Debts Included Or Not Included In The Bankruptcy
Most debts can be included in a bankruptcy. They might include these debts:
- unpaid credit card balances
- debts owed to collection agencies
- student loans, in some cases
However, some debts cannot be included in the bankruptcy. This means that the creditors could claim this money even though you are going bankrupt. This is the case for these amounts:
- support payments to a former spouse or for children
- fines, penalties, restitution orders or other similar orders imposed by a court
- debts flowing from a civil court decision t ordering payment of money for sexual assault or assault causing physical injury or death
- debts arising from fraud, misrepresentations or illegal acts
- money that a creditor could not get back because you did not tell the trustee that you owed the money
- student loans, if the bankruptcy happened within seven years of the date you stopped being a full or part-time student. In certain rare cases, a judge can reduce that period to five years if she is satisfied that you made an effort to pay and that you will be unable to pay the debt in the future.
Navigating Your Bankruptcy Case
Bankruptcy is an unusual area of law because its essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you cant skip a step.
One way to keep track of your research is to use the bankruptcy forms as an outline. Youll find links to the exemption-related bankruptcy forms and other exemption resources in the chart below. You can also look at the list of Chapter 7 and 13 bankruptcy forms to see where this topic fits in the bankruptcy scheme. And this handy bankruptcy document checklist will help you gather the things youll need to complete the petition.
Bankruptcy Exemption Information
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What Are My Duties During Bankruptcy
If you claim bankruptcy you will be required to complete certain duties in order to successfully complete your bankruptcy and receive your bankruptcy discharge.
Duties you must complete when filing for bankruptcy include turning over any assets you are required to the trustee and assisting the trustee with realizing a return on these assets, attending two credit counselling sessions with the trustee , providing your trustee with any required information the trustee requests, providing the trustee with information to make your tax returns, providing your LIT with proof of your monthly income, and making the required payments each month to the trustee to cover your bankruptcy administrative costs.
At the end of the 7th month of your bankruptcy the trustee will calculate your average income over the last 7 months to determine if you have surplus income requirements that must be paid.
You need to turn over your credit cards to your trustee.
Need Help Reviewing Your Financial Situation?Contact a Licensed Trustee for a Free Debt Relief Evaluation
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What Happens When You Declare Bankruptcy
In Canada, only a Licensed Insolvency Trustee can file the paperwork for bankruptcy. When you declare bankruptcy, you meet with a Trustee to discuss your situation. If bankruptcy seems the most beneficial course, the Trustee will prepare the paperwork to file for bankruptcy. See our page: How to File Bankruptcy.
Once the paperwork is signed, your Licensed Insolvency Trustee will electronically transmit your bankruptcy information to the Office of the Superintendent of Bankruptcy in Ottawa . The Superintendent of Bankruptcy will inform the credit bureaus of your bankruptcy.
Within five days of the bankruptcy starting, your Trustee will send a copy of your bankruptcy paperwork to each of your creditors, so that they can file a claim with the Trustee.
Rrsp In Bankruptcy: Will I Lose My Rrsp If I File For Bankruptcy
Under the Bankruptcy & Insolvency Act, the federal legislation that governs the bankruptcy process, when you declare personal bankruptcy a Licensed Insolvency Trustee is appointed. One of the trustees tasks is to take your assets and distribute the proceeds from them to the creditors. For instance, if you owned a $200,000 house with no mortgage, the trustee would seize the house, sell it, and distribute the proceeds to the creditors. The question is what happens to your RRSP in bankruptcy? Is it treated in the same way, or is it exempt?
In case of a bankruptcy an RRSP is, as an asset, liquidated and the funds are distributed to creditors. There are, however, some exceptions to this rule.
First, if your RRSP is locked-in as a result of your previous employment, the trustee cannot seize the RRSP. The most common example of a locked-in RRSP is an employee who works for a company with a pension plan. The employee leaves the company before retirement, so the employees accumulated pension entitlement is converted to a locked-in RRSP.
Locked-in here means the employee cannot cash in the RRSP, or take money out of the RRSP, until he/she retires. If the employee cannot get the money, in most cases a Licensed Insolvency Trustee is also unable to access the money in the RRSP.
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Exemptions For Your Home
In British Columbia, homeowners exemptions are higher if you live in Vancouver or Victoria. In this case, $12,000 of the equity in your home is protected in Greater Vancouver and the Victoria capital area. Elsewhere in the province, $9,000 in home equity is exempt from bankruptcy. For more information on bankruptcy exemptions in British Columbia, speak to a local Licensed Insolvency Trustee.
