What Happens When You Need To Declare Bankruptcy In Canada
The reasons for declaring bankruptcy in Canada vary by household. Job loss, divorce, economic fallout from the pandemic, and simply not following a budget can all lead to bankruptcy. Bad things happen to good people, and events during the past two years have certainly been challenging.
While there was a sharp drop in filings for bankruptcy in 2020, there were still nearly 33,000 bankruptcies last year. Expect This number to rise again after COVID, as 2021 filings are slowly returning to higher levels, according to Bloomberg news.
This guide can help you understand how bankruptcy works in Canada, what you can expect when you file, and what will happen once your filing is complete. In this guide, well focus on personal bankruptcy, however, there are other types of bankruptcies for small businesses and corporations.
Potential Loss Of Assets
When asked the question Why avoid bankruptcy? one of the most common answers LITs and financial advisors might give is that it could result in the loss of your assets.
While there are exemptions as to what assets can and cannot be seized during the bankruptcy process depending on the province or territory you live in, non-exempt items will have to be surrendered to the LIT.
The LIT will sell them and distribute the funds collected from the sale to your creditors so they can recover a portion of the money they were owed. The LIT does have options as to how assets are sold and funds allocated, but this should be discussed with an LIT.
Work Through The Bankruptcy Process And Fulfill Your Personal Bankruptcy Duties
There are a few main duties that you will need to fulfill as part of your bankruptcy filing in Canada. Your Licensed Insolvency Trustee will help guide you through the process and will be available for ongoing support through the proceeding.
These required duties generally include:
- Completing a monthly Statement of Income & Expenses budget form tracking the income and expenses of your household and paying any surplus income calculated.
- Your payments in personal bankruptcy are set by a government tariff and are primarily based on your household size, certain allowable expenses and national low-income guidelines. We will review these guidelines with you in detail and explain how they impact the payment you will make in your personal bankruptcy. Most people will pay $200 per month for the duration of their bankruptcy.
Most personal bankruptcies last for only nine months from the date of signing bankruptcy documents until you are discharged from bankruptcy.
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Filing Before You Move
The Bankruptcy and Insolvency Act does not prohibit you from moving after your file for bankruptcy. However, you will still be required to fulfill duties relating to your bankruptcy. The duties include attending meetings for financial counselling, or answering questions you or the LIT may have, making payments, and reporting your income and expenses on a set schedule.
Starting The Bankruptcy Process
Starting the bankruptcy process is simple: contact a Licensed Insolvency Trustee to schedule a consultation appointment. At that consultation, the Trustee shall review your financial situation, provide you with your options , and will explain to you the consequences of each option.
Once youve made the decision to file for personal bankruptcy, you will be required to sign legal documents to voluntarily put yourself into bankruptcy. Your Trustee will file an electronic version of these documents with the Office of the Superintendent of Bankruptcy . The documents are filed electronically through the internet directly to the OSB, which will instantly send to your trustee a Certificate of Appointment.
The Certificate of Appointment indicates that your trustee has been appointed by the OSB as the trustee of your bankruptcy estate, as well as the date and time the bankruptcy was filed. Once the Certificate of Appointment is issued, you are legally bankrupt.
It is important to note that filing for bankruptcy does not extinguish your debts it only prevents your creditors for continuing any legal action against you to collect their debts. Your debts are legally extinguished only when you obtain your discharge. And you will only obtain your discharge upon fulfilling your obligations under your bankruptcy proceedings, which are described below.
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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.
Requirements For Personal Bankruptcy
To go bankrupt, a person must be insolvent. This means that the person is in this situation:
- has $1,000 or more of debts
- lives or owns property in Canada
- not already bankrupt
- is in one of these situations:
- be unable, for one reason or another, to pay his debts as they become dueOR
- have stopped paying debts or monthly bills OR
- value of all his property is less than the value of all his debts
If youre in this situation, you can make an appointment to see a trustee in bankruptcy to find out whether bankruptcy is the right solution for you.
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Personal Bankruptcies With David Sklar & Associates
If you are considering filing for bankruptcy, get in touch with the Licensed Trustees at David Sklar & Associates. Our trustees will help you weigh all of your options, explain your rights to you, and help you assess your assets to identify what you are entitled to in a bankruptcy.
