Understanding Bankruptcy
Personal Bankruptcy
If your financial difficulties are very serious, and cannot be solved by making arrangements with your creditors, bankruptcy may be the only alternative for you. In order to file for bankruptcy, your debts must total more than CAN$1,000, and you must be unable to pay them when they become due.
Bankruptcy is designed to provide two major benefits:
- To permit orderly distribution of a bankrupt's nonexempt assets among creditors without expensive and time consuming legal action; and
- To allow the bankrupt a fresh start without the burden of unmanageable debt.
Your Duties and Responsibilities:
- Notifying the Trustee of all assets and liabilities at the date of bankruptcy;
- Assisting the Trustee in dealing with your affairs;
- Attending a meeting of creditors to answer questions regarding your financial situation if required;
- Attending two counselling sessions;
- Keeping the Trustee advised of your address, phone number and place of employment;
- Providing the Trustee with your books and records, such as tax returns, bank statements, etc.; and
- Surrendering all credit cards to the Trustee for return to the credit card company.
Contributions from Your Future Income
You will be required to complete and file monthly statements of income and expenses during the period of bankruptcy. The Trustee will use this information, together with government standards, to determine the amount — if any — to be paid into the Bankruptcy Estate during the bankruptcy for the benefit of your creditors.
Credit Collection Proceedings
Wage garnishees and most lawsuits are stopped once you declare bankruptcy. Most creditors are required to deal with the Trustee.
Debts Not Affected by Bankruptcy
Secured creditors are generally not affected by the bankruptcy process. Secured creditors (e.g. a bank, finance company or credit union) may still proceed against pledged assets to recover the debt once they have proven their security to the Trustee.
In addition, certain debts will remain payable after your discharge from bankruptcy, including:
- Court-imposed penalties and fines;
- Alimony and maintenance payments;
- Debts arising out of fraud, misrepresentations, etc.; and
- Student loans, if the individual becomes bankrupt within 10 years after you cease to be a student.
The Length of Your Bankruptcy
The Bankruptcy and Insolvency Act provides that, dependant upon income, first time individual bankrupts may be automatically discharged in nine months from the date of filing their bankruptcy. If the automatic discharge is opposed there are three means of being discharged:
- The Trustee, in consultation with you may agree on further payments for a period to a maximum of a further 12 months as a condition of being discharged;
- Mediation may be held, in certain circumstances; or
- The Court will decide whether a discharge will be granted and may extend the period of bankruptcy and set other terms.
Co-Signed Loans
Your filing for bankruptcy does not release the responsibility of a person who co-signed your loan. He or she may be required to pay the debt.
Your Credit Rating
Your credit record will contain information regarding your Bankruptcy or Consumer Proposal for approximately seven to 14 years. Creditors and lenders may review this information when granting new credit. You should notify credit reporting agencies of your discharge from bankruptcy.
Trustee's Fees
In most circumstances, the Trustee's fees are set by government regulations under the Bankruptcy and Insolvency Act. In general, the bankrupt is responsible for payment of Trustee fees prior to discharge. PricewaterhouseCoopers Inc. will arrange flexible terms of payment of these fees. These terms will be discussed with you during a meeting with a qualified insolvency professional at PricewaterhouseCoopers Inc.
Your Assets
The Bankruptcy and Insolvency Act and the laws of Prince Edward Island allow you to keep the following assets:
- Furniture, household furnishings and appliances reasonably necessary for the debtor and his family;
- Food, clothing and fuel necessary for the debtor and his family.
- In the case of a debtor other than a farmer, tools, instruments and other chattels ordinarily used by the debtor in his business, trade or calling, not exceeding $2,000 in value.
- One motor vehicle having a realizable value of not more than $6,500 at the time the claim for exemption is made, or not more than any greater amount that may be prescribed, if the motor vehicle is required by the debtor in the course of or to retain employment or in the course of and necessary to the debtor’s trade, profession or occupation.
- Necessary medical and health aids.
- All other assets declared exempt from seizure pursuant to any law, including pension plans, certain Registered Retirement Savings Plans and certain life insurance policies.
Any remaining assets not specifically pledged in favour of a secured creditor will be sold by the Trustee and the proceeds will be distributed pursuant to the Bankruptcy and Insolvency Act.
The Next Step
This information presented here covers some of the common issues relating to bankruptcy and proposals for individuals. It does NOT address all relevant matters and other important factors that should be considered before making a final decision. We encourage you to discuss your financial difficulties with a qualified insolvency professional at PricewaterhouseCoopers Inc.
If you would like to arrange a no cost, no obligation meeting to discuss your situation, please Contact Our Offices to communicate with one of our local representatives.
