You’re in debt. And all your payments and efforts seem not to help you get out of it. Deep debt! Fortunately, as a Canadian, you can file for bankruptcy in Canada and escape the ever-increasing weight of your debts.
Among other benefits, filing for bankruptcy in Canada can be an effective way to re-organize your finances and get a fresh start.
Although filing bankruptcy in Canada may seem daunting, especially when you’re doing it for the first time. The truth is, it’s an easy process once you know how.
But do you really need to file for bankruptcy? How do you go about it successfully?
As you continue reading, you will find answers to these questions and a lot of others, giving you a broader picture of what bankruptcy entails, how to file bankruptcy in Canada, and your obligations during a bankruptcy.
Let’s go there!
What is Bankruptcy?
Bankruptcy simply refers to the legal process whereby a debtor allocates their non-exempt assets to their creditors in exchange for gaining freedom from large debts.
Canada has certain exemptions on each province, on the assets you keep. This includes RRSP’s, house, car, pension accounts, among others.
In Canada, the only person that can administer a bankruptcy is a Licensed Insolvency Trustee (LIT). They are being authorized by the federal government and regulated by the Office of the Superintendent of Bankruptcy.
The Bankruptcy and Insolvency Act regulates trustee fees, which are modest, making the bankruptcy cost fair.
An individual has the legal right to file for bankruptcy as many times as they wish. However, the procedure gets tougher.
For example, you will not be eligible for an automatic bankruptcy discharge within nine months with a second bankruptcy.
The Bankruptcy and Insolvency Act establishes the following requirements… for declaring bankruptcy in Canada:
- Be a Canadian Resident.
- Must owe over $1000.00.
- Must not be able to meet your payments as at when due.
However, just meeting these requirements doesn’t mean you should automatically file for bankruptcy.
It also means that bankruptcy is the last option to help you overcome your debt problems. You must satisfy these requirements in order to file for bankruptcy in Canada.
What Are The Benefits of Filing Bankruptcy in Canada?
The most major benefit of filing bankruptcy is that it may discharge all your assets. Discharge means that you’re no longer obligated to pay your debts.
If you have been struggling to pay your debts, you may be opportune to legitimately have these debts waived.
Furthermore, a court can issue an automatic stay when you file for bankruptcy. An automatic stay prevents creditors, the individuals and institutions to which you owe money, from attempting to disturb you.
This will immediately bring an end to all stressful letters or phone calls from collection agencies.
Also, contrary to common belief, filing for bankruptcy does not result in the loss of all your assets. Bankruptcy exemptions are available in both federal and state regulations.
Bankruptcy exemptions are properties that are free from seizing by bankruptcy trustees. This is under Chapter 7 bankruptcy filings.
This means that if you file for Chapter 7, you may be able to keep such items as your house, jewelry, clothing, and a variety of other personal belongings.
Finally, if you are concern that you may lose your job for filing bankruptcy, you shouldn’t. Under bankruptcy rules, your employer cannot discriminate against you for filing for bankruptcy.
What Are The Drawbacks of Filing Bankruptcy in Canada?
One of the major drawbacks of declaring bankruptcy is that, while it will help you get out of debt, it will not actually wipe out all your debts. Some of your debts that will linger after filing for bankruptcy are as follow:
- Your most recent tax returns
- Your big student loans
- Government agencies’ fines
- Child support and alimony
Furthermore, though you can retain your exempt property after filing for Chapter 7, you must surrender your non-exempt assets.
Based on your situation, this may include your home, cars, bonds, stocks and even cash.
For up to ten years, your credit history will stain because you filed for bankruptcy. In the future, this could make it much more difficult for you to get a loan.
And if you do get a credit card or a loan, the interest rate would most likely be higher.
Finally, declaring bankruptcy is not inexpensive. The cost of filing bankruptcy accumulates. This combines trustee fees, filing fees, attorney fees, and credit counselling fees.
3 Types of Bankruptcies?
Let’s look at them one after the other.
In Canada, personal bankruptcy is the most popular form of bankruptcy.
- Lose your source of income.
- You are not able to reduce your debt despite your monthly payments.
- Exceeded your borrowing limit and can’t qualify for any loan.
- You are relying on credit for your regular expenses such as gas, household bills and groceries.
There are two types of personal bankruptcy:
- Summary administration Bankruptcy: This is consumer bankruptcy. Here the value of your committed assets doesn’t exceed $15,000 when sold.
- Ordinary Administration Bankruptcy: This is a type of personal bankruptcy. Here assets are being projected to be more than $15,000.
Your Trustee will assess your situation and determine which of these is the best option for you.
Small Business Bankruptcy
Small business bankruptcy is being handled in the same way as personal bankruptcy is.
In legal terminology, whether your business is a sole proprietorship or a partnership, it is the same as that of a single person. The debts and assets of the business are the owners.
You would also need to find a trustee to file your small business bankruptcy. It is important to look for someone who has a lot of experience handling this kind of bankruptcy.
Oftentimes, incorporated businesses protect the owner from liability. This ensures that their personal assets are safe.
When a corporation is unable to pay its remaining obligations, it can also file for bankruptcy.
Corporate bankruptcies vary in that you would almost always need to look for a specialized corporate filing trustee. Since corporations are independent legal bodies, their shareholders are immune from liability.
The shareholders’ assets are not forfeited but the business’s assets. However, this is not always the case.
If the owner used their personal assets, such as a house or any property, as collateral, those assets are liable to forfeiture.
3 Steps on Declaring Bankruptcy in Canada
Declaring bankruptcy should be a last resort. Although though the procedure is rarely repeated. But under exceptional cases, you may want to declare bankruptcy for a second time.
