Canadian Bankruptcy FAQ's and Proposal Information - FAQ's
Welcome to our FAQs Page.
Bankruptcy is a Federal law and except for exemptions which are set by the provinces and territories, is applicable to all provinces and territories
One of the main purposes of bankruptcy legislation is to afford the opportunity to a person, who is hopelessly burdened with debt, to free himself of the debt and start fresh - "a new lease on life." To go into bankruptcy it is necessary for a person to be insolvent. To be insolvent means to -:
- Owe at least $1,000;
- Not be able to meet your debts as they are due to be paid.
The website of the Superintendent of Bankruptcy describes trustees in bankruptcy as follows:
"A trustee in bankruptcy is a person licensed by the Superintendent of Bankruptcy to administer proposals and bankruptcies and manage assets held in trust. The trustee can give a debtor information and advice about both the proposal and bankruptcy processes and make sure that both the debtor's rights and the creditor's rights are respected."
When a person goes bankrupt they must use the services of a CAIRP certified trustee. In addition to working with individuals going insolvent, trustees can also serve as debt consultants and provide counselling and can act as your agent when dealing with your creditors.
When dealing with a trustee you are protected as follows:
- By the fact that the federal government regulates trustees;
- By the stringent code of ethics to which all trustees are subject;
- If you have a dispute there is a mechanism in place to have the dispute mediated.
In most cases, It will cost you less to use a trustee than other Debt Consultants since trustees have their fees regulated by the government.
Trustees are the most highly trained and educated Debt Consultants in Canada. Almost all trustees have both an accounting designation and a university degree. In addition, all must complete and pass a rigorous three-year bankruptcy and law course and be investigated by the RCMP before being granted a trustee licence. Ongoing professional development is mandatory.
Will my Creditors Stop Harassing me?
Yes, they will! Under the bankruptcy laws, all collection actions and contact actions against a bankrupt must cease once the documents are filed. This does not apply to secured creditors such as banks holding, for example, a lien on a car.
In a bankruptcy, where there are significant assets, a notice is placed in the "legals" section of the newspaper notifying creditors of the date of the meeting of creditors. If there are minimal assets, the creditors are notified by mail only - there is no advertisement in the "legals" section of the newspaper. Any legal filing of a bankruptcy is a public document which the general public has access to. From this documentation, the Credit Bureau is notified and the bankruptcy is recorded and will remain on your credit record for 6 years. This does not mean that you cannot obtain credit during this time. Any granting of credit is the responsibility of the creditor to approve.
Your spouse, whether common law or married will not be affected by your bankruptcy if he or she is not responsible for any of your debt (did not sign an agreement or contract for any of your debt). If they have a supplemental credit card they are probably responsible for that debt. Your spouse's credit rating will not be affected by your bankruptcy and any assets in the spouse's name will not be part of the bankruptcy.
If your spouse is responsible for any of your debt or has his own debt then the spouse may have to file bankruptcy too.
No. They cannot. Your bank will be breaking the law if they prevent you from opening a bank account, simply because of your past bankruptcy.
What do I do if I have Canadian debt but now live in a foreign country?
You have a number of options, and may even be able to file Canadian bankruptcy from that foreign country. For details please refer to this page.
How much am I allowed to keep?
The property a person can keep in a bankruptcy or a proposal (exempt from seizure) is laid out by each province and territory:Alberta; B.C.; Manitoba; New Brunswick; Newfoundland; Nova Scotia; NWT; Nunavut; Ontario; PEI; Quebec; Saskatchewan; Yukon.
Will my vehicle lease be cancelled if I file bankruptcy?
Contracts, so long as the payments are kept up to date cannot be cancelled in a bankruptcy or a proposal. Effective on September 18, 2009 a new law went into force protecting consumers in this situation.
What don't I keep?
In a bankruptcy, assets in excess of your allowed personal exemption, such as, real estate, automobiles and boats that are the property of the bankrupt as at the date of bankruptcy and anything that the bankrupt acquires during the bankruptcy vests in the trustee for the benefit of the creditors of the bankrupt. This would include inheritances received or to which the bankrupt might become entitled, by the death of someone during the time of the bankruptcy. It also includes such things as lottery winnings and anything that the bankrupt might accumulate, such as assets bought with any surplus income.
Tax refunds outstanding, as at the date of the bankruptcy, also vest in the trustee for the benefit of the creditors. Income Tax law requires a bankrupt to file two tax returns for the year of the bankruptcy. The first (pre bankruptcy tax return) covers the period January 1st through to the date of bankruptcy. The second (post bankruptcy tax return) covers the period starting with the date of the bankruptcy and ending December 31st. Pre and Post bankruptcy tax rebates vest in the trustee for the benefit of the creditors.