If you are in financial trouble, overwhelmed by debt and considering bankruptcy or a consumer proposal in Ontario, we are happy to lend a helping hand and a compassionate ear. Book your free consultation with David Sklar & Associates today.
Who Can File For Bankruptcy In British Columbia
There are certain circumstances that must be met for you to file for personal bankruptcy in New Westminster, BC. The law requires that only those individuals who live or do business in Canada and who are insolvent can file bankruptcy. To qualify as insolvent, you must:
- Owe at least $1,000
- Be unable to pay your bills as they are due to creditors, and/or
- Have stopped paying your current debts as they are due, and/or
- Have incurred more debts that your realizable value of assets
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How Much Does Personal Bankruptcy Cost Are There Fees
The cost of bankruptcy including the trustees fees is set by the government. The cost can vary depending on the following factors: your income, your seizable assets, whether its your first bankruptcy claim or not, etc. Your counsellor will let you know how much it will cost during your free consultation.
My Trustee Will Restrict The Income I Can Make
The bankruptcy act sets out surplus income standards, updated annually, which govern the portion of the bankrupts income which should be paid to creditors. The standards are based on the number of people in a given household. So a bankrupt is technically not restricted in what they can make, but they must pay more if they make more above these levels. The bankruptcy would also be longer if there is surplus income.
Discharged Debts In Bankruptcy
With a few exceptions, all of your unsecured debts are forgiven in bankruptcy whether your bankruptcy is discharged in nine months, twenty-four months, thirty-six months or longer after you file. Unless you have no real assets to speak of, your creditors will not walk away without having received anything of what you owe them, though they will not have received the full amount of what they have loaned you.
Upon discharge, you will owe nothing more on your:
credit cards other unsecured loans and lines of credit such as payday loans past-due medical bills and insurance premiums past-due utility bills including electricity, water, gas, and telephone service student loans if more than seven years have passed since you were a student
Can I Keep My House And My Car Under Canadian Bankruptcy Rules
Bankruptcy should not impact your secured debts, such as a vehicle lease or a mortgage, as long as you continue to make payments and there is no equity in your secured assets.
In most provinces, you do not lose your house or car when you declare bankruptcy. You can work out arrangements with your trustee and creditors to keep the asset and continue paying the mortgage or loan. Learn more about what assets you can keep in bankruptcy.
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What Happens If You Dont File
Can Canadian creditors sue you in a foreign country?
The first question is should you file bankruptcy in Canada when you live outside Canada, or can you just ignore your Canadian debts?
Canadian creditors and collection agencies can, and will, continue to call you to collect on overdue debts, assuming they can find you.
Suing you from a foreign country can be a little more complicated. Your Canadian creditor must first sue you in Canada then they have to bring that lawsuit over to the United States to get the foreign court to certify the suit, after which they can pursue you for collection where you live. Not surprisingly, this is a costly process requiring an understanding of foreign collection laws and the engagement of lawyers from another country, so it is rarely done.
Your Canadian creditor can file a lawsuit in Canada, and if you do not, or are unable to defend that suit, they can obtain a judgment against you, even for old debts. To avoid a judgment or lawsuit, its best to deal with your debts by speaking to a Licensed Insolvency Trustee early about your options.
Do Canadian debts show on a US creditor report?
For more detailed information on how to file for bankruptcy on Canadian debt if you live outside of Canada tune in to todays podcast or read the completed transcription below or feel free to contact one of our Licensed Insolvency Trustees.
- Rebecca Martyn Twitter
What Is Bankruptcy
Personal bankruptcy is a legal process designed to help an honest but unfortunate debtor who cannot afford to repay their debts find debt relief. At the end of the bankruptcy, your debts are legally discharged, meaning you are no longer required to pay them back.
People file bankruptcy for a lot of reasons in most cases, something happens that triggers the knowledge that they can no longer pay back their debts on their own. This might be harassing phone calls from debt collectors, a wage garnishment, or the inability to get more credit. A life event like a divorce or separation, illness, or job loss are common causes of bankruptcy in Canada.
Officially, debtors assign their rights to non-exempt assets for the benefit of their creditors in exchange for which they are released from unsecured debts. This is why bankruptcy is known as a fresh start.
