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What Does It Mean To File For Bankruptcy

What Does It Mean When A Company Files For Bankruptcy

What does corporate bankruptcy really mean for consumers?

Legally Reviewed by:David Curle andJennifer Tsai

4 minute read

After the World Health Organization declared COVID-19 a pandemic, many states imposed lockdowns, ordering non-essential businesses to close and limiting public interaction. Lockdowns severely curtailed shopping and travel, which caused many businesses â especially in the restaurant, hospitality, and leisure industries â to struggle economically.

Thousands of companies have declared bankruptcy, including big names such as Neiman Marcus, Hertz, J. Crew, and Brooks Brothers. But these familiar businesses are not necessarily gone for good. Bankruptcy can allow a company to reorganize its debt and try again.

Why Would Someone File For Bankruptcy

Basically, once debt gets to a point where it is impossible to pay backdue to the high principal as well as soaring interest ratesthat is when to consider bankruptcy as an option. The most common reason is extremely overextended credit, but there are also other factors that can lead to the decision to file for bankruptcy, such as unemployment, large medical bills, or even marital problems, shares Gonzalez. Sadly, most bankruptciesover 60 percentare attributed to financial downfall due to a medical condition.

Who Deals With Your Bankruptcy

An Official Receiver is appointed to protect your assets. They act as trustee of your bankruptcy affairs if you have no assets.

If you have assets, an Insolvency Practitioner will be appointed to act as trustee and sell your assets to pay your creditors. To read more, go to:

Once a bankruptcy order has been made against you, your creditors cannot pursue you for payment. The trustee is responsible for payments.

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What Happens When A Bankruptcy Case Is Filed

As soon as a bankruptcy case is filed, unless there are special circumstances like a repeat filer, an Order for Relief, known as the Automatic Stay, goes into effect. This means that a creditor must cease all activities to enforce and collect a debt. This could be a lawsuit, a wage garnishment, a foreclosure, or a repossession.

If a creditor believes the automatic stay does not apply to them, they should generally file a motion for relief from stay in the bankruptcy case.

Shortly after a case is filed, a trustee is appointed to administer the bankruptcy estate. The role of the trustee is to collect all of your property that is not exempt and liquidate to pay off unsecured creditors. Think of the trustee as stepping into your shoes, owning all the things that you own. You are allowed to keep what is protected under the law, and the trustee can sell everything else to pay off the unsecured creditors.

This is not to say that trustees will seek to leave you with the absolute bare minimum. Trustees also take into account the cost that would be involved in liquidating and selling things. So only if it makes sense to marshal and liquidate an asset will a trustee generally seek to do so. Property that trustees will generally find easier to liquidate include cash, bank accounts, tax returns, cars, businesses, and jewelry.

What Documents Do You Need To File For Bankruptcy

What does it mean to file bankruptcy?

Theres a heck of a lot of paperwork and forms and documents involved in bankruptcy, but lets talk about what you need to gather up at the start:

  • Tax returns for the past two years or four years
  • Income documents
  • Mortgage information
  • Vehicle information
  • Retirement information
  • Identification
  • Other documentation showing any other debts or expenses, like alimony or child support

Yes, thats a lot. Bankruptcy is not an easy out! Also, your particular state or court system may require more. Get ready to do a lot of hunting and have a lot of patience here.

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When Your Bankruptcy Will End

You will be freed from bankruptcy after 12 months. This ends the bankruptcy restrictions and releases you from most of the debts you had when the bankruptcy order was made.

Youll normally be discharged automatically, even if:

  • no payments have been made to your creditors
  • youre still paying an IPA or IPO
  • some assets havent been sold yet

Assets you had during bankruptcy can still be used to pay your debts once your bankruptcy has ended.

Your bankruptcy can be extended for longer than 12 months if you do not co-operate with your trustee. Check your discharge date using the Individual Insolvency Register on our website. If your discharge status is suspended indefinitely you need to contact the official receiver for an update.

The Final Steps Of Your Journey Towards Lasting Debt Relief

Getting all of your bankruptcy forms prepared and filed with the bankruptcy court is usually the most time-intensive process of a Chapter 7 bankruptcy. But that doesnât mean that your job is done. There are a few things everyone filing Chapter 7 bankruptcy has to do to successfully complete their bankruptcy case and receive a discharge. Letâs take a look at what you can expect will happen in your Chapter 7 bankruptcy.

Pay Filing Fee in Installment Payments

If you can’t pay the entire Chapter 7 bankruptcy filing fee and you don’t qualify for a fee waiver, then you can apply to pay the filing fee in installments. You can ask to make four installment payments. The entire fee is due within 120 days after filing.

