Personal Bankruptcy Questions & Answers

 
What are my options in dealing with my financial crisis?
What is bankruptcy?
What is bankruptcy supposed to accomplish?
Can anyone go bankrupt?
How much will it cost me to go bankrupt?
Does the trustee in bankruptcy work for me?
Do I lose everything if I go bankrupt?
What about my RRSP?
What about my matrimonial home and other assets I own jointly with my spouse?
Do secured creditors always get paid or get their security back?
Are all of my debts wiped out with bankruptcy?
What if I can’t afford to repay my student loans?
What happens to wage garnishments against me?
What happens to lawsuits against me?
How do I stop the harassment?
Is anyone else responsible for my debts?
What happens to my tax returns?
What happens to my GST refunds and Child Tax Benefits?
What are my duties if I go bankrupt?
What if I don’t comply with my duties as a bankrupt?
Can I earn a living during bankruptcy?
What if I think these surplus income payments I have to make are too high?
What about windfalls?
What happens to my credit cards?
How does bankruptcy affect my employment?
How long does bankruptcy last?
Why wouldn’t I be discharged from bankruptcy automatically?
Who finds out about my bankruptcy?
How do I start the bankruptcy process?
What happens next?
When is my bankruptcy over?
How does bankruptcy affect my credit rating?
What are the drawbacks to declaring personal bankruptcy?
Can I borrow money after my bankruptcy?
Should I declare bankruptcy?
Where do I sign?
 
   
What are my options in dealing with my financial crisis?
   
 
  • Contact your creditors and try to work out an arrangement that you both can live with.
  • Consolidate your debts into one loan.
  • Credit counselling / debt management program.
  • Make a proposal to your creditors through a trustee under the Bankruptcy and Insolvency Act. (Ask a trustee if you are a candidate for a proposal.)
  • File for personal bankruptcy.
 
   
What is bankruptcy?
   
  Bankruptcy is a legal process which relieves you of most, if not all, of your debts.
 
 
   
What is bankruptcy supposed to accomplish?
   
 
  • Bankruptcy laws were designed to allow an honest but unfortunate debtor to be relieved of their debts, subject to reasonable conditions.
  • The bankruptcy process allows the trustee in bankruptcy to distribute the bankrupt’s property in an orderly, fair and equal manner.
  • The bankruptcy process is geared towards the financial rehabilitation of the bankrupt.
  • The bankruptcy process was designed to be fair for both the debtor and their creditors. The integrity of the credit granting system must be preserved.
 
   
Can anyone go bankrupt?
   
  To file for bankruptcy you must owe at least $1,000 and be unable to meet your financial obligations as they become due.
 
   
How much will it cost me to go bankrupt?
   
  The costs of a bankruptcy depend on a number of different factors. The federal government has set a tariff for the cost of a bankruptcy which, together with disbursements and GST, totals $1,675. Bankruptcy services are not covered by legal aid, nor is the cost covered by any government agency. You will have to make arrangements with the trustee in bankruptcy to ensure that the costs of the bankruptcy are covered by yourself, a relative, or a friend.
 
   
Does the trustee in bankruptcy work for me?
   
  The trustee in bankruptcy is an officer of the court. The trustee in bankruptcy does not work for the bankrupt. The trustee’s job is to fairly represent the interests of the bankrupt, the creditors and the bankruptcy court system.
 
   
Do I lose everything if I go bankrupt?
   
  No. There are laws which exempt certain assets from seizure, namely:
   
 
  • household furniture to a value of $11,300
  • personal effects, including clothes, to a value of $5,650
  • tools of the trade to a value of $11,300, including an automobile if required for employment
  • vehicle to a value of $5,650 (where vehicle not required for employment purposes)
  • certain life insurance policies
  • pensions
  While the trustee in bankruptcy will not seize any of the above assets, if you have pledged any of these assets as collateral or security for a loan, a secured creditor can take possession of them. In general terms, secured creditors are not affected by your bankruptcy; if you fail to honour your obligations to them, they can take whatever steps they would normally take to collect on their loans, including seizing and selling their security. (If you have paid for two thirds of the purchase price, the asset cannot be seized without an order of the Court.)

As for the remainder of your assets, these must be turned over to the trustee in bankruptcy who will see to it that they are liquidated, with the proceeds going to your creditors.
 
   
What about my RRSP?
   
  Bankruptcy laws were changed recently allowing individuals to retain their RRSPs even if they file for bankruptcy. The major exception to this rule is that RRSP contributions made in the 12 month period prior to filing are clawed back for distribution to your creditors.
 
   
What about my matrimonial home and other assets I own jointly with my spouse?
   
