Bankruptcy is often the only way to resolve overwhelming debts you cannot pay. Perhaps you recently lost your job, or maybe you got sick or an unexpected bill. Regardless, bankruptcy offers a fresh start.
There are several steps to the bankruptcy process. In this article, we’ll look at how to file for bankruptcy in Canada.
How to file bankruptcy in Canada
Because bankruptcy is based on your finances, the process differs for each person. By arranging a free consultation with a Licensed Insolvency Trustee, you can get a better idea of the debt options that fit your unique financial situation.
Here are the steps you will take to declare bankruptcy in Canada.
1. Check that bankruptcy is right for you
The first step is to acknowledge that you need help with your finances. Ask yourself some questions:
- Are you behind on your bills, over the limit on credit cards, or behind on your mortgage?
- Are you living month-to-month using payday loans or using credit cards to survive?
- Are collection agencies harassing you daily?
If you answer yes to most of these questions, you should get some advice from a debt professional.
Bankruptcy could be right for you if you have low or no income and your assets are worth less than your debts. If this doesn’t apply to you, there are many alternatives to bankruptcy.
2. Find a Licensed Insolvency Trustee
When you want to declare bankruptcy or enter a consumer proposal, you must appoint a Licensed Insolvency Trustee (LIT) to administer your bankruptcy. All trustees are licensed and regulated by the Office of the Superintendent of Bankruptcy (OSB).
Trustees can take measures to help you with your debt, including freezing interest, stopping legal action from debt collectors, and reducing your debt under certain circumstances.
They will explain your debt relief options and ensure you have all the information you need to decide.
Bankruptcy rules differ based on where you live. Connect with a local Licensed Insolvency Trustee for a free consultation with no obligation to proceed.
3. Meet with a Licensed Insolvency Trustee
Schedule a free consultation with a Licensed Insolvency Trustee and bring your information.
During your initial consultation, the trustee will evaluate your financial situation and discuss the various options that may be able to resolve your debts.
You’ll be asked to supply evidence of your debts, income, expenses and assets. This allows the trustee to compare your debts with your assets and plan for bankruptcy.
Other options besides bankruptcy include debt consolidation, non-profit credit counselling, and a consumer proposal.
The trustee will advise if a cheaper and simpler alternative is available. If you have assets to protect, your trustee might recommend another solution.
A trustee’s job is to provide impartial advice and help find the best possible solution to your debt problems.
4. File for bankruptcy
During the process, your bankruptcy trustee will present you with legal documents to complete and sign. The trustee will have outlined these in detail, so you know what you’re signing. Read these documents carefully and check the information is correct.
Always keep a copy of all the documents relating to your bankruptcy if you need to provide them to a credit bureau or lender.
Before you file, your trustee will file any outstanding tax returns up to the date of your bankruptcy. Any due taxes and penalties owed to the CRA will be included in your bankruptcy.
As part of your bankruptcy, your trustee will be responsible for seizing any assets you aren’t allowed to keep under the provincial exemption rules.
You must let your trustee know if you have sold any assets before filing for bankruptcy and tell them about any new assets you receive while you are bankrupt, such as an inheritance or windfall.
Each province and territory has a list of exempt assets so that you won’t lose everything. For example, you can protect your vehicle from seizure up to a certain dollar value.
Your trustee will advise which assets you are allowed to keep and help you calculate the equity in your home to determine the best way to protect it.
Your Licensed Insolvency Trustee will file your bankruptcy with the Office of the Superintendent of Bankruptcy (OSB), who will respond with a Certificate of Appointment to confirm your bankruptcy.
A Stay of Proceedings is initiated, and your creditors are notified. At this stage, you’ll receive immediate protection from your creditors from now until the end of your bankruptcy.
5. Protection from creditors
Upon filing bankruptcy, collection calls and legal action from creditors will stop. Wage garnishments are also lifted.
As this is the law, creditors must conform to these rules and can only be lifted by applying to the court. This is rare because the creditor has to prove that court action is necessary or has valid grounds to do so.
If this happens, you can defend yourself in court to ensure the Stay of Proceedings remains in place.
After filing, you will stop making payments to your unsecured creditors and start to make payments toward your bankruptcy.
6. Bankruptcy duties
You must carry out bankruptcy duties before discharge, including making payments, attending two credit counselling sessions, and providing monthly income statements. These duties are explained to you by your trustee.
What happens after bankruptcy?
Once you have completed your bankruptcy duties, you are eligible for discharge. This releases you from the legal obligation to repay debts that existed when you filed your bankruptcy. Some debts are excluded from your discharge, such as student loans and secured debts like mortgages and car loans.
You will be automatically discharged in nine months if you meet the following criteria:
- This is your first bankruptcy.
- Your creditors, your Licensed Insolvency Trustee, or the OSB do not oppose your discharge.
- You didn’t have to pay any surplus income.
- You have completed your financial counselling sessions.
While bankruptcy lowers your credit score for several years, you can start rebuilding your credit.
Filing for bankruptcy FAQs
What do you lose when you declare bankruptcy?
What you can keep in bankruptcy varies by location. Provincial laws protect some assets, but the trustee may sell others to help pay off debts.
Does it cost money to file for bankruptcy?
Your income determines how much you pay towards bankruptcy. If you earn more than the income threshold set by the government, you make surplus income payments.
What happens to creditors when you file bankruptcy?
On rare occasions, a meeting of creditors is called if a major creditor (who holds at least a 25% share of your debts) or the Official Receiver requests one.
If a meeting goes ahead, you must attend to answer questions under oath. They may want to know more about why you became bankrupt or find out more about your specific situation.
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