If the bankruptcy court approves your application, it will grant an Order Approving Payment of Filing Fee in Installments. Your installment payment due dates will be in that order. You must pay all installments on time or your case is at risk of being dismissed.

Take Bankruptcy Course 2

You will complete a credit counseling course before filing bankruptcy. There’s a second course you must take after filing bankruptcy. It covers personal financial management and can help you take advantage of your fresh start after erasing your debts through bankruptcy.

You have to take this course after your case is filed but make sure itâs be completed within 60 days from the date of the meeting of creditors. A certificate of completion must be filed with the court.

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You May Make Surplus Income Payments

When you file for bankruptcy, you must do the following:

  • disclose to the LIT information about all of your assets and liabilities
  • advise the LIT of any property that was sold or transferred in the past few years
  • surrender all your credit cards to the LIT
  • attend the first meeting of creditors
  • attend two counselling sessions
  • advise the LIT in writing of any address changes
  • if required, attend an examination at the Office of the Superintendent of Bankruptcy and
  • assist the LIT as needed in administering your estate.

You may be required to make additional payments to your LIT for distribution to your creditors.

In addition to paying the LITs fees, you may be required to make additional payments to your LIT for distribution to your creditors. These are called surplus income payments.

Each month during the bankruptcy process, you must submit a copy of your pay stubs and proof of other income to the LIT. The LIT then calculates your surplus income.

Surplus income is the part of your earnings that exceeds the amount of income a family needs to maintain a reasonable standard of living. This amount is set by the OSB annually. The larger your family, the more you are allowed to keep the more you earn, the more you are required to contribute.

In other words, if your household income exceeds the level set by the OSB, then you must make additional payments to your LIT during your bankruptcy.

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When The Bankruptcy Order Is Made

What Actually Happens When You File For Bankruptcy

The early stages of a bankruptcy are normally handled by an official receiver. An official receiver works for the Insolvency Service and is attached to the court. They will also be your trustee unless an insolvency practitioner is appointed to take over that role. The trustee will realise any assets .

The official receiver will write to you within 2 weeks of the bankruptcy order being made, explaining what you need to know and what you must do.

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Cover Your Four Walls

When youre making a budget that will work for you right now, where do you start? Whats the main stuff you need to focus on covering? Start with what we call your Four Walls: food, utilities, shelter and transportation. These are the main essentials.

Keep everyone fed, the lights on, a roof over your heads, and gas in the car to get to work. If these Four Walls are only things you can pay for while youre getting out of debt, thats called survival mode, and that may be what you need to jump into right now.

What Are Potential Effects Of A Discharge

The immediate effect of a bankruptcy discharge is that your credit score will plummet and a notation will be added to your credit report saying you failed to pay your debts as agreed. That will stay on your credit report for 7-10 years.

How far your credit score plunges depends on where you stood at the time of the discharge. If you were above 700, for example, figure on a 100 to 150-point drop. If you were at 600, its more likely to be 75-100 point drop.

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Only Licensed Trustees Can Help You File For Bankruptcy

In Canada, only a licensed trustee can help you file for bankruptcy, not a lawyer or an accountant.

Trustees are people with specific training to deal with bankruptcy applications.

Their job is to assess your current financial status and then explore options with you.

Sometimes, youll discover that you have the means to repay your debts and get on the path to financial freedom.

Other times, the trustee will look at your accounts and decide that bankruptcy is the best option.

During their consultations with the trustee, many people discover that they have options besides bankruptcy.

The best way to find out where you stand is to speak with an expert.

They can explain the process that you must follow and show you alternatives that might work out better for you.

Dealing With Your Vehicle

What Does Filing For Bankruptcy Mean For Your Finances ...

One of the forms you will file with the bankruptcy court is called the Statement of Intention. In this form, you tell the court what you plan to do with property that is securing a debt you owe, like real estate or a vehicle.

If you own your vehicle but are still paying on the loan, you have a few options on how to deal with it in Chapter 7 bankruptcy.

Reaffirmation

You can reaffirm the debt, keep your vehicle, and continue making payments. This means the debt will not be discharged and you will continue making monthly payments during and after bankruptcy. If you miss future payments the lender will have the right to repossess the vehicle and possibly try to collect on any deficiency between the balance you owe and the amount they get when selling the vehicle.

If you select this option in your Statement of Intention, your car lender will send you a reaffirmation agreement for you to complete and return. In some bankruptcy cases a reaffirmation hearing will be scheduled.

Surrender

If you choose to surrender your vehicle, then it will be repossessed and the debt will be discharged in your bankruptcy. Filers with high car payments they can’t afford often choose to surrender their car to get out of the debt.

