within the exemption for motor vehicles. The dealer’s claim would be unsecured, and you could keep the car as exempt property.
But don’t count on this because it’s rare and you’d have to be able to protect the entire car value with a bankruptcy exemption. Otherwise, the Chapter 7 trustee appointed to your case will sell the car, return your exemption amount to you, and use the remaining funds to repay creditors.
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What Bankruptcy Can’t Do
Bankruptcy doesn’t cure all debt problems. Here’s what it can’t do for you.
Prevent a secured creditor from foreclosing or repossessing property you can’t afford. A bankruptcy discharge eliminates debts, but it doesn’t eliminate liens. A lien allows the lender to take property, sell it at auction, and apply the proceeds to a loan balance. The lien stays on the property until the debt gets paid. If you have a secured debta debt where the creditor has a lien on your propertybankruptcy can eliminate your obligation to pay the debt. However, it won’t take the lien off the propertythe creditor can still recover the collateral. For example, if you file for Chapter 7, you can wipe out a home mortgage. But the lender’s lien will remain on the home. As long as the mortgage remains unpaid, the lender can exercise its lien rights to foreclose on the house once the automatic stay lifts.
Eliminate child support and alimony obligations. Child support and alimony obligations survive bankruptcy, so you’ll continue to owe these debts in full, just as if you had never filed for bankruptcy. And if you use Chapter 13, you’ll have to pay these debts in full through your plan.
Eliminate most tax debts. Eliminating tax debt in bankruptcy isn’t easy, but it’s sometimes possible for older unpaid tax debts. Learn what’s needed to eliminate tax debts in bankruptcy.
Eliminate other nondischargeable debts. The following debts aren’t dischargeable under either chapter:
Student Loans Do Not Go Away In Bankruptcy
As noted in the above list, educational loans are generally not discharged by a Chapter 7 bankruptcy. However, they may be removed if the court finds that paying off the loan will impose an “undue hardship” on the debtor and their dependents.
To qualify for a hardship discharge of a student loan, you must demonstrate that you cannot make payments at the time the bankruptcy is filed, or in the foreseeable future.
You must apply for the hardship discharge before any discharge of other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees. It must be paid for after the case is filed.
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Keeping Secured Property: Debt Reaffirmation
It is harder to discharge secured debt than it is to discharge unsecured debt. Furthermore, secured creditors may have some rights to seize property that “secures” an underlying debt. This can happen even after a discharge is granted. Securing a debt means your money is tied up in the property, such as a car.
Depending on individual circumstances, if you wish to keep certain secured property, you may decide to “reaffirm” the debt.
A reaffirmation is an agreement between you and the creditor that:
- You will remain liable for the debt
- You will pay all or a portion of the money owed
You can choose to do this even though the debt would otherwise be discharged in the bankruptcy.
In return, the creditor promises that it will not repossess or take back the automobile or other property â so long as you continue to pay the debt.