  All your assets, including your half interest in assets such as your matrimonial home, are available to your bankrupt estate, subject to any prior charges. If your spouse is not going bankrupt, arrangements can be made by the trustee in bankruptcy to sell your equity in the joint asset to your spouse. There are other possibilities, such as repaying your estate this equity over time. This issue should be discussed with your trustee before filing.
 
Do secured creditors always get paid or get their security back?
   
  The trustee in bankruptcy will make sure that the secured creditor has registered all the proper documentation before you are given the option, in most cases, to either continue making payments to the secured creditor or return the assets to the secured creditor. There have been occasions where secured creditors have not properly registered their documentation. In these cases, the security in question will become an asset of your bankrupt estate. The trustee in bankruptcy is required to seize these assets and liquidate them for the general benefit of your creditors.
 
   
Are all of my debts wiped out with bankruptcy?
   
  There are certain debts which you are not released from, even with bankruptcy, and they include:
   
 
  • a fine or penalty imposed by a court
  • alimony or support payments
  • any debt or liability which resulted from a fraud
  • a liability for a dividend that a creditor would have received from your bankruptcy proceeding had that creditor been notified of your bankruptcy and been given the opportunity to file a proof of claim
  • student loans, if you have been out of school for less than 7 (seven) years
  • damages awarded by a civil court pertaining to assault or death resulting therefrom
 
   
What if I can’t afford to repay my student loans?
   
  After you have been out of school for 5 (five) years, you can apply to the courts to have this debt discharged. You will have to satisfy the courts that you have acted in good faith and you are unable to repay your student loans.
 
   
What happens to wage garnishments against me?
   
  Once you have filed for bankruptcy, wage garnishments against you will be stopped.
 
   
What happens to lawsuits against me?
   
  Generally, once you have filed for bankruptcy, lawsuits against you will be stopped. In some cases, the person who was suing you may ask the courts for permission to continue to sue you. This may be the case, for example, where they are alleging fraud, a debt which would not be discharged with bankruptcy.
 
   
How do I stop the harassment?
   
  Once your creditors have been notified of your bankruptcy, they should stop bothering you. Remember, you must still deal with secured creditors if you have chosen to keep their security. If your unsecured creditors continue to call you, obtain the identity of the harassing party and advise them to contact the trustee in bankruptcy. If the harassment continues, make careful notes and then call your local police department; harassment falls under the Criminal Code.
 
   
Is anyone else responsible for my debts?
   
  If someone else has co-signed one of your loans, that person will still be responsible for the debt even after your bankruptcy. Similarly, if you and your spouse jointly hold a credit card or mortgage, your bankruptcy will not affect your spouse’s obligation with respect to that debt.
 
   
What happens to my tax returns?
   
  The trustee in bankruptcy is responsible for filing your tax returns for both the year you go bankrupt and the year prior to bankruptcy. It is your responsibility to supply the trustee in bankruptcy with the necessary information to file these returns, i.e., T4 slips and all other relevant documentation. If you are self-employed or have a complicated income tax return, the trustee in bankruptcy will not be substituting for your accountant. You are expected to provide the trustee in bankruptcy with the information to file your tax returns in a summarized form.

In addition, any refunds of income taxes for the year of your bankruptcy and any prior years will be applied to your bankrupt estate as an asset for distribution to your creditors. Any income tax liability you might have up to your date of bankruptcy will be treated as any other debt you have. If you incur a tax liability from the date of your bankruptcy to December 31, you will be responsible for that liability, even after your discharge from bankruptcy. Keep this last point in mind when you are delivering your tax information to the trustee in bankruptcy. The deadline for filing tax returns is April 30. If you do not deliver your tax information to the trustee in bankruptcy by April 15, there are no guarantees that your tax return will be filed on time. If it is filed late and there is a liability outstanding, additional penalties and interest charges will be incurred by you.
 
   
What happens to my GST refunds and Child Tax Benefits?
   
  If there are sufficient funds in your bankrupt estate to cover the costs of administration (the trustee’s fees), you will be able to keep your GST refunds. If they are needed by the estate to cover the costs of administration, you will lose them for the period of your bankruptcy. You will continue to receive your child tax benefits.
 
   
What are my duties if I go bankrupt?
   
