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If you are considering this, you are likely already under a lot of emotional strain. You have creditors constantly calling and threatening legal action – or they may have already been successful in taking legal action, resulting in garnishing your wages or freezing your bank account. You may have to agree to unreasonable payment terms to stop the calls, and now you’re worried about how to pay your rent and feed yourself and your family.
The bankruptcy process is available to allow an ‘honest but unfortunate’ debtor who is experiencing extreme financial and budgeting difficulty to legally discharge their debts under reasonable terms.
To begin this process, you must be an insolvent person. That is, you owe at least $1,000.00 and will be unable to meet your financial obligations as they become due.
A bankruptcy is administered by a Licensed Insolvency Trustee (LIT). No other person is legally able to file a bankruptcy for you. During a consultation with a trustee, they will review your circumstances and alternatives, and make some suggestions for the best way to move forward.
If a bankruptcy is your choice, then after the documents are signed and registered, there are several ‘duties’ that you must complete.
Almost all unsecured debt is released after being discharged from bankruptcy, though 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.
Each province or territory has personal property laws that protect personal items from your creditors, and the same laws apply to your assets when you are in a bankruptcy.
Usually you can keep personal effects (such as furniture, clothing, and medical aids), a vehicle of a certain value, an amount of equity in your home, and tools of trade to a certain value. Some retirement accounts are also protected.
Each province is different, and you should consult with your trustee regarding your personal exemptions. The legislation is designed to leave you with the ability to continue in a normal living arrangement, with any surplus assets being available to creditors. Most people filing bankruptcy have protected assets and no surplus income. The bankruptcy process allows an individual to obtain a fresh start – it is a responsible step to take when necessary, and not an attempt to avoid responsibility.
The bankruptcy will end when you have received your discharge. There are many types of discharges, but in a bankruptcy where all duties have been completed, the LIT will issue a Certificate of Discharge from bankruptcy and you will be automatically discharged.
If there are incomplete duties or a creditor opposes your discharge, a Court date will be set (your trustee will provide guidance if a creditor opposes – this does not happen very often). It is very important to communicate with your trustee if you are confused about what’s required of you. If your bankruptcy is not completed and you remain an ‘undischarged bankrupt’, you will have difficulty in the future when attempting to borrow (even rental applications often require credit checks), and your creditors will eventually be able to restart legal action.
If you currently have an old, undischarged bankruptcy, let us know – we can provide assistance to resolve it. A lawyer is not generally required to be part of this process, but if you feel the need for legal assistance, you should seek a lawyer that is familiar with personal insolvency law.
A bankruptcy will be recorded on your credit bureau reporting. It will remain on your credit report for a period of 6 years after your discharge from bankruptcy. If you do not receive a discharge, this negative reporting on your credit bureau can remain until your discharge is finalized.
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