Manitoba bankruptcy exemptions
In Manitoba, property exempt from seizure in bankruptcy is set by the provincial government and applies to the equity in an asset. Equity is the difference between the value of the asset and what you owe on the asset.
Example: If you have a car worth $8,000 and you still owe $5,000 on the loan, the equity you have in the car is $3,000. In Manitoba, the exemption for a car is $3,000. In this case, you would be able to keep the equity in your car your unsecured creditors cannot take this from you when you file for bankruptcy.
Understand The Advantages Of Filing For Bankruptcy
You may have wondered, what is the downside of filing for bankruptcy? There are some advantages to filing for bankruptcy, too, however. When you need a fresh start to get out from under a heavy debt load, filing for bankruptcy could be just the answer you need. In addition to a new start, federal bankruptcy offers consumers, business owners, and corporations many benefits, including the following:
- Complete relief of all dischargeable debts with no further obligation to repay them.
- The ability to hold on to some personal property and assets like your home and vehicle.
- Relief from the constant pressure and invasive contact from debt collectors.
- Over time, your credit score can improve when discharged debts are removed from your .
Your wages cannot be garnished by your creditors and your car cannot be repossessed while you are going through the bankruptcy process. Your lawyer can explain other advantages to filing bankruptcy that apply to your specific situation. Bankruptcy can give you the opportunity to create a new financial picture for yourself, your family, or your business.
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Your Creditors May Hold A Meeting
Sometimes, a meeting of creditors is required or requested. The purpose of this meeting is to
- allow creditors to obtain information about the bankruptcy
- confirm the appointment of the LIT
- appoint up to five inspectors to supervise the administration of your estate and
- allow creditors to give direction to the LIT.
If a meeting is called, you will be required to attend.
Enter A Debt Consolidation Program
Work with a certified from a not-for-profit credit counselling agency, like Credit Canada, who will negotiate with your creditors to reduce or stop the interest on your debts, rolling them together into one easy monthly payment. You will also have a set completion date that you’ll be debt-free by. Though this can impact your credit, its much less of an impact than filing bankruptcy would have.
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Are Your House Payments Current
You’ll likely lose your home if you’re behind on the mortgage payment when you file for Chapter 7. Although the automatic stay will temporarily stop a foreclosure, the best thing you can hope for is delaying the process for a few months.
- Why filing won’t cure a default. Chapter 7 bankruptcy doesn’t provide a way for you to catch up on the overdue payments. This presents a problem because a mortgage is a secured debt, and you can’t wipe out the lien in Chapter 7 bankruptcy. The lender can foreclose after the automatic stay lifts, and you’ll lose the house.
- What will happen if you file. The lender will either ask the court to lift the automatic stay to allow foreclosure proceedings to continue or wait until the bankruptcy ends, proceed with foreclosure, and then sell the house at auction.
- Chapter 13 bankruptcy can help. If you’re behind and want to keep your home, the better option is to file a Chapter 13 case. Unlike a Chapter 7 bankruptcy, it has a provision that allows you to catch up on mortgage arrearages over the course of a three- to five-year repayment plan. Also, if you have more equity than you can protect with a homestead exemption , you can pay your creditors the value of the nonexempt equity in the plan, as well.
Farming Fishing And Aquaculture Exemptions
- If your primary occupation is farming, personal property used by you to earn income are exempt up to $10,000
- If your primary occupation is fishing, personal property used by you to earn income are exempt up to $10,000
- If your primary occupation is aquaculture, personal property used by you to earn income are exempt up to $10,000
Northwest Territories bankruptcy exemptions
In the Northwest Territories, property exempt from seizure in bankruptcy is set out in the Exemptions Act and applies to the equity in an asset. Equity is the difference between the value of the asset and what you owe on the asset.
Example: If you have household furniture and equipment in your home worth $5,000 and you do not owe any outstanding loans on these items, the equity you have is $5,000. In the Northwest Territories, the exemption for the total of these items is $5,000. In this case, you would be entitled to keep these possessions and your creditors cannot take them from you.
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Am I Allowed To Have A Bank Account If I Declare Bankruptcy In Canada
If you have more than $999 in your account and want overdraft protection, you must notify your bank that you are bankrupt. In order to prevent creditors from taking money from you, it is recommended that you open a bank account at an institution where you do not owe money. Only use your new bank account and do not use any accounts that were active prior to your bankruptcy.