  Your duties as a bankrupt are clearly set out in the Bankruptcy and Insolvency Act. These duties include:
   
 
  • deliver all your property to the trustee in bankruptcy
  • deliver all your books and records to the trustee in bankruptcy, including legal documents, insurance policies and tax records
  • attend at the offices of the Official Receiver (a government employee) to be examined under oath with respect to your conduct, the causes of your bankruptcy and the disposition of your property
  • prepare and submit to the trustee in bankruptcy a sworn statement of affairs including all your assets, liabilities and other pertinent information
  • assist the trustee in bankruptcy in making an inventory of your assets
  • disclose to the trustee in bankruptcy all property you disposed of in the year preceding your bankruptcy
  • disclose to the trustee in bankruptcy all property you disposed of by way of gift or settlement without adequate valuable consideration in the 5 years preceding your bankruptcy
  • attend at your first meeting of creditors
  • attend at any other meeting of creditors or inspectors, if your presence is requested, or attend on the trustee
  • submit to examination under oath with respect to your property or affairs, as required
  • assist the trustee in realizing upon your assets and distributing the proceeds to your creditors
  • execute any documents that may be required
  • examine the correctness of proofs of claim filed in your estate, if requested to do so by the trustee in bankruptcy
  • disclose to the trustee in bankruptcy any knowledge you might have of someone having filed a false claim in your bankruptcy
  • generally, do all things in relation to your property and distribution of the proceeds which might reasonably be required by the trustee in bankruptcy
  • until you are discharged and the administration of the estate is completed by the trustee in bankruptcy, keep the trustee in bankruptcy advised at all time of your place of residence or address
 
   
What if I don’t comply with my duties as a bankrupt?
   
  If you don’t comply with your duties as a bankrupt, not only will your discharge from bankruptcy be affected, but you will also be subject to criminal prosecution (maximum 3 years imprisonment).
 
   
Can I earn a living during bankruptcy?
   
  One of the documents you will be preparing before you file for bankruptcy is a budget which lists all of your income and expenses, excluding those unsecured debt payments you were making before your bankruptcy. The amount of money you have left over after paying all your business and personal expenses is called "surplus income". You will be expected to make payments to your trustee in bankruptcy of a portion of your surplus income until you are discharged from bankruptcy. The portion that you will be paying is determined in conjunction with the trustee in bankruptcy according to standards set by the federal government. The federal government determines the surplus based on the amount of money your "family" earns. The trustee in bankruptcy will explain this to you at the time of your assessment. Before your bankruptcy commences, your trustee will be able to tell you how much money the federal government expects you to pay into your estate on a monthly basis until you are discharged. These payments will eventually be distributed by way of dividends to your creditors. These payments form part of the bankruptcy restitution process. If you fail to make these payments voluntarily, the bankruptcy courts will likely order you to do so and your discharge from bankruptcy will be affected.
 
   
What if I think these surplus income payments I have to make are too high?
   
  The standards set by the federal government provide little room for flexibility. The law states that "the trustee shall having regard to the applicable standards . . . and to the personal and family situation of the bankrupt, fix the amount that the bankrupt is required to pay to the estate of the bankrupt". There is a process called mediation which allows you to try to plead your case before an Official Receiver (a federal government employee). If this fails, you will have to attend at court for your discharge hearing and let the court decide how much should have been paid to your estate.
 
   
What about windfalls?
   
  Any windfalls you receive while you are an undischarged bankrupt must be turned over to the trustee in bankruptcy. These include lottery winnings and inheritances.
 
   
What happens to my credit cards?
   
  All your credit cards must be turned over to the trustee in bankruptcy. If you are the holder of a supplementary card for which someone else is responsible, and you have the permission of that person to continue using the card after your bankruptcy, you may do so.
 
   
How does bankruptcy affect my employment?
   
  In most cases, bankruptcy should not affect your employment. There are certain situations which may be affected, such as bonding requirements or regulating bodies prohibiting members from practicing while being an undischarged bankrupt.
 
   
How long does bankruptcy last?
   
  If you have never been bankrupt before, you are eligible for an automatic discharge from bankruptcy after nine months. If your discharge from bankruptcy is opposed, by either one of your creditors or the trustee in bankruptcy, a hearing date will be set to consider your discharge.
 
   
Why wouldn’t I be discharged from bankruptcy automatically?
   
  If there are certain "facts" present in your bankruptcy, you may not be automatically discharged from bankruptcy. These facts include:
   
 
  • if you were carrying on a business and failed to keep proper books and records
  • if you knew that you were insolvent and still continued to carry on business
  • if you have failed to account for a loss of your assets
  • if you have contributed to your bankruptcy by rash or hazardous speculation, by living an extravagant lifestyle, by gambling or by neglecting your business affairs
  • if you gave a preference to any of your creditors prior to your bankruptcy
  • if you have previously been bankrupt or made a proposal to your creditors
  • if you have been found guilty of fraud or fraudulent breach of trust
  • if you have committed any offence under the Bankruptcy and Insolvency Act
  • if you have failed to perform your duties as a bankrupt
  • if you have not made your surplus income payments
  • if, in the opinion of the trustee, you could have made a proposal to your creditors
  In addition to the above, if you have consented to making monthly payments to cover the cost of your bankruptcy and you have not provided the trustee in bankruptcy with evidence to satisfy him as to why it was impossible for your to make those payments (i.e., monthly income and expense statements, pay stubs, bank books, etc.), the trustee in bankruptcy may oppose your discharge and request that the courts order you to make these payments. While the above points may prevent you from obtaining an automatic discharge, failure to attend at the trustee in bankruptcy’s office for your two mandatory financial counselling sessions disqualifies you from being eligible for an automatic discharge.
 
