How Does Bankruptcy Work In Canada
If you looking to learn how bankruptcies work in Canada, youve found the right page.
Bankruptcy is a legal procedure in which you assign your property to a Licensed Insolvency Trustee as part of a process that relieves your debts. You are allowed to keep certain assets, depending on where you reside. Laws dealing with personal bankruptcy are meant to allow the honest but unfortunate debtor a chance to re-start their financial life.
Learn more about what is exempt from Bankruptcy here: Bankruptcy Exemptions.
Lets continue and cover more information on bankruptcy.
Ontario Bankruptcy And Insolvency Statistics
- 38,856 consumers in Ontario were insolvent in 2018
- 38% of those consumers went on to declare bankruptcy
- Average assets at the time of filing: $30,774.14
- Average liabilities at the time of filing: $98,577.12
- With an average household income of $74,287 in Ontario, the average filer effectively owed $1.33 for every dollar they earned
How Does Going Bankrupt Affect My Credit Rating
Once a person files bankruptcy in Ontario, the Office of the Superintendent of Bankruptcy will notify the credit bureaus and the bankruptcy will be noted on your credit report. This will impact your report for 6 years after discharge. For a second-time bankrupt, it will remain for a period of 14 years.
Having a bankruptcy noted on your credit report flags you to lenders as being high risk. This high risk status will make your ability to obtain future credit much more difficult and increase the interest rates charged on any credit that you are able to obtain. However, there are ways to successfully rebuild your credit after bankruptcy.
Why Businesses Rarely File For Chapter 7 Bankruptcy
In the vast majority of cases, filing a Chapter 7 bankruptcy will close the business because there’s no way to protect property owned by a separate legal entity like a corporation, or limited liability company . The trustee simply sells the business assets, pays its creditors, and shuts the business down.
But that’s not the only reason why Chapter 7 bankruptcy isn’t regularly used to close businesses. Here are a few additional problems that can crop up:
- Most owners can wind down a business without help, thereby avoiding the added cost of a bankruptcy attorney and filing fees.
- An owner can often get a better price for the assets than the bankruptcy trustee.
- Putting a partnership into Chapter 7 bankruptcy puts the personal assets of the partners at risk.
- Filing for bankruptcy gives creditors an instant platform in which to air disputes, thereby opening the door to litigation involving such things as fraud, a partnership dispute, or action to pierce the corporate veil .
Because of these reasons and more, it’s important to seriously consider whether the risks outweigh the benefits of closing the business through bankruptcy .
Duties During Your Bankruptcy
During the bankruptcy period you are required to do the following:
- Provide the trustee with your tax information to file your outstanding tax returns, including the current year
- Submit each month copies of your pay stubs and proof of other income
- Attend two credit counselling sessions to help with budgeting, and help you get a fresh start at the end of the bankruptcy
- Make the required contribution to your bankruptcy estate
- Surrender any non-exempt assets
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What About Whole Life Or Universal Life Policies
These two types of insurance are very similar – I won’t discuss their differences here – but they are both considered to be “permanent” policies. This means they are designed to last your entire lifetime and will not expire like term policies do. Permanent policies often have a savings component to them and can accumulate cash value. The cash value is the component of the policy that is relevant to your bankruptcy estate.
The cash value of a permanent policy is similar to any other type of investment asset and would become an asset that the LIT responsible for your bankruptcy must account for. Under provincial legislation, however, the assets will be exempt from seizure by your trustee, as long as the designated beneficiary of your policy is either a spouse or common-law partner, parent, child, or grandchild. Similar to term life insurance, if you should die during your bankruptcy, the policy will be paid out to your beneficiary and your trustee will have no right to the proceeds.
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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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.
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 Is A Trustee And What Is A Trustees Role
A Licensed Insolvency Trustee is the only professional who can administer a bankruptcy in Canada.
Licensed Insolvency Trustees are federally licensed and regulated by the Office of The Superintendent of Bankruptcy. Trustee fees are regulated under the Bankruptcy and Insolvency Act and are moderate, so the cost of bankruptcy is tends to be reasonable.
Bankruptcy Exemptions: What You Keep
Under Ontario law, certain assets are exempt from seizure by a bankruptcy trustee in an Ontario bankruptcy. The rules regulating bankruptcy exemptions in Ontario say that in an event of a personal bankruptcy you are permitted to keep the following:
- unlimited clothing
- $7,117 for a motor vehicle
- $14,180 worth of furnishings and appliances
- $14,405 worth of tools of the trade
- Most pension plans, certain types of life insurance policies, and RRSPs .
At Hoyes, Michalos & Associates Inc., prior to filing your Bankruptcy we will ask you to make a list of all items in your house, and to assign a fair value to each item.
We define fair value as the amount you would get if you were to sell that item at a garage sale. Therefore, even though you may have paid $300 for your television, if it is a few years old it is probably not worth more than $50 or $100 at a garage sale. This helps us determine your exempt assets and non-exempt assets.
In truth, most people keep all of their assets in bankruptcy. There are alternatives to bankruptcy like a consumer proposal if you have property valued above the exemption limits that must be realized by your licensed insolvency trustee during bankruptcy.
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.
Alternatives To Declaring Bankruptcyhow To Find Out More & What Might Be Available To You
Most of the time when someone is experiencing financial difficulty, they think that if things dont improve theyll have to go bankrupt. The truth is that between financial difficulty and bankruptcy there are a lot of options. Our credit counsellors are experts at helping people explore these options and find the solution that will not only work the best for you today but will put you on the path to achieve you future goals.
