What Happens When You Declare Bankruptcy
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How Do I Declare Bankruptcy
You can go bankrupt in one of two main ways. The more common route is to voluntarily file for bankruptcy. The second way is for creditors to ask the court to order a person bankrupt.
There are several ways to file bankruptcy, each with pros and cons. You may want to consult a lawyer before proceeding so you can figure out the best fit for your circumstances.
Who Can Assist With A Bankruptcy Claim
Canadian law requires that only licensed insolvency trustees can assist with a personal bankruptcy claim. In other words, you cannot file a claim yourself, and instead, you need to hire a specialist. Although this might seem unnecessary, you should remember that bankruptcy is a legal proceeding and as such everything must be done absolutely to the letter to ensure a smooth claim. Any errors could result in additional debt, or more time needing to be spent on the claim, which is why having a licensed insolvency trustee do the work is crucial.
The trustee will put together all the paperwork needed to film your bankruptcy claim. Read through this carefully, and make sure you ask any questions that you might have. You need to know what each element means and how it will affect you. Although bankruptcy is a last resort when it comes to problematic finances, it is also something that can be a lifeline to those who are desperate for financial relief. A bankruptcy filing will affect you going forward, especially if you intend to use any form of credit in the future. It may even affect your job and other life choices. Before you seek the assistance of an insolvency trustee you may want to seek the advice of an insolvency lawyer. Baker Law Firm understanding bankruptcy and insolvency and that can give you the guidance you need in a confidential and legally privileged consultation.
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Wipe Out Credit Card Debt And Most Other Nonpriority Unsecured Debts
Bankruptcy is very good at wiping out unsecured , medical bills, overdue utility payments, personal loans, gym contracts. In fact, it can wipe out most nonpriority unsecured debts other than school loans.
The debt is unsecured if you didn’t promise to give back the purchased property if you didn’t pay the bill. By contrast, if you have a secured credit card, you’ll have to give the purchased item back. Jewelry, electronics, computers, furniture, and large appliances are often secured debts. You can find out by reading the receipt or credit contract.
The Us Trustee Or Bankruptcy Administrator
The U.S. trustee plays a major role in monitoring the progress of a chapter 11 case and supervising its administration. The U.S. trustee is responsible for monitoring the debtor in possession’s operation of the business and the submission of operating reports and fees. Additionally, the U.S. trustee monitors applications for compensation and reimbursement by professionals, plans and disclosure statements filed with the court, and creditors’ committees. The U.S. trustee conducts a meeting of the creditors, often referred to as the “section 341 meeting,” in a chapter 11 case. 11 U.S.C. § 341. The U.S. trustee and creditors may question the debtor under oath at the section 341 meeting concerning the debtor’s acts, conduct, property, and the administration of the case.
In North Carolina and Alabama, bankruptcy administrators perform similar functions that U.S. trustees perform in the remaining forty-eight states. The bankruptcy administrator program is administered by the Administrative Office of the United States Courts, while the U.S. trustee program is administered by the Department of Justice. For purposes of this publication, references to U.S. trustees are also applicable to bankruptcy administrators.
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How Often Can You File Bankruptcy
For most people, is a once in a lifetime event. Unfortunately, sometimes things happen and you may be finding yourself once again facing financial hardship and looking at the possibility of filing bankruptcy a second time. If so, you are not alone. Approximately 10% of bankruptcies are for individuals who, for one reason or another, needed to file bankruptcy more than once.
What Only Chapter 13 Bankruptcy Can Do
Chapter 7 and 13 each offer unique solutions to debt problems. The two bankruptcy types work very differently. For instance, how quickly your debt will get wiped out will depend on the chapter you file:
- Chapter 7 bankruptcy. This chapter takes an average of three to four months to complete. Learn more about erasing your debt in Chapter 7 bankruptcy.
- Chapter 13 bankruptcy. If you file for Chapter 13 rather than Chapter 7, you’ll likely have to pay back some portion of your unsecured debts through a three- to five-year repayment plan. However, any unsecured debt balance that remains after completing your repayment plan will be discharged. Find out how to pay off or discharge your debts in Chapter 13 bankruptcy.