Redemption

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What Does Bankruptcy Discharged Mean: At Long Last The Nova Scotia Case

The Nova Scotia bankruptcy case deals with the discharge of the Trustee in a personal bankruptcy matter. Once the Trustee brings on the bankrupts application for discharge and a discharge Order is made by the Court, and the Trustee completes the rest of the administration of the bankruptcy estate, the Trustee is entitled to a discharge. If the bankrupt did not receive an absolute discharge and has not completed his or her duties, including complying with a conditional discharge order, eventually, the Trustee can still apply for its discharge. Upon the Trustees discharge two things occur:

The bankrupt goes into bankruptcy purgatory. No discharge occurs. The Trustee has fulfilled its obligation to present the bankrupts discharge request to the court and the court has issued an Order. Whenever the bankrupt wants to prove they have fulfilled all their obligations, obeyed the discharge order, and now deserve an absolute discharge, he or she will need to retain a bankruptcy lawyer and apply to the Bankruptcy Courts.

On the day the Trustee is discharged, the stay of proceedings that had protected the bankrupt from any enforcement action by creditors whose debts were owed at the date of bankruptcy no longer applies. As a result, creditors can now pursue the bankrupt person since the debts have not been eliminated and the stay of proceedings is no longer in place.

The decision in Frost , 2021 NSSC 296 can be boiled down to the following facts:

what does bankruptcy discharged mean

How Often Can You File For Bankruptcy

There is no limit to the number of times you can file for bankruptcy, and no legislated time limit between bankruptcies. However, the length of the bankruptcy and your obligations within the bankruptcy along with the length of time your credit rating will be negatively impacted will increase with each successive bankruptcy. If you file bankruptcy more than twice, the Court will be required to determine how you will be discharged from bankruptcy.Find a local Trustee you can trust. Bankruptcy Canada can connect you with Trustees from coast to coast in Canada including Toronto and Ottawa. Talk to one today.

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How Chapter 7 Works

A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. In addition to the petition, the debtor must also file with the court: schedules of assets and liabilities a schedule of current income and expenditures a statement of financial affairs and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case . 11 U.S.C. § 521. Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling evidence of payment from employers, if any, received 60 days before filing a statement of monthly net income and any anticipated increase in income or expenses after filing and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. § 302. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors.

  • A list of all creditors and the amount and nature of their claims
  • What Happens When You File For Bankruptcy In Canada

    What Is The Bankruptcy Means Test?

    There are several financial benefits of filing for bankruptcy in Canada.

    The first has to do with wage garnishing.

    Here, payroll at your employer siphons off an agreed-upon sum of money to the garnishee, even if you do not give them permission.

    When you file for bankruptcy, though, wage garnishing stops.

    The second involves how creditors communicate with you.

    When you file for bankruptcy, this correspondence will stop too.

    Finally, if you are struggling to pay for food or rent because of loan repayments, that will stop too.

    Personal bankruptcy frees up your finances for the basics you need to survive.

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    What Happens To Your Motor Vehicle

    Your motor vehicle will be sold to pay for your bankruptcy debts, unless you need it:

    • for your work or vocation
    • to meet basic domestic needs where alternative transport is not practical

    If the official receiver agrees you need the vehicle, it will be classed as exempt and not included in your bankruptcy. This does not apply if you own your vehicle through an ongoing hire purchase agreement .

    If you are allowed to keep the vehicle you remain responsible for road tax, MOT and insurance.

    If your vehicle is exempt but valuable it can be replaced with a cheaper alternative. The official receiver will use the money from the sale to either pay for the new vehicle directly or give you the money to buy one. You must provide proof of purchase for your new vehicle within 1 month. The guide price for a replacement is £1,250.

    Stop the sale of your vehicle

    If your vehicle is not exempt you may be able to keep it if a third party can pay to transfer it to them for you and you provide a:

    • current insurance certificate
    • vehicle registration document
    • a valid MOT

    The price paid will be the market value of the vehicle but must at least cover the agents costs for the sale of the vehicle.

    If you do not want to keep the vehicle the official receiver will dispose of it.

    Vehicles under finance agreements

    A finance agreement can be a:

    • hire purchase
    • conditional sale
    • leasing agreement

    If the trustee decides they will not be claiming the vehicle, they will give notice to you and the finance company.

    Where Do Bankruptcy Cases Come From

    The source of bankruptcy law is found in the United States Constitution Article 1, Section 8 which authorizes the United States Congress to establish uniform bankruptcy laws. As a result, the statutes that make up the Bankruptcy Code are found in federal law the United States Code. More specifically, the Bankruptcy Code is found in Title 11 of the United States Code.

    While the Bankruptcy Code contains most of the laws that relate to bankruptcy, most states have some laws that are involved with bankruptcy cases, especially laws around what property is exempt from bankruptcy cases. So, in each bankruptcy case, there is an interplay between federal and state law.

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