Does Bankruptcy Clear Tax Debt In Canada
When you file for bankruptcy, you enjoy CRA debt relief along with relief from all other unsecured creditors. The common belief that you cant escape tax debt this way comes from the past. Before 1992, the Canada Revenue Agency was considered a preferred creditor in the Bankruptcy and Insolvency Act, and it could use this status to oppose a debtors discharge from income tax debt.
Since 1992, it has been listed as an ordinary unsecured creditor on the same level as any bank, credit card company, or other lenders. CRA debt can now be discharged unopposed.
There are some exceptions to this rule, including those who owe over $200,000 in taxes, and that number represents more than 75% of their proven debts. Otherwise, as a general rule, if you owe Revenue Canada money, insolvency can help.
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Will The Bankruptcy Trustee Take My Car
In most cases the answer to this question is no, you can keep your car.
Historically, Hoyes Michalos has only repossessed a vehicle in less than 1% of all bankruptcies filed. If your car is leased or fully secured by a car loan, you can usually just continue to make your monthly payments. If you own your car outright or it is mostly paid off, Ontario legislation allows you to keep up to one vehicle worth up to $6,600. Even if your car is worth more than that, we can still provide you with alternatives.
Learn more in our article how to claim bankruptcy and keep your car.
What If You Owe More Than Fair Market Value Or You Cant Afford The Payments
If you have a significant shortfall on your car, it may be prudent to simply surrender the car to the lender when you go bankrupt so that you are not overpaying for the vehicle. If you think your car loan or lease is too expensive, and you cant afford to keep up with your payments, you have the option of handing back the vehicle to the lender.
In either case, you must return the vehicle to lender before you file. If you do surrender the car to the secured lender, any resulting shortfall after they sell the vehicle is eliminated as part of your bankruptcy.
In rare circumstances, people sometimes offer their vehicle as collateral for a larger consolidation loan. This is slightly more complicated however a trustee can walk you through options that can help you keep the vehicle if that makes sense.
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Requirement : Asset Value
The final requirement is where things become the most complicated. The Licensed Insolvency Trustee will compare the total value of your assets to your total amount of debt. If the value of the assets you have exceeds your debt, you wont qualify. You must owe more than you can afford to repay if you sold everything.
What Are The Cons Of Filing Chapter 7 Bankruptcy
Filing a Chapter 7 bankruptcy is not right for everyone. And even if it feels like the best debt relief option for you, it may not be once you consider some of the cons of Chapter 7.
You canât file Chapter 7 if you make too much money.
If youâre making less than the median income, youâre probably wondering how thatâs even possible. Donât fret this is not about you. This is about folks who have money they can put into savings after paying their main living expenses.
Thatâs called having disposable income and itâs calculated by the means test. Having too much disposable income means youâre not eligible to simply walk away from your debt. But, while you canât file Chapter 7, you can still get a bankruptcy discharge after completing a Chapter 13 repayment plan.
If you have good credit, it will likely take a temporary hit.
Those that are able to maintain their monthly payments and keep their credit score high before filing their bankruptcy petition will see their score drop initially. But, a bankruptcy filing often does more good than harm to the filerâs credit score. Plus, once their bankruptcy discharge is granted, they can begin increasing that pesky credit score immediately.
It doesn’t erase all unsecured debts.
You can lose certain types of property.
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How Long Does Bankruptcy Last
Bankruptcy lasts approximately 9 months, provided that it is your first bankruptcy and you complete all of the duties assigned to you. Your bankruptcy may last up to 21 months if you have to pay surplus income, which is calculated according to standards established by the Office of the Superintendent of Bankruptcy Canada and coordinated by your trustee after examining your income, expenses, and dependents in your household.
If it is your second bankruptcy, you will be bankrupt for 24 or 36 months. If you have been bankrupt more than once previously, have not complied with your duties, or have committed one or more bankruptcy offences, your bankruptcy timeline will be determined by the court.
After you have received an Absolute Discharge from your bankruptcy, you will no longer be responsible for any of the discharged debts. However, the fact that you filed a bankruptcy will appear on your credit rating for 6 to 7 years, depending on the province you live in.
You Will Have A Trustee That Will Manage Your Bankruptcy
Before you apply for bankruptcy, you can choose a registered trustee to administer your bankrupt estate. If you do not choose a registered trustee AFSA may seek the consent of a registered trustee to manage your bankruptcy. If a registered trustee does not provide their consent to act then your estate will initially be administered by the Official Trustee .
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