Chapter 7 is primarily for low-income filers, and therefore, it won’t help you keep property if you’re behind on payments. But, if you have enough income to pay at least something to creditors, then you’ll be able to take advantage of the additional benefits offered by Chapter 13.
Here are some of the things that Chapter 13 can do.
Stop a mortgage foreclosure. Filing for Chapter 13 bankruptcy will stop a foreclosure and force the lender to accept a plan that will allow you to make up the missed payments over time. To make this plan work, you must demonstrate that you have enough income to pay back payments and remain current on future payments. Learn more about your home and mortgage in Chapter 13 bankruptcy.
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The Chapter 11 Debtor In Possession
Chapter 11 is typically used to reorganize a business, which may be a corporation, sole proprietorship, or partnership. A corporation exists separate and apart from its owners, the stockholders. The chapter 11 bankruptcy case of a corporation does not put the personal assets of the stockholders at risk other than the value of their investment in the company’s stock. A sole proprietorship , on the other hand, does not have an identity separate and distinct from its owner. Accordingly, a bankruptcy case involving a sole proprietorship includes both the business and personal assets of the owners-debtors. Like a corporation, a partnership exists separate and apart from its partners. In a partnership bankruptcy case , however, the partners’ personal assets may, in some cases, be used to pay creditors in the bankruptcy case or the partners, themselves, may be forced to file for bankruptcy protection.
Railroad reorganizations have specific requirements under subchapter IV of chapter 11, which will not be addressed here. In addition, stock and commodity brokers are prohibited from filing under chapter 11 and are restricted to chapter 7. 11 U.S.C. § 109.
What Happens To Your Credit Score After Filing Bankruptcy
Chapter 7 bankruptcy and Chapter 13 bankruptcy filings show up on your credit report. How long it shows up depends on which type of bankruptcy you file. Chapter 7 bankruptcy stays on your credit report for 10 years after the filing date. A completed Chapter 13 bankruptcy stays on your credit report for 7 years after the filing date, or 10 years if the case was not completed to discharge.
As a result, filing bankruptcy will initially lower your credit score. How much your credit score will drop depends on how high or low it was before bankruptcy. Generally, a decrease between 100 to 200 points can be expected.
The good news is that you can begin rebuilding your credit as soon as your bankruptcy discharge is entered. It’s possible to have a better score within 1â2 years of filing. The credit scores of most bankruptcy filers are already lower because of missed payments. After the court grants a discharge, most unsecured debts are erased. Credit scores improve because there are no more missed payments and discharged accounts show a zero balance.
After Chapter 7 and Chapter 13 bankruptcy is filed, you will get credit card offers in the mail. These offers can be for secured credit cards, sometimes called prepaid cards, which require a cash deposit. Or, offers can be for unsecured credit cards, but will likely have high interest rates or annual fees.
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Proof Of Claim Bankruptcy Canada: Are Claims Being Made Against You Or Your Company
Are you or your company experiencing financial difficulties? If yes, call the Ira Smith Team. Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are in the door.
The earlier you contact us, the more options we will have to implement. Whether it is a corporate restructuring or personal debt settlement through a consumer proposal, the goal is to avoid bankruptcy. However, if bankruptcy turns out to be the best option, we can assist there too.
Youre simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life, recover your money and move on to the next investment opportunity.
A Licensed Insolvency Trustee Can Advise You
Does bankruptcy clear all debts? Not in all cases, but it does provide a new starting point and relief for most unsecured debts. Bankruptcy can be a complicated topic, but help is available. For more information on whether bankruptcy is a good solution for your situation, contact a Licensed Insolvency Trustee for a no-charge consultation.
It doesnt matter if you live in Toronto, Ottawa, Quebec, or anywhere else. We have licensed trustees that can help you!
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Bankruptcy And A Personal Injury Case
When you submit a bankruptcy filing to the court, everything you own becomes part of your bankruptcy estate. Practically, this means that all of your possessions, intangible assets, and any property youâre entitled to become part of your bankruptcy estate on the date you file for relief. Whether youâve already filed a personal injury case or youâre still thinking about filing an accident case, the value of that legal claim will be considered part of the estate because you technically became entitled to any settlement you may reach when the accident occurred. If you file a personal injury claim, the bankruptcy trustee assigned to your case will evaluate its potential value and determine whether to pursue the claim on behalf of your creditors. The trustee is even empowered to agree to a settlement amount.
