Bankruptcy

One of the main purposes of bankruptcy legislation is to afford the opportunity for a person, who is burdened with excessive debt, to free themselves and their family of the debt and stress, and start fresh – a new lease on life. To file for Bankruptcy, it is necessary for a person to be insolvent. To be insolvent in a bankruptcy means to owe at least $1,000 and not be able to meet your debts generally as they become due and not have sufficient assets to cover that debt.

If you are experiencing debt stress, and are considering filing for bankruptcy, you generally don’t need a lawyer.

Only a Trustee can legally initiate and process bankruptcy proceedings. However, a Trustee will work with counsel of your chosing on more complex personal restructurings.

Working directly with a Trustee in Bankruptcy will save you money by providing a free consultation to determine if, when, and how you should proceed. As well, you receive proper, concentrated attention throughout your entire proceedings. A Trustee will deal with your creditors on your behalf. A Trustee will explain your options other than bankruptcy, such as consolidation loans, re-mortgaging your house, loans from family and friends, budgeting, proposals, sale of your vehicle, or liquidation of existing assets.

The Bankruptcy and Insolvency Act (BIA) sets out whether a bankruptcy notice has to be published in the newspaper. For the vast majority of bankruptcies, a notice will NOT be published. Newspaper announcements are reserved for corporate and larger personal bankruptcies. Usually, very few people are aware of a consumer bankruptcy. Only creditors and their agencies are advised by mail. Doyle Salewski Inc. will only discuss matters concerning a client with that client, creditors, counsel, and officials sanctioned by the BIA. Your employer may also be notified if the Trustee has to stop garnishment of your wages. However, most personal bankruptcies go undetected by family and friends.

The cost for administering a bankruptcy is paid from the surrender and liquidation of your property as well as mandatory or voluntary payments to the Trustee. In a bankruptcy scenario, the government defines your property as all of the things generally you would consider to be property (equity in your home, vehicles, jewellery), as well as income tax refunds and a portion of your income. Based on your income, you will be required to make monthly payments to your bankrupt estate. The government refers to this payment as a surplus income payment. The government also provides for certain parts of your property to be exempt from seizure, which is explained below.

A Trustee in Bankruptcy is a professional licensed by Industry Canada to administer the Bankruptcy and Insolvency Act. If you want to file an assignment in bankruptcy, it can only be done through a Trustee as Trustees are the only individuals licensed to file bankruptcies. Credit counsellors who are not affiliated with a Trustee in Bankruptcy have no requirements for education or licensing and are not licensed to file bankruptcy documents. They purport to make informal proposals to your creditors, which in most cases, are not supported by your creditors, and in many cases, don’t deal effectively with your debt.

The government determines, on an annual basis net monthly income thresholds for a household to maintain a reasonable standard of living in Canada. When you file for bankruptcy, every dollar you make above that limit is considered to be ‘surplus’, and therefore the government has deemed that 50% that surplus must be remitted to your bankrupt estate for the benefit of your creditors. You are required to make these payments every month for the period of time you are in bankruptcy, which can range from 9 months to 21 months for a first-time bankrupt, and from 24 months to 36 months for a second-time bankrupt.

If you make less than the amount the government deems is appropriate to maintain a reasonable standard of living, and therefore do not have ‘surplus’ income, you may still be required to make a voluntary payment for the benefit of your creditors. This payment, however, will be set by the Trustee.

In Ontario, the Ontario Executions Act sets out the exemptions a bankrupt person may claim in a bankruptcy. Generally, a bankrupt person may claim exemptions for:

• household furniture and appliances ($11,300 worth);
• personal effects, jewellery, etc…($5,650 worth);
• tools required for your work, which may include your automobile if it is required to earn income ($11,300 worth); and
• one vehicle per bankrupt person, owned free and clear of liens ($5,650 worth).

