Did you know that it costs money to file for bankruptcy in Canada?
The bankruptcy process is different for everyone, and the actual cost can only be determined after examining your income, expenses and assets.
This guide breaks down the cost of personal bankruptcy into three parts: administrative costs, surplus income payments, and assets.
How much does it cost to file for bankruptcy?
Before we get into the cost to file bankruptcy, it’s good to know that there is no upfront cost for debt advice.
Your first consultation with a Licensed Insolvency Trustee is free. They can help you understand the pros and cons of bankruptcy and the alternatives that exist.
There are administrative costs
In Canada, you can expect to pay a minimum cost of $1,800 for a first-time bankruptcy, paid over a nine-month period. This cost covers administrative costs, government filing fees and the work of the Licensed Insolvency Trustee.
Bankruptcy surplus income affects how much you pay
When you file for bankruptcy in Canada, your income and family size determine how much you pay each month. In simple terms, if your income increases, your payments increase, and it takes longer to complete your bankruptcy.
Every year, surplus income thresholds are set by the government Office of the Superintendent of Bankruptcy to ensure you have enough money to maintain a reasonable and fair standard of living during bankruptcy.
If your income exceeds the monthly threshold by more than $200 per month, you are required to pay 50% of the excess amount.
For example, if your monthly income is $500 above the limit, you would be required to make an additional payment of $250.
Your bankruptcy trustee will ask you to submit proof of your income every month, so they can determine if you need to pay. Some expenses can be deducted from your income, including child support payments, child care, and medical expenses.
Surplus income also affects the length of your bankruptcy. If it’s your first bankruptcy, it will take 21 months instead of 9 months, and a second bankruptcy will take 36 months instead of 24 months.
If you have a large income, a consumer proposal is a debt settlement solution that doesn’t require surplus income payments.
You may lose assets
When you declare bankruptcy, you must surrender some assets to your Licensed Insolvency Trustee. Each province and territory has different rules on what assets you can keep.
Your Licensed Insolvency Trustee can sell some assets, with the proceeds distributed to your creditors. Depending on where you live, this might be home equity, an expensive car, RRSP contributions made in the last year, a tax refund or certain investments.
Items like clothing, healthcare, household furnishings and work tools are usually protected. Some provinces also safeguard your vehicle and a portion of your home equity.
For example, in Ontario, if you have less than $10,000 of equity in your home, you can keep it.
If you have an asset you want to keep, you can pay the value of your asset to your trustee to protect it.
If you receive an inheritance or windfall, your trustee must take the money and distribute the proceeds to your creditors. Anything leftover is returned to you.
Are there additional bankruptcy trustee fees?
When you go bankrupt, a trustee’s fees are taken from the money you pay each month at no additional cost to you. So if you pay $250 a month during your bankruptcy, that’s all you pay, and the trustee gets their fee from that.
The federal government regulates bankruptcy trustee fees to ensure they are all paid the same. This ensures affordable debt advice is available to all Canadians from federally regulated, licensed professionals.
How much will bankruptcy cost me?
Your income and assets affect the cost of bankruptcy. If you have a high income or assets to protect, a consumer proposal might suit you better as it allows you to pay a fixed amount and keep your assets.
There are many debt relief options, so you must first establish whether bankruptcy is the best route to deal with your debts.
Consult a Licensed Insolvency Trustee who will discuss your options, work out the cost to declare bankruptcy and arrange an affordable payment plan based on your income.
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