You can declare a second bankruptcy only after the first bankruptcy is being discharged.
The following are the three steps you need to follow to declare your bankruptcy in Canada:
Step 1: Understand Your Debt Situation
First, you must admit that you have financial challenges and do not think you can solve them on your own.
The following warning signs that you need to take critical steps about your debt situation:
- Failed to meet one or two debt payments.
- Exceed the max. of your credit cards.
- You pay your bills with credit card cash advances.
- Your creditors have forwarded your account to collection agents.
- Have a summon to appear in court to recover the money you owe.
The above are the top conditions that should make you seek a last resort on bankruptcy.
Step 2: Look for a Licensed Insolvency Trustee
After confirming the fact that your debt situation needs a bankruptcy declaration… you should take the next step of looking for a Licensed Insolvency Trustee (LIT).
The Canadian Superintendent of Bankruptcy licensed only LIT to administer bankruptcies in Canada.
This implies that you must consult with a Licensed Insolvency Trustee to declare bankruptcy in the country.
Your trustee will guide you through the bankruptcy process and other debt-relief opportunities.
In addition, your Trustee will ensure that your interests are upheld during the bankruptcy.
When deciding on a Trustee, bear the following in mind:
- Your Trustee should be nearby or easily accessible.
- You should be confident with your Trustee by asking them questions and getting the right answers.
- Ensure that your Trustee has a license from the Superintendent of Bankruptcy.
NOTE: Become a licensed Trustee.
Step 3: Contact Your Trustee
After getting a licensed Trustee, you need to call them to set up a free initial consultation.
You may expect to provide detailed information about your financial condition. This includes information about your income, expenditures, debts, and assets.
During your first meeting, your Trustee will assess your financial situation. He or she will identify bankruptcy alternatives that suit your situation. This may include consumer proposals, debt management plans, debt consolidation and the bankruptcy process.
Your Trustee will inform you about each option and advice you about which option is right for you. However, the final decision is yours, and you will have enough time to conclude.
How to File Bankruptcy in Canada?
When you decided to file for bankruptcy after consulting with a Licensed Insolvency Trustee (LIT), they will help you in doing so. Filing for bankruptcy in Canada requires different forms, including:
- Assignment: This is a declaration that your bankruptcy trustee will take care of your property to the advantage of your creditors.
- Statement of Affairs: This contains the list of your income, expenses, liabilities and assets.
You will also expect to provide supporting documentation that contains your tax returns, evidence of you and your family’s income and expenses, and evidence of any properties you own.
Upon providing all the necessary information, your Trustee will file a bankruptcy with the Office of the Superintendent of Bankruptcy, which is a federal agency that oversees this process.
While your Trustee plans the paperwork based on the information you provided, you are responsible for the entirety and accuracy of the paperwork.
Throughout the procedure, ensure that you save the documents provided by your Trustee and the copies of all notices.
Your Trustee will inform your creditors that you have filed for bankruptcy, allowing them to file a claim.
Since these notices are often delivered online, it should take no time for the creditors to become aware and the collection calls to stop.
Similarly, once your wages are being garnished, your Trustee will inform your employer. He or she will request that garnishment stop.
Additionally, the Trustee may file any unfiled tax returns you may have up to the period of your bankruptcy.
Any amount owed to the Canada Revenue Agency will feature in the bankruptcy.
What Happens When you Declare Bankruptcy in Canada?
When you file for bankruptcy, you give up your assets in exchange for debt discharge.
If you do not get a discharge, your debts remain, which defeats the intent of filing bankruptcy.
Here are your bankruptcy responsibilities:
Surrender Your Assets
Oftentimes, your assets will not be part of forfeiture during bankruptcy. This ensures you will not forfeit some of your belongings.
But when you own a home that is worth far more than the mortgage balance or a costly car, you are bound to surrender such assets.
Submit Your Credit Cards to Your Trustee
Attend Credit Counselling Sessions
Attending the two credit counselling sessions will help you understand how best to manage your finances in the future.
The first session takes place within 60 days of your bankruptcy filing date, and the second session takes place within 210 days.
Provide All The Information Necessary to File Your Tax Returns.
You will need to file a “pre-bankruptcy” tax return as your trustee will collect your “post-bankruptcy” tax refund. Your Trustee will also ask for your T-4 slips besides other tax details at the end of the year.
Provide Monthly Proof of Your Income and Expenses
You must provide evidence of your income and some expenses per month in order for your Trustee to determine your surplus income.
Make Monthly Estate Payment
You will also have to make monthly estate payments during your bankruptcy.
Every situation is unique. But in most situations, you would expect to make a monthly base donation. This is to fund the expenses of running your assets. Additionally, to fund your surplus income payments depending on your income.
Get Your Discharge
Bankruptcy is possible for you. Whether your credit card debt has multiplied and seems insurmountable. Or your unsecured debts are close to the ceiling of your credit limits. You can consider filing bankruptcy.
Filing bankruptcy in Canada can help relieve the stress caused by overwhelming debt. It will also allow you to shed your unsecured debts and start over on a fresh financial slate.
But there are rules to the game. Ensure that you need a bankruptcy before filing one. Also, understand your debt situation to see which type of bankruptcy suits your situation.
By contacting an experienced Licensed Insolvency Trustee… you will save time and effort trying to decide on whether bankruptcy is right for you.
If you resolved to file bankruptcy, remember to keep up with your obligations; else, you demote yourself back to square one.
The ball is now on your court!
But if you have any questions or contributions on how to file bankruptcy in Canada, kindly drop them in the comment section.