People may either go into bankruptcy voluntarily or involuntarily. Most people will go bankrupt voluntarily, although a small percentage of people will be forced into bankruptcy by the Court.
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. To find out how much you would have to pay and how long you will be in bankruptcy go to our Calculator.
Bankruptcy Discharge Rules:
Information on how the calculations are made is at this link.
Once you file bankruptcy or a proposal you'll find that your stress will be gone.
You have taken a positive step to regain financial control over your life. Once the bankruptcy or proposal papers are filed the trustee takes over all dealings with your creditors. If a creditor or collector calls tell him you have filed and refer him to your trustee.
It's the law in Canada that all legal action stops once a bankruptcy or proposal is filed.
No! So long as you are on any kind of payment plan the credit bureau will record this fact. Using a credit counsellor will not give you a better credit rating faster. In fact, you will likely take longer to re-establish a good rating and pay much more if you use credit counsellor rather than a trustee.
You must take counselling in order to be eligible for a discharge from bankruptcy and to complete your consumer proposal. The counselling can be one-on-one, with yourself and your trustee, or if you prefer, it can be in a group consisting of other bankrupts and your trustee. 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. The cost for this is $85, plus GST, for each individual counselling session.
The bankrupt must keep the trustee informed as to where the bankrupt is living and also must respond to the trustee's requests and assist him as required and provide whatever information is requested. The bankrupt must also provide the trustee with reports as to earnings and living expenses and any change in the bankrupt's family situation. The trustee will provide the bankrupt with appropriate forms to be filled in that will provide the trustee with the necessary information. A meeting of creditors is not required unless requested by the Superintendent of Bankruptcy or creditors with an aggregate of at least 25% of the proven claims. These meetings are usually held at the office of the trustee.
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. Alimony and maintenance are provable claims and will be paid as a preferred claim for amounts incurred in the year before bankruptcy.
Student Loans can be erased in a bankruptcy if the student was in school 7 or more years ago. This amendment will apply where the debtor obtains his or her discharge on or after July 7, 2008 (PROVIDED that at the time they filed they had ceased to be student for the required seven years) or the debtor had or becomes bankrupt on or after July 7, 2008.
The amendment that will reduce to five years the period a bankrupt will have to wait to make a “hardship” application to have student loan debt or obligation discharged (BIA , s. 178 (1.1)) is also now in force. This amendment applies to all debtors notwithstanding when the bankruptcy or the process that results in the bankruptcy is initiated.
CRA's position is that they, after taking appropriate steps, can register as a secured creditor against real property (real estate) or personal property (furniture or a vehicle, etc.) of a debtor.
Ninety days after an assessment, if there is no appeal lodged, CRA can make application to the Federal Court to have a judgement issued. CRA then must register a secured claim under the person's name under the Personal Property Security Registry. CRA, if real property is involved, will also register under Land Titles.
If the debt is large enough, you should see an insolvency lawyer or a Trustee immediately. A search of the Personal Property Security Registry or land titles will reveal whether CRA has filed a secured claim against you. You may want to consider filing for bankruptcy or consider filing a proposal under the Bankruptcy and Insolvency Act
N.B. CRA has advised that:
- (a) they will honour provincial exemptions;
- (b) they started registering their security position on or about May 1, 1999.
Most debts are erased by the bankrupt's discharge except for the following:
- Fines imposed by a Court;
- Money owing for things stolen;
- Things obtained by misrepresentation;
- Alimony or maintenance payments.
- Award of damages by a court for intentionally inflicting bodily harm or sexual assault.
- Student loans if bankruptcy is filed prior to or within seven years after the finish of studies.
In the vast majority of cases the cost of a bankruptcy is regulated by the government and is less than $200 a month for each of 9 months. Since bankruptcy costs are set by the government it will cost a person the same amount no matter which trustee in Canada he or she uses.
Trustee fees, filing fees and counselling fees are regulated by the government. The trustee normally is paid out of the funds arising from the liquidation of the bankrupt's assets. If the bankrupt has no assets available, then the trustee will require a retainer or require the bankrupt, over time, to pay the trustee's fees and disbursements. In the simplest cases this amounts to $1,347 plus GST and counselling costs. The firms listed on BankruptcyCanada.com have a payment plan that allows you to pay the costs over time.
You will get credit again after a bankruptcy or a proposal. Please refer to our tips on re-establishing a good credit rating and our list of After Bankruptcy Lenders all across Canada:
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