Frequently Asked Questions
- What is bankruptcy?
- How do I avoid bankruptcy?
- Will my creditors stop harassing me?
- Who will know?
- How do I go into bankruptcy?
- Will I lose my house and/or car?
- What if I have the cash flow to make a proposal?
- What assets don't I keep?
- Are my spouse's assets and liabilities affected by the bankruptcy?
- What about my wages during bankruptcy?
- What debts are not affected by bankruptcy?
- What about alimony and maintenance?
- How much does it cost?
- What is counselling and do I have to take it?
- What happens during the bankruptcy?
- When is my bankruptcy over?
- What about student loans?
1. What is bankruptcy?
Bankruptcy is a legal process that enables someone who is hopelessly burdened with debt to get a fresh financial start. To go into bankruptcy, you must be insolvent. This means that you must owe at least $1,000, and:
- You are not able to pay your debts as they are due;
- Your debts exceed the value of your assets; and
- You are not already bankrupt.
2. How do I avoid bankruptcy?
During your initial no-cost, no-obligation meeting with one of our local representatives, we will discuss your situation and review your options.
3. Will my creditors stop harassing me?
Yes. By law, all actions against you must cease once the bankruptcy or proposal documents are filed with the Superintendent of Bankruptcy. This does not apply to secured creditors such as banks, holding a mortgage on a house or a lien on a car, where a properly secured creditor will, once the Trustee has reviewed the claim and released interest, continue to have its remedy against the pledged asset(s). As well, it does not apply to payments of a debt for alimony or maintenance.
4. Who will know?
If you have minimal assets, your creditors are notified by mail only. There is no advertisement placed in the local newspaper. However, all bankruptcy filings are public and the general public may access the documents. In a bankruptcy where there are significant assets, a notice is placed in the legal section of the newspaper notifying creditors of the date of the meeting of creditors. From the documents filed with the Superintendent of Bankruptcy, the Credit Bureau is notified and the bankruptcy is recorded and will remain on your credit record for approximately seven to 14 years from the date of your discharge.
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5. How do I go into bankruptcy?
There are two common ways a person can become bankrupt. The first (and most common) way is to make an assignment in bankruptcy (voluntary bankruptcy). A second (and rarely used) way is for creditors to ask the court to make an order that a person is bankrupt (involuntary bankruptcy). A Trustee in Bankruptcy is required to administer the process.
Usually, you complete an application form and provide it — along with all related information and documentation — to the Trustee. The Trustee will meet with you to ensure that bankruptcy is the most appropriate option in your circumstances. The Trustee then prepares the bankruptcy documents for you to sign. Once they are signed and filed with the Superintendent of Bankruptcy, you are officially bankrupt.
6. Will I lose my house and/or car?
This depends on how much equity you have. With a house, for example, your equity would be the amount left over after mortgages and penalties, with property taxes taken into account. If your equity in the asset is within the allowable limit, the Trustee will then generally release the asset to the secured creditor. You may be able to make arrangements with the secured creditor for you to keep the asset and continue making the mortgage or loan payments. If your equity exceeds the exemption limit, arrangements can often be made with the Trustee for you to "buy back" anything over the exemption limit in order to keep your assets.
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7. What if I have the cash flow to make a proposal?
If a person has the ability to make a proposal (e.g. his or her income exceeds living expenses) then he or she should consider doing so. If any person files for bankruptcy when he or she has the ability to make a proposal, it is the Trustee's duty to oppose the bankrupt's discharge. In this case, the bankrupt may be in bankruptcy an additional 12 months beyond the usual nine months. The bankrupt will be required to make payments in each of these months.
8. What assets don't I keep?
When you make an assignment in bankruptcy, all your assets (or equity in assets) in excess of the allowed exemption, vest in the Trustee for the benefit of your creditors. This may include inheritances and/or lottery winnings received or to which you might become entitled by the death of someone during the time of the bankruptcy. Certain cash assets you have at the time of your bankruptcy may not be exempt.
9. Are my spouse's assets and liabilities affected by the bankruptcy?
Not directly. Husbands and wives are separate individuals. Therefore, unless the spouse also files bankruptcy, the spouse's assets and liabilities are not affected. However, where assets are owned jointly (e.g. a house or car) it is the Trustee's responsibility to liquidate the one-half interest owned by the bankrupt. Also, if both spouses are responsible for a debt, then the bankruptcy or proposal of one spouse means that the other is now liable for the full debt.
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10. What about my wages during bankruptcy?
You must report your income to the Trustee each month. However, earnings after the start of a bankruptcy, such as wages, salaries or commissions, belong to the bankrupt person and are not normally interfered with by the Trustee. There are standards supplied to the Trustee by the Superintendent of Bankruptcy. These instruct 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.
11. What debts are not affected by bankruptcy?
Certain types of debts, including interest, are not erased by bankruptcy. They include:
- Fines imposed by a court;
- Debt incurred by misrepresentation or fraud;
- Alimony or maintenance payments;
- Debt for damages imposed by Civil Court for intentional bodily harm, sexual assault or wrongful death; and
- Student loans, if bankruptcy occurs within 10 years of ceasing to be a full- or part-time student.
Also, bankruptcy does not generally interfere with validly secured debts (e.g. a mortgage or vehicle lease).
12. What about alimony and maintenance?
Alimony or maintenance payments are not affected by bankruptcy. These payments must be kept up-to-date. A bankruptcy does not stop any actions for collection.
13. How much does it cost?
The amount you are required to pay will depend upon your particular circumstances. The Trustee will explain the amount you are required to pay to you once your situation has been assessed. In most circumstances the Trustee's fees for bankruptcy are set by government regulations. Our firm will allow you to pay these fees over time.
14. What is counselling and do I have to take it?
You must take counselling in order to be eligible for an "automatic nine month discharge". 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.
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15. What happens during the bankruptcy?
You must keep the Trustee informed as to where you are living and as to any material changes in your circumstances. You also must respond to the Trustee's requests and assist and co-operate in your bankruptcy as required and provide whatever information is requested. You must also provide the Trustee with monthly reports of earnings and expenses. The Trustee will provide you with the appropriate forms to be filled-in to provide the necessary information. As well, there may be a meeting of creditors approximately one-to-two months after the commencement of the bankruptcy that the bankrupt is required to attend. These meetings are usually held at the office of the Trustee. Also, the Official Receiver may require you to attend and provide information under oath relating to your bankruptcy.
16. When is my bankruptcy over?
If you have never been bankrupt before and have completed the required counselling sessions, and if there are no filed objections to your discharge, then you are eligible to be discharged from bankruptcy automatically after nine months.
If you have been bankrupt before, or if you chose to file bankruptcy when you could have made a viable proposal, or if a creditor, the Superintendent of Bankruptcy or the Trustee opposes your discharge, then you will not qualify for an automatic discharge. Your discharge will then have to be decided either by a mediation process with the Trustee and the Superintendent's Office, or by the Bankruptcy Court. It is the discharge from bankruptcy that cancels the debts.
17. What about student loans?
Student loans, including interest, survive bankruptcy if the bankruptcy occurs within 10 years of ceasing to be a full- or part-time student. However, the court may order that the bankrupt is discharged from such debt at any time after 10 years of ceasing to be a student if the court is satisfied that:
- The bankrupt has acted in good faith with regards to the liabilities under the loan; and
- The bankrupt has and will continue to experience financial difficulty to such an extent that he or she will be unable to pay the liabilities under the loan.