In Quebec, the Code of Civil Procedures sets out the exemptions a bankrupt person may claim in a bankruptcy. Generally, a bankrupt person may claim exemptions for:

• household furniture and appliances ($6,000 worth);
• food, fuel, linens and clothing necessary for the life of the household;
• tools required for your work;
• family papers and portraits, medals and other decorations;
• property declared by a donor or a testament to be exempt from seizure;
• judicially awarded support and sums given or bequeathed as support;
• certain benefits payable under a supplemental pension plan;
• certain disability benefits and property of a person that he requires to compensate for a handicap; and;
• RRSPs, Registered Retirement Income Funds and Deferred Profit Sharing Plans.

Bankruptcy does not prevent a secured creditor from repossessing assets that have been specifically pledged as collateral for a loan if that loan has been defaulted on, even if they are exempt from seizure by the Trustee.

There are strategies to assist you in retaining the ownership of your house. These are based on your unique circumstances, the valuation of the house, the mortgages in place, your equity in the house, and your available cash flow. If retaining the house is a sensible decision from an emotional, family and financial viewpoint, then we can assist to make it happen.

In Canada, you cannot file for bankruptcy without the services of a Trustee in Bankruptcy. The Trustee will review your financial situation with you, usually for free, prepare the documents you need to file for bankruptcy, guide you through the signing process, and provide you with financial counselling to help you manage your finances effectively in the future.

You must take counselling in order to be eligible for a discharge from bankruptcy. The counselling can be one on one with yourself and your Trustee firm. The first counselling session must be held between 10 and 60 days following bankruptcy. The second counselling session must be held no later than 210 days following the date of bankruptcy. Counselling sessions cover areas such as: money management skills/budgeting; enhancing clients’ well being; improving money management skills; goal setting; implementing lifestyle changes; how to prevent a relapse; securing family co-operation; and examining what brought about financial distress.

The Bankruptcy and Insolvency Act sets out the criteria whether a bankruptcy notice has to be published in the newspaper. For most personal bankruptcies a notice will not be published.

Your debts belong to you, and your spouse has no connection to this. The fact that you are married is irrelevant. The only time your spouse would be responsible for your debt is if the debt is joint, which means your spouse co-signed for the debt.

Generally, in a first time personal bankruptcy, once you file, all you are required to do is:

• Attend two counselling sessions
• Report any changes in your financial, family, and residential status.
• Pay a monthly requirement.
• File monthly income and expense reports.

Some of your duties include:

• disclosing to the Trustee of all your assets and debts to the best of your knowledge;
• surrendering all of your credit cards to the Trustee for return to the creditor;
• attending two financial counselling sessions and other meetings as required;
• keeping the Trustee advised of any major changes in your income;
• if you move or change your phone number, updating the Trustee;
• providing the Trustee with your income tax information so he can do your taxes for the year of your bankruptcy and the prior year, if applicable;
• disclose to the Trustee your income and household expenses for every full month of your bankruptcy; and
• remit to your estate the required surplus income payments

Other than the mandatory two financial counselling sessions, occasionally a creditor will request a meeting to ask you some questions regarding your finances. This generally does not happen unless you have creditors of a personal nature. You are also subject to examination by creditors or a representative from the Office of the Superintendent of Bankruptcy; this is carried out on a random basis.

First-time bankrupts, with no surplus income, are eligible for an automatic discharge from bankruptcy after 9 months. If there are surplus income requirements, a first-time bankrupt will be in bankruptcy for an additional 12 months, with the additional 12 months’ worth of surplus income payments.

For a second-time bankrupt, the eligibility for an automatic discharge comes after 24 months if the bankrupt does not have surplus income requirements. If there are surplus income requirements, a second-time bankrupt will be required to be in bankrupcty for an additional 12 months, with the additional 12 months’ worth of surplus income payments.

Bankruptcy does not prevent the mortgagee (bank) from repossessing your home if you are in arrears on your payments, but if the payments are up to date, a bankruptcy will not disrupt the agreement between you and the bank. The Trustee will, however, require you to provide a recent valuation or appraisal of your home, along with an up-to-date mortgage balance statement, to determine whether or not there is equity in your home in a bankruptcy scenario. If there is, and you want to continue living in your home, you will be required to provide that equity to your bankrupt estate for the benefit of your creditors. This amount of money will be over and above your surplus income payments and income tax refunds, which you will also be required to pay. The Trustee will usually register a charge against your home until you have completed this requirement.