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Can I Keep My Home
We understand that your house is likely your most valued possession. There are exemptions that allow you to keep some of the equity in your home when you file for bankruptcy. Generally speaking, however, if youve already paid off a large portion of your mortgage , filing for bankruptcy might not be the best solution for youthe law requires you to use that equity to pay off some of the money you owe to your creditors.
To keep your home after filing a bankruptcy, you would need to pay a Licensed Insolvency Trustee the amount of home equity you haveminus any provincial exemptions. Home equity is calculated by subtracting the remaining amount of your mortgage, along with any outstanding taxes you owe, from what your house is currently worth on the market. For example:
For example: Current market value of Bobs home: $150 000
|Bobs estimated home equity
Depending on which province he lives in, Bob would have to pay up to $19,400 during the bankruptcy process in order to keep his home. This is one of the reasons why bankruptcy is only considered after other debt relief solutions have been explored. If Bob can afford to repay a portion of his debt, but not the full amount of equity in his home, he may wish to consider an alternative to bankruptcy, such as a consumer proposal. A Licensed Insolvency Trustee will be able to explain every option to help Bob choose the best solution that is right for him.
Six Reasons To Avoid Filing Bankruptcy
Is filing for bankruptcy a good idea? This is a common question for many people who are struggling to make ends meet as bills continue to rise and threaten to drown them in an inescapable cycle of debt.
If youre deep in debt, you might be thinking bankruptcy is a great way to get out from underneath it and get a clean slate, so to speak. While it may be the best option for some people, there are a number of reasons to avoid filing bankruptcy unless, of course, you and an unbiased financial expert determine you simply have no other choice.
A Few Handy Definitions
When we talk about bankruptcy, there are financial terms that come up. Here are some terms youll come across, and their definition.
Your money and property. Here are the main categories of assets:
- Cash assets and investments
- Personal property
- Certain contracts
- Some of these assets are safe from seizure by creditors.
A grade given to you by a credit bureau . This rating is based on various criteria. But basically, the better you are at repayment, the better your rating will be. To find out more about credit ratings, take a look at this article:
Secured and unsecured debt
If you dont make your payments, a secured debt gives your creditor the right to seize the asset you gave as collateral when you took out a loan to purchase the asset. For example, if you can no longer make your payments for your car loan, the bank that gave you a loan can seize your car.
In contrast, an unsecured debt refers to debt where the lender does not have a claim on an asset in return for the credit granted. For example, credit cards, personal lines of credit, personal loans, etc.
When someone is no longer able to make their payments for bills and debts when they are due. The person is unable to pay off the total sum of their debts in a reasonable number of years.
This is the amount that your households income exceeds the standard cost of living set by the government.
Second Time Bankruptcy What Rules Apply
In Canada, about 15% of people that have filed for bankruptcy end up declaring bankruptcy a second time. Since approximately 60,000 Canadians will be declaring bankruptcy this year that means 9,000 of them likely have done so before.
The number of people filing second bankruptcies is large enough that in 2009 the federal government brought into effect new to deal with repeat filers.
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Do I Lose All My Assets When I File For Bankruptcy
Contrary to popular belief, when you file for bankruptcy, you will not lose everything. Each province and territory has its own exemptions to the bankruptcy law that outline which of your assets, and how much equity, you are allowed to retain. There are also certain costs and processes that apply across the country. Lets take a look at them below.
What Happens After Bankruptcy
Once your bankruptcy is finished, you will receive your discharge certificate. This is the bankruptcy step that releases your obligation to pay back your remaining debts.
Will you ever get credit again? The answer is yes.
You can apply for credit immediately after filing bankruptcy you are, however, required to state that you are an active bankrupt if you apply for credit of $1,000 or more. Many people can get a secured credit card and car loan soon after filing. At this stage, your income and past payment history will be the most significant factors in determining if you qualify for new credit. Your interest rate will be high initially, but you can take steps to rebuild your credit and well help you with that.
Most people feel relief as soon as they declare bankruptcy. The advantages of bankruptcy outweigh the downsides for anyone struggling with significant debts:
- Collection agencies stop calling
- You no longer have to juggle debt payments
- You can begin to save money as a result of eliminating all that high-interest debt
- Your credit improves if you follow the right steps because you no longer have the negative factor of high debt utilization on your credit report.
We recommend monitoring your credit report to ensure your creditors report your debts accurately . You should submit a dispute resolution if creditors have made mistakes in their reporting to the credit bureaus.
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