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Bankruptcy Questions & Answers |
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What are my options
in dealing with my financial crisis? |
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What is bankruptcy? |
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What is bankruptcy
supposed to accomplish? |
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Can anyone go bankrupt? |
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How much will it cost
me to go bankrupt? |
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Does the trustee in
bankruptcy work for me? |
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Do I lose everything
if I go bankrupt? |
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What about my RRSP? |
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What about my matrimonial
home and other assets I own jointly with my spouse? |
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Do secured creditors
always get paid or get their security back? |
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Are all of my debts
wiped out with bankruptcy? |
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What if I can’t afford
to repay my student loans? |
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What happens to wage
garnishments against me? |
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What happens to lawsuits
against me? |
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How do I stop the
harassment? |
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Is anyone else responsible
for my debts? |
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What happens to my
tax returns? |
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What happens to my
GST refunds and Child Tax Benefits? |
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What are my duties
if I go bankrupt? |
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What if I don’t comply
with my duties as a bankrupt? |
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Can I earn a living
during bankruptcy? |
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What if I think these
surplus income payments I have to make are too high? |
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What about windfalls? |
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What happens to my
credit cards? |
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How does bankruptcy
affect my employment? |
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How long does bankruptcy
last? |
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Why wouldn’t I be discharged
from bankruptcy automatically? |
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Who finds out about my bankruptcy? |
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How do I start the bankruptcy
process? |
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What happens next? |
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When is my bankruptcy over? |
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How does bankruptcy affect my
credit rating? |
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What are the drawbacks to declaring
personal bankruptcy? |
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Can I borrow money after my bankruptcy? |
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Should I declare bankruptcy? |
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Where do I sign? |
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What are my options in dealing with
my financial crisis? |
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- 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.
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What is bankruptcy? |
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Bankruptcy is a legal process which relieves you of
most, if not all, of your debts. |
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What is bankruptcy supposed to accomplish? |
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- 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.
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Can anyone go bankrupt? |
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To file for bankruptcy you must owe at least $1,000
and be unable to meet your financial obligations as they become due. |
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How much will it cost me to go bankrupt? |
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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. |
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Does the trustee in bankruptcy work
for me? |
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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. |
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Do I lose everything if I go bankrupt? |
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No. There are laws which exempt certain assets from
seizure, namely: |
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- 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
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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. |
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What about my RRSP? |
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There are certain exceptions, but in general, your
RRSP will become an asset of your bankrupt estate which will be distributed
amongst your creditors. |
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What about my matrimonial home and
other assets I own jointly with my spouse? |
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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. |
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Do secured creditors always get
paid or get their security back? |
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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. |
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Are all of my debts wiped out with
bankruptcy? |
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There are certain debts which you are not released
from, even with bankruptcy, and they include: |
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- 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
10 (ten) years
- damages awarded by a civil court pertaining to assault or death
resulting therefrom
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What if I can’t afford to repay
my student loans? |
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After you have been out of school for 10 (ten) 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. |
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What happens to wage garnishments
against me? |
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Once you have filed for bankruptcy, wage garnishments
against you will be stopped. |
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What happens to lawsuits against
me? |
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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. |
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How do I stop the harassment? |
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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. |
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Is anyone else responsible for
my debts? |
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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. |
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What happens to my tax returns? |
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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. |
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What happens to my GST refunds
and Child Tax Benefits? |
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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. |
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What are my duties if I go bankrupt? |
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Your duties as a bankrupt are clearly set out in the
Bankruptcy and Insolvency Act. These duties include: |
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- 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
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What if I don’t comply with my
duties as a bankrupt? |
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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). |
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Can I earn a living during bankruptcy? |
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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. If you do have a surplus but not enough to repay
your creditors in full or make a proposal, your trustee in bankruptcy
may require you to pay an amount to your estate for a period up to
an additional 12 months from the date you would have been eligible
for an automatic discharge from bankruptcy (maximum total of 21 months). |
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What if I think these surplus income
payments I have to make are too high? |
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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. |
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What about windfalls? |
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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. |
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What happens to my credit cards? |
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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. |
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How does bankruptcy affect my employment? |
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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. |
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How long does bankruptcy last? |
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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. |
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Why wouldn’t I be discharged from
bankruptcy automatically? |
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If there are certain "facts" present in your
bankruptcy, you may not be automatically discharged from bankruptcy.
These facts include: |
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- 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
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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. |
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Who finds out about my bankruptcy? |
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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. |
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How do I start the bankruptcy process? |
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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). |
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What happens next? |
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- 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.
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When is my bankruptcy over? |
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- If you are a first time bankrupt and no one has opposed your
discharge, you will be discharged automatically nine months after
your date of bankruptcy. The trustee in bankruptcy will be issuing
you a discharge certificate.
- If you have previously been bankrupt 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.
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How does bankruptcy affect my credit
rating? |
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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. |
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What are the drawbacks to declaring
personal bankruptcy? |
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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. |
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Can I borrow money after my bankruptcy? |
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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. |
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Should I declare bankruptcy? |
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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. |
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Where do I sign? |
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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. |
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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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