Personal income tax and Director’s Liability (HST, GST and PST, source deductions) are all dischargeable debts in a personal bankruptcy. If the debt is large enough, you should see a trustee immediately. A search of the Personal Property Security Registry or land titles will reveal whether Canada Revenue Agency has filed a secured claim against you.

The creditors should stop pressuring you immediately after they are notified of your bankruptcy, whether it’s by you when they call or by receiving the bankruptcy documents from the Trustee. It should be noted that in reality, sometimes creditors and collection agencies do not stop harassing, and it takes a call from the Trustee to get them to stop. They don’t always follow the rules. As far as garnishment orders go, if your wages are presently being garnisheed, your assignment in bankruptcy will, in most cases, stop the garnishee.

No, a bank cannot refuse to open a personal bank account for you just because you don’t have a job, you are or have been bankrupt, or you’re not depositing money in the account.

The Trustee must send the bankruptcy documents to the creditors within five days of the date of your bankruptcy. If creditors contact you between the time you file for bankruptcy and the time they are notified of the bankruptcy, you need only advise them you are now bankrupt and refer them to the Trustee. You are not required to provide them with any additional information.

Yes, your assignment in bankruptcy will be updated onto your credit bureau record by the creditors as they report to the bureau on the status of your account. Trustees in Bankruptcy have no connection or access to credit bureaus; they are privately run companies. Your bankruptcy will remain listed on your credit bureau report for six or seven years (depending on the region you live in) from the date of your discharge from bankruptcy.

Your student loans are dischargeable in a bankruptcy only if you file an assignment in bankruptcy after you have ceased to be a full or part time student for 7 years. This means filing for bankruptcy 7 years after the last month in which you finished school. Recently the Courts have taken the meaning of this to exclude any periods of time you have been in school but have not incurred any student loans, but this is not a part of the legislation.

An assignment in bankruptcy eliminates most debts, other than secured debts like your mortgage and vehicle debt, assuming you want to keep those assets. There are, however, some debts that are not dischargeable in a bankruptcy:

• court imposed fines, penalties, and restitution orders;
• parking tickets and speeding tickets;
• alimony or child or spousal support;
• debts arising from fraud, embezzlement, misappropriation or fraudulent misrepresentation;
• an award of damages by a civil Court in respect of sexual assault or bodily harm inflicted; and,
• student loans where the bankrupt has ceased to be a full or part time student for less than seven years.

Child support or spousal support that are part of a Court ordered agreement are not dischargeable in a bankruptcy. You have to pay them regardless of whether you are bankrupt or not. Not only that, but anyone pursuing you for these payments, for example, the Family Responsibility Office or a lawyer, can continue to pursue you during the bankruptcy, unlike the other creditors.

There are standards supplied to the Trustee by the Superintendent of Bankruptcy which instructs the trustee to collect funds, for the benefit of creditors, from any earnings above what is reasonable for the number of people in the family and the bankrupt’s personal situation. These standards usually apply to higher income earners.

For those people who have not been bankrupt before, an automatic discharge will usually take place after 9 months if: there is no surplus income; the creditors and Superintendent of Bankruptcy or Trustee have not opposed your discharge; you have submitted monthly income and expense reports; and have participated in two counselling sessions. It is rare that creditors object and the matter goes to mediation, or is heard before a Registrar or a Judge. The discharge is usually granted where the bankrupt is only earning sufficient income to keep himself and his dependents reasonably provided for. It is the discharge of the bankrupt, with minor exceptions, that cancels the bankrupt’s debts

To obtain more information you should consult with one of our Directors. Call us today to book your free, personalized, no obligation consultation at 613-237-5555 or toll free at 1-800-517-9926, or email to info@doylesalewski.ca.