Consequences of Bankruptcy

Bankruptcy erases nearly all of your debt in as few as 9 months, but it’s not all roses.  The Bankruptcy process has been designed to balance the rights of the Bankrupt with the rights of their creditors.  As a result, here is a list of the consequences of making an assignment in bankruptcy.

1. Credit Rating.  Your first bankruptcy remains on your credit report for 6 years after you complete the bankruptcy process.  In addition, debts erased by the bankruptcy will show an R9 credit rating to indicate to prospective lenders that the debt was written off by your bankruptcy.  Your credit can be rebuilt after bankruptcy, but it won’t happen overnight.
2. Assets.  In Ontario, bankrupts are allowed to keep an automobile worth less than $7,117, unlimited necessary clothing and apparel, furniture and appliances worth less than $14,180, and tools of the trade worth less than $14,405.  Even if your assets exceed these limits, arrangements to keep your assets can often be made with your Trustee.  In addition, RRSP contributions made more than one year before the date of bankruptcy are also exempt.  All other assets are assigned to your Trustee for the general benefit of your creditors.  These assets would include your home, if it has positive equity, a second vehicle, camper, or investments to name a few.  Where a bankrupt wishes to retain certain assets, payments can be made in lieu of turning the assets over to your Trustee.  For example, a first time bankrupt without surplus income could pay $3,600 in cash instead of turning his $3,600 childhood Mustang over to his Trustee.
3. Credit Counselling.  Every bankrupt must attend two free credit counselling sessions facilitated by a credit counsellor registered with Industry Canada.  Issues such as budgeting, money management, and financial warning signs are discussed, but the sessions also provide time for questions and answers where the counsellor can share their experience to provide assistance and support.
4. Meeting of Creditors.  While rarely required, a meeting of creditors is convened when requested by at least 25% of creditors.  If a meeting is requested then the bankrupt is required to attend.  The meeting is chaired by the Trustee, but the bankrupt must answer relevant questions asked by the creditors.
5. Examinations.  In unusual and rare circumstances, a creditor or the  Official Receiver working at the Office of the Superintendent of Bankruptcy Canada can request that the bankrupt be questioned.  These examinations are very rare and usually only conducted where the Official Receiver or a creditor has reason to believe that the bankrupt has committed an offence or withheld information.
6. Surplus Income.  If you earn more than the amounts listed below than you have to pay a portion of your income to your Trustee on behalf of your creditors.  These limits, which are based on the size of your family, are set by the Government.  This requires bankrupts to submit monthly income and expense reports so that any obligation for surplus income can be calculated.  It’s a complicated calculation that we describe in more detail here.

7. Family Size	2021 Income
   Incl. Bankrupt	Limit
   1	$                    2,248
   2	$                    2,799
   3	$                    3,441
   4	$                    4,178
   5	$                    4,739
   6	$                    5,345
   7	$                    5,950

Before making any significant decision it’s important to get the facts and understand the whole picture.  Bankruptcy, like most things, isn’t all roses.  For more information on bankruptcy visit our bankruptcy service page here.  To have your personal situation reviewed by one our licensed Licensed Insolvency Trustees, give us a call.  We’re always happy to hear from you and never charge up-front fees.  Give us a call, you’ve got nothing to lose except your debt.