For some people, bankruptcy can prevent them from achieving future goals including some career paths. The nice thing is that there are often other options sometimes lots of them it all depends on your situation. The best thing you can do is make an appointment to speak with a credit counsellor, go over your situation with them, and see what your options are. If it turns out that bankruptcy is your best option, theyll layout your next steps for you and refer you to a reputable trustee.
Were a non-profit service. So appointments with our credit counsellors are always free, non-judgmental, and completely confidential. , or chat with us online. You have nothing to lose.
Fortunately, for many people who feel this way, there are other less severe options. Speak with one of credit counsellors to learn all your options. Theyll be happy to carefully review your whole financial situation with you and answer any questions you may have. Speaking with our certified counsellors is always free, confidential and without any obligation. Were here to help.
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I Cannot Include The Taxes I Owe In Bankruptcy
Absolutely untrue. All taxes owing are unsecured debts fully dischargeable by bankruptcy . This includes not just personal income tax but HST and, in the case of a business, payroll tax, which is a director liability and would trail you personally. The myth about taxes not being dischargeable in bankruptcy likely derives from the U.S. Bankruptcy Code, in which only certain tax debt for specific periods are dischargeable and only in certain situations. Canadian bankruptcy law discharges all tax debt universally, unless the Canada Revenue Agency has taken steps to secure it or in the case of fraud or tax evasion.
Being The Beneficiary Of A Policy During Your Bankruptcy
If you are the beneficiary to someone elses policy and they happen to pass away during your bankruptcy, the proceeds of that policy will be payable to your bankruptcy estate and you will not benefit from it .
If you are contemplating filing for bankruptcy and you think that person who has named you as their beneficiary has a risk of passing away during your bankruptcy, you may wish to have a discussion with that person. What they wish to do with their policy is wholly their choice who wants to leave a gift for someone they love, only to have it lost to a bankruptcy filing? If they want to change the beneficiary to someone else, that is their decision to make. They will still have the option to re-instate you as beneficiary once your bankruptcy is complete.
Life insurance is an important issue for a lot of people, and most of us don’t buy it motivated to invest but by the protection it can provide the people we love. Already in a vulnerable position, clients filing for bankruptcy care about what happens to their assets, a Licensed Insolvency Trustees understands these issues are deeply personal.
Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of significant financial stress
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Bankruptcy Exemptions In Ontario
- No limit on clothes for you and your family
- Household furniture, utensils, equipment, food and fuel up to $13,150
- Tools and instruments used by you in your business up to $11,300
- One motor vehicle up to $6,600
- If the equity in your home does not exceed $10,000, your home is exempt if the equity exceeds $10,000, then your home is not exempt from seizure
- Most pension plans and certain types of life insurance policies
- RRSPs, except for contributions in the 12 months before the date of bankruptcy
- For farmers, up to $29,100 for livestock, fowl, bees, books, tools and implements of the trade
For more information on bankruptcy exemptions in Ontario, find a Licensed Insolvency Trustee near you.
Alternatives To Repeat Bankruptcies
If you have been bankrupt previously you should give serious consideration to a again. If you determine a second bankruptcy is the best solution for your situation make sure you understand each of your required duties before you file. about your situation to see whether filing a second bankruptcy or a consumer proposal is best for you.
Whether you file bankruptcy a second time or file a consumer proposal, take full advantage of the mandatory credit counselling sessions that are part of your duties so you can avoid another bankruptcy down the road.
What Happens To Assets In Bankruptcy Will I Lose Everything
Bankruptcy offers you a fresh start. You are able to keep basic possessions and there are options to keep other assets.
Once you are legally bankrupt, bankruptcy law requires you to surrender your assets to a Licensed Insolvency Trustee. These assets will then be sold and the money earned will be distributed among your creditors.
You dont lose everything. Under Ontario bankruptcy law there is a list of items which are exempt from seizure, when going bankrupt in Ontario. These bankruptcy exempt assets include most of your personal and household belongings and tools used to earn a living and protection in the event your home equity falls below the set threshold .
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 LIT’s 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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You Should Get Help From A Debt Management Advisor Before Declaring Bankruptcy
In fact, you may be spending your money for nothing. Only the Licensed Insolvency Trustee is authorized to file an assignment in bankruptcy. Itâs safer to deal with them directly. Even if you are not sure that bankruptcy is the solution you need, you do not lose anything at meeting with them. The first consultation is always free. Then, the trustee fees depend on the arrangements between you and the creditors and the amount of money to be paid to them. Insolvency trustees are regulated by a code of ethics and act in compliance with the Bankruptcy and Insolvency Act.
The Bankruptcy Process At A Glance
Your Licensed Insolvency Trustee will help you to prepare and file all required paperwork. As soon as all documents are filed, harassing collection calls from creditors and wage garnishments will stop. During the bankruptcy process, you will be required to perform the following duties:
File monthly income and expense reports with your Licensed Insolvency Trustee to keep your budget in check and monitor any surplus income.
Attend two counselling sessions, during which you will examine the causes of your financial difficulties and work on debt-management strategies including budgeting, expense tracking and restoring your credit rating.
Provide your Licensed Insolvency Trustee with all necessary tax information to prepare and file your tax returns for the year in which you file bankruptcy .
Pay your Licensed Insolvency Trustee any necessary amounts, such as required surplus income payments, costs to repurchase any non-exempt assets, or administration fees.
Receive your bankruptcy discharge: If you have completed all necessary steps and duties, you will automatically be discharged from your remaining debts at the 9- or 21-month mark . Some remaining steps may be required, as set out in your court order.
Rebuild your credit rating: During your mandatory counselling sessions, you will work with your Licensed Insolvency Trustee to develop strategies for restoring your credit rating both during the bankruptcy period and in the long term.
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