Understanding Your Debt Relief Options
Bankruptcy is an option of last resort. It is just one solution available for Canadians struggling with debt.
Before choosing bankruptcy, your trustee will talk with you about your financial situation. What assets you own, what debts you owe, and your income will affect the choice about which debt solution is right for you.
Not every person experiencing debt problems needs to file bankruptcy. When you meet with a Licensed Insolvency Trustee for a debt assessment, part of the review includes a discussion of the alternatives to bankruptcy.
Some bankruptcy alternatives your trustee will review with you will include:
- Filing a debt management plan. If you do not have enough debts to file bankruptcy, a credit counsellor can help you work out a plan to pay back your debts. This has the same credit impact as a consumer proposal but is good for small debt amounts.
- Taking out a debt consolidation loan. Well help you consider whether you have the credit capacity to afford a new loan to consolidate debts and if you can qualify at a reasonable rate.
- Making a proposal to creditors. Settling your debt through a consumer proposal is less harmful to your credit and has significant advantages over bankruptcy.
As one of Ontarios largest consumer proposal administrators, we have the experience to help you choose between claiming bankruptcy and making a debt proposal to creditors.
Evaluate your alternatives to bankruptcy with our Debt Options Calculator.
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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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Bankruptcy Timing And The Personal Injury Lawsuit Process
The bankruptcy rules surrounding personal injury lawsuits dont just cover compensation youve already received. They also cover compensation you may be entitled to, even if you havent yet filed a suit. In other words, if youve been injured and have a claim, that claim is part of your bankruptcy estate even if you havent yet filed a suit. You must always list potential claims in your bankruptcy filing papers.
The way the claim proceeds depends on the type of bankruptcy you file. Under Chapter 7, the bankruptcy trustee will decide what to do about your claim. If youre likely to win more than the exempt amount, the trustee will likely take over your case. That means shell choose your attorney, decide how to proceed in the case, and determine whether and when to settle. Then she will pay you the exempt portion of the award and use the rest to pay your creditors.
If the trustee thinks youll win less than the exemption, youll be able to handle your own case. Under Chapter 13, youll be able to handle your own case. If you win compensation, youll need to amend your bankruptcy filing to ensure that your creditors will get as much of the award under your plan as they would under Chapter 7.
If youre unsure of how to proceed, your safest bet is to reach out to one of our attorneys today. Our initial consultations are always free, and wed be happy to help steer you in the right direction.
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Cooperating With The Trustee
Bankruptcy filers have an obligation to cooperate with the trustee throughout their bankruptcy case. Filers will need to provide the trustee with a copy of the tax return for the year the case was filed.
After the meeting of creditors the trustee will file a Report of No Distribution indicating that no funds are going to be distributed to your creditors or a Notice of Claims Bar Date stating the due date for creditors to file claims to receive funds in your bankruptcy. Other than these filings, ideally you will not hear from the trustee after the meeting of creditors.
Consumer Proposals Vs Bankruptcy And Cra Debt
A consumer proposal is a popular alternative to bankruptcy because it provides debt relief from unsecured creditors, including debt forgiveness from CRA. When you file a consumer proposal with a licensed insolvency trustee you are not required to sell any of your assets to repay your debts or pay any surplus income.
To start the consumer proposal process, you will first need to schedule a consultation with a licensed insolvency trustee where you will review your finances. After reviewing your income, expenses, and total debts, the two of you will find a fair amount that you can pay each month to all of your creditors. These payments can last up to five years after which, you will be discharged from all debts covered by the proposal, including CRA debts.
Tax debt in Canada can be included in a consumer proposal and the CRA will often accept less than your full amount owing, though how much they will settle for will depend on the situation. In order to get the CRA to accept your proposal, you will have to file any and all outstanding tax returns. If you want CRA debt relief and 50% or more of your total unsecured debts are owed to the agency, you will have to get them to accept the proposal.
If a consumer proposal is not a viable option for you, then filing for bankruptcy may be your next solution. With this, your trustee would be required to file a pre-bankruptcy tax return and a post-bankruptcy tax return.
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