Personal Bankruptcy

Personal Bankruptcy

‘Bankruptcy’ is a word that comes with some baggage

Bankruptcy often seems like a daunting, final step in managing debt. However, it can offer a fresh start.

Setting emotions aside, bankruptcy is a legal solution. It aims to provide a fresh start and help you regain control. It’s not a step to be taken lightly, but it also doesn’t have to be as bad, or as hard, as it sounds.

If you’re considering bankruptcy, you’re likely under significant emotional strain. Creditors may be persistently calling or have initiated legal actions. This could lead to wage garnishments or frozen bank accounts. You might agree to unreasonable payment terms to halt creditor calls. Now, you’re concerned about paying rent and providing for your family.

The bankruptcy process assists ‘honest but unfortunate’ debtors. It enables them to legally discharge debts under reasonable terms.

Filing a Bankruptcy

To begin, you must be insolvent. Specifically, you owe at least $1,000 and cannot meet your financial obligations as they become due.

A Licensed Insolvency Trustee (LIT) administers bankruptcy. Only a Licensed Insolvency Trustee (LIT) can legally file a bankruptcy on your behalf. In a consultation, the trustee will review your circumstances and alternatives. They will suggest the best way to move forward.

Your Bankruptcy Duties

If you choose bankruptcy, after signing and registering the documents, you must complete several duties.

1)

Bankruptcies depend on your individual circumstances. Your income must be reviewed. Each year, the Government sets an amount called the Standard (Superintendent’s Standard for Surplus Income). If your net average income stays below the Standard for 9 months, you are automatically discharged, assuming all other duties are complete. If your net average income exceeds the Standard, your bankruptcy lasts 21 months, and payments are based on your actual income. The Standard considers the number of people in your household and your share of household income. Your trustee will explain this in detail. If you had a previous bankruptcy, the duration may vary.”
2)

You must attend two financial counselling sessions. These sessions help with budgeting questions. They also cover credit reports and rebuilding your credit.
3)

You must give the trustee the information needed to prepare and file your income tax return for the year you file your bankruptcy. Usually, prior unfiled tax returns are required as well. Any refund up to the filing date goes to the trustee to distribute to creditors. Any taxes owing up to that date are included in the bankruptcy.

Almost all unsecured debt is released after discharge from bankruptcy. There are occasional exceptions. Your trustee will discuss any that apply to you before the bankruptcy is signed and filed.

When a bankruptcy is filed, there is an immediate stay of proceedings against unsecured creditors. This means that creditors can take no further action to collect the debt and any existing legal action against you must stop. Wage garnishments and bank account freezes are common examples of legal action creditors may have started that will be stopped by the stay of proceedings. The trustee will inform all parties involved – the creditors, the Court, and, if applicable, your employer.

Your Assets after Bankruptcy

Each province or territory has laws protecting personal items from creditors. These laws also apply to your assets during bankruptcy.

You can usually keep personal effects like furniture, clothing, and medical aids. You may also keep a vehicle of certain value, equity in your home, and tools of trade up to a specified value. Some retirement accounts are also protected.

Each province differs in its exemptions. Consult your trustee about your personal exemptions. The legislation aims to allow you to maintain a normal living arrangement, leaving surplus assets for creditors.

Most people filing for bankruptcy have protected assets and no surplus income. Bankruptcy provides a fresh start. It is a responsible step when necessary, not an attempt to avoid responsibility.

Discharge from Bankruptcy

Bankruptcy ends when you receive your discharge. There are several types of discharge. If you complete all your duties, the Licensed Insolvency Trustee (LIT) issues a Certificate of Discharge. You are then automatically discharged.

If you have incomplete duties or a creditor opposes your discharge, the court will set a date. Your trustee will guide you if a creditor opposes, though this is rare. Communicate with your trustee if you are unsure about your obligations. If your bankruptcy is not completed and you remain an ‘undischarged bankrupt’, you may face difficulties borrowing money or renting property. Creditors can eventually restart legal action against you.

If you have an old, undischarged bankruptcy, let us know. We can help you resolve it. A lawyer is usually not required for this process. However, if you want legal assistance, consult a lawyer familiar with personal insolvency law.

Bankruptcy is recorded on your credit report. It stays on your report for six years after discharge. If you do not receive a discharge, the negative record can remain until your discharge is finalized.