What Is the Bankruptcy Process in Canada?
What is the bankruptcy process in Canada and is it a viable solution for your debt problems? When you’re struggling to pay off your debts and you’re inundated with collection calls and letters, easing your money worries and debt-related stress is top of mind. However, while consumers are familiar with the term “bankruptcy,” most of us don’t fully understand how bankruptcy works and what the long-term implications are.
What is the bankruptcy process in Canada and what should you expect? Here’s an overview of key points you might not know about.
What is Bankruptcy?
The short answer is that bankruptcy is a legal resolution for your debts. It is actually a procedure that falls under the Bankruptcy and Insolvency Act and usually only becomes an option if it’s deemed that the consumer can’t viably repay their debts and all other options have been exhausted.
When looking for bankruptcy information online, avoid American bankruptcy terms, e.g. Chapter 7, 11, and 13. These do not apply in Canada.
What Are the Steps Involved in Declaring Bankruptcy?
Declaring bankruptcy is a 10-step process, but not one you do on your own. The only way to file bankruptcy is through the services of a Licensed Insolvency Trustee, formerly know as a Bankruptcy Trustee. Trustees are licensed to conduct business by the Superintendent of Bankruptcy and must follow strict guidelines and procedures to help you obtain your discharge from the bankruptcy process.
Get Help to Understand Your Financial Situation and Options
You know you’re in trouble because you’re missing payments on your secured and unsecured debts, your credit cards are at their limit, and your accounts have passed over to collection agencies. Don’t delay contacting the Credit Counselling Society to meet with a professional Credit Counsellor to help you consider your next steps.
While bankruptcy might immediately come to mind, alternative options include debt management programs, debt consolidation, debt settlement, or consumer proposals. Get professional advice to help you decide your best course of action.
Meet with a Licensed Insolvency Trustee
Your Credit Counsellor will refer you to a Licensed Insolvency Trustee if it looks like filing bankruptcy is an option for you. We don’t charge for this referral and will give you several names of Trustees you may wish to contact. All of the information you and your Credit Counsellor discuss will help you get ready for an appointment with a Trustee.
Selecting the right Trustee is key as they will be your advisor throughout the process, from filling out and filing paperwork to pointing you in the right direction to rebuilding your credit when the time comes. You should never need to pay up front fees for a referral to a Trustee, and your initial consultation with a Trustee, in which you’ll go over your financial situation, taking into account your income, assets, and debts, is free. However, be aware that as soon as you assign yourself into the bankruptcy process, it is nearly impossible to change your mind. As such, it is very important that you consider all of your debt relief options before declaring bankruptcy.
Filing for Bankruptcy
Once you decide to file for bankruptcy, your Trustee will prepare the paperwork based on the information you provide, e.g. your income, assets, debts, living situation, and overall circumstances. Your Trustee will then make filing with the Court, at which time you are considered bankrupt.
Once your bankruptcy is filed and accepted by the Court, your creditors will stop trying to collect the money you owe them, they can’t initiate new legal action, and they can’t garnish your wages anymore either.
As part of the procedure to assign you into bankruptcy your Trustee will explain the whole process to you. You have responsibilities and obligations to fulfil in order to complete the bankruptcy process and obtain your discharge.
What Happens to Your Debts and Assets When You Go Bankrupt?
Each province has certain assets that you can keep when you go bankrupt, but if you have more assets, they will need to be sold or cashed in to pay towards your debts. Furthermore, not all unsecured debts can be included in a bankruptcy - student loans that are less than seven years old, family support payments and arrears, and other court fines are notable exceptions.
Your bankruptcy can affect your family members, even if they aren’t the ones going bankrupt. For instance, RESP money intended for your kids’ education can be seized, the last 12 months of contributions to your RRSPs will go towards paying debt, as well as equity in homes and vehicles might be lost. Consumers also forgo their tax refund the year they are filing for bankruptcy.
Obtaining Discharge and Getting Back on Track
It’s important to keep in contact with your Trustee throughout the whole process so that you obtain your discharge. While the burden of collection calls and steep minimum payments on your credit cards is over, you have new responsibilities with your slate wiped clean.
You now have to cover the fees to your Trustee and other administrative charges, which can add up quite substantially. You have to stay accountable too, by providing your monthly income statement to your Trustee and attending credit counselling sessions to carve out better financial habits. If you’re required to attend a discharge meeting, your Trustee will explain that to you so that you can be prepared and attend as needed.
Bankruptcy takes its toll on your credit rating and it takes diligent effort to rebuild a credit rating after you’ve gone bankrupt. While debts discharged through the insolvency process will drop off your credit report after a period of time, lenders may retain internal records indefinitely. There is a good chance a financial institution will no longer want to lend you any money if you owed them money when you went bankrupt.
Where to Get Help to Decide If You Should Enter the Bankruptcy Process?
Declaring bankruptcy is a big decision and not one to enter into lightly. The process takes time – nine to 21 months for a first-time bankrupt person. There are things you must do to obtain your discharge because lingering in a bankrupt state is extremely difficult. Because bankruptcy is a legal process and a matter of public record, it can affect your employment. There is a lot to know about alternatives to bankruptcy as well. Contact us by phone, email, or anonymous online chat to make a free, confidential appointment. One of our Credit Counsellors would be happy to explain the process to you in more detail, answer your questions, and give you the information you need to decide if declaring personal bankruptcy is right for you.