   
Who finds out about my bankruptcy?
   
  Your bankruptcy is a matter of public record. The trustee in bankruptcy will notify your creditors of your bankruptcy, as well as the federal government. A record of your bankruptcy will also be maintained on file by credit reporting agencies. Normally, a notice of your bankruptcy is not published in the newspapers. Your employer will not necessarily be informed of your bankruptcy.
 
   
How do I start the bankruptcy process?
   
  After you have been assessed by a trustee in bankruptcy and you have completed a detailed application form, you will be asked to sign and swear several documents. Once these documents are filed with the government, your bankruptcy is official. All of this can take place on the same day, if there is some urgency required (i.e., garnishment of wages or seizure of assets).
 
   
What happens next?
   
 
  • If your creditors request it, you will have to attend a meeting of your creditors. This takes place about six to eight weeks after you have started the bankruptcy process, usually at the trustee in bankruptcy’s office. While many creditors choose not to attend this meeting, you must attend. One of the purposes of the meeting is to give your creditors the opportunity to be informed about your bankruptcy and the events leading up to it. They will also be given the opportunity to ask questions, provided that the questions are pertinent to your bankruptcy.
  • You may be asked to attend at the offices of the Official Receiver (a government employee) to be examined under oath with respect to your conduct, the causes of your bankruptcy and the disposition of your property. If for whatever reason you cannot attend on the day you are requested to attend, contact the Official Receiver well in advance and reschedule the meeting for a time which is mutually convenient.
  • You will be required to attend at the trustee in bankruptcy’s offices for two financial counselling sessions prior to obtaining your discharge from bankruptcy.
  • You are also required to submit monthly income and expense statements to your trustee in bankruptcy until you are discharged.
 
   
When is my bankruptcy over?
   
 
  • If you are a first or second time bankrupt and no one has opposed your discharge, you will be discharged automatically in anywhere from nine to thirty six months after your date of bankruptcy, depending on the level of your income and whether you have been bankrupt before; this is a complicated issue; your trustee will explain this to you in more detail. The trustee in bankruptcy will be issuing you a discharge certificate.
  • If this is your third bankruptcy or your discharge has been opposed, a date and time will be set for the courts to consider your discharge application. The courts will then issue you your discharge certificate, which can range from an absolute discharge, a conditional discharge or a suspended discharge. In some cases, the courts can even refuse to grant you a discharge.
 
   
How does bankruptcy affect my credit rating?
   
  In all likelihood, your credit rating prior to bankruptcy will have been poor; it will not be getting much worse with bankruptcy. A record of your bankruptcy will be maintained by the credit bureau for seven years. After your bankruptcy is over, your ability to obtain future credit will be affected by at least two things: 1. your earnings and ability to repay any loan; and 2. collateral / security you can provide.
 
   
What are the drawbacks to declaring personal bankruptcy?
   
  The effect on your credit rating was discussed above. In addition, some individuals have a sensitivity to the stigma of bankruptcy. Keeping in mind the economic times we are currently experiencing, there is far more sympathy towards the honest debtor whose bankruptcy was brought on by circumstances beyond his control.
 
   
Can I borrow money after my bankruptcy?
   
  You can borrow money after you have been discharged from bankruptcy. Make sure to complete all credit applications honestly, particularly if they ask whether or not you have been bankrupt before. You can also borrow money or obtain credit prior to your discharge from bankruptcy, but you must reveal that fact that you are an undischarged bankrupt. It is advisable that this last point be evidenced in writing, for your protection.
 
   
Should I declare bankruptcy?
   
  The decision to file for bankruptcy is a very personal one. You must make up your own mind. A trustee in bankruptcy can give you all the information to make an informed decision, but in then end, you must make that decision.
 
   
Where do I sign?
   
  Make sure that you read and understand everything you sign with respect to your bankruptcy. You will not be able to use the excuse later on that you didn’t know what you were signing, in particular with respect to your duties and your obligation to remit surplus income to your estate.
 
  The above information is general in nature and is not a substitute for professional advice. Not all bankruptcy issues are covered here. Depending on your circumstances, there may be other factors which should be considered. This material is not legal advice. You are encouraged to contact a professional before making any decisions pertaining to bankruptcy.
   
 
 
 
 
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