Bankruptcy is a formal legal process that can only be administered by a Licensed Insolvency Trustee (LIT). Bankruptcies are regulated by the Canadian government. This process allows people to legally erase unmanageable debts. The bankruptcy process is designed to provide a fresh start and allow people to rebuild their financial lives. Speaking with a Licensed Insolvency Trustee can help you determine if filing for Bankruptcy is the right option for you.
The correct term for “declaring bankruptcy” is “making an assignment in Bankruptcy.” This means that you assign most of what you own and what you owe to your estate, which allows you to leave your debts behind and get a fresh start. While your debts are erased, it affects your credit, and you can lose some of your assets, depending on what you own. The decision to file for Bankruptcy depends on your unique financial situation.
If you decide to proceed with the bankruptcy process, your debts can be erased for as little as $1,800. All unsecured debts, including tax debt, will be erased with a few exceptions. In most cases, bankrupts can keep their car, tools, RRSPs, life insurance policies, and other personal belongings, depending on what they own. The bankruptcy process stops creditor phone calls as well as wage and bank account garnishments immediately. Bankruptcy can give you a fresh start.
Licensed Insolvency Trustees (Trustees) are the only debt professionals that are licensed and regulated by the federal government to administer a Consumer Proposal or Bankruptcy. Trustees provide advice and services to those who have debt problems to help them make informed choices to resolve their financial difficulties.
Trustees are not lawyers. In the U.S.A Bankruptcy Attorneys administer insolvency proceedings while in Canada Trustees provide similar services.
Trustees cannot do what lawyers do, and lawyers cannot do what Trustees do.
Trustees do not represent you. Trustees are impartial officers of the court who have responsibilities to both debtors and creditors. Think of Trustees like referees. They don’t cheer for either team, but ensure that everyone follows the rules.
The length of the bankruptcy process depends on your situation. The short answer is: 9 – 36 months, but, like most things, it depends.
When you declare Bankruptcy, you become an “undischarged” bankrupt. After completing the bankruptcy process, you will obtain an “order of discharge,” which releases you from your debt. The amount of time it takes to obtain your discharge depends on two things:
1. If you’ve been bankrupt before; and
2. Your family income.
The cost of filing for Bankruptcy depends on what you own and what you earn.
|Family Size||2022 Government Limit|
If your family earns more than their limit, you are required to contribute a portion of your income to the Trustee, who will distribute that Surplus Income to your creditors.
As you can see, the cost of bankruptcy is different for everyone. While the minimum cost of bankruptcy is $1,800, the law is designed to cause bankrupt’s to pay what they can afford based upon two things:
Bankruptcy is geared to income. The more you earn, the more you must pay into your bankruptcy and share with your creditors. This concept is referred to as Surplus Income.
Bankruptcy cost calculations are complicated. If Bankruptcy may be the right solution for you, a Licensed Insolvency Trustee will perform all cost calculations for you. Bankruptcy costs are rarely if ever fixed. They change if your situation changes. For example, if you get a raise your payments may rise, while if you lose your job your payments may fall, or not be required at all.
Let us review your situation, and estimate the cost of a potential bankruptcy for you. Let us do the math. We’d be happy to help.
Both a Bankruptcy and a Consumer Proposal are formal legal options to erase your debt. Only a Licensed Insolvency Trustee can administer either. While these processes have similarities, they also have several key differences. Whether either option is right for you depends on your unique situation.
Filing for Bankruptcy erases all unsecured debts, including tax debt, with a few exceptions.
A bankruptcy only erases unsecured debts (credit cards, lines of credit, tax debt, etc.). Secured debts, such as mortgages or auto loans, aren’t automatically affected. That said, if you are struggling with your mortgage or auto loan, speak to the trustee, who can advise you of your options.
The bankruptcy process erases most unsecured debts, with a few exceptions. This means credit card debt, tax debt, line of credit debt, and other such debts will be erased.
Student loan debt can only be erased if more than seven years have passed since the last day of your studies. If more than seven (7) years old a bankruptcy will erase provincial student loan debt such as OSAP and federal student loan debt administered by National Student Loans. If the money you borrowed to go to school wasn’t “government-sponsored,” it can be erased through Bankruptcy without waiting seven years.
Yes. When you file for Bankruptcy, the Licensed Insolvency Trustee handles all communication with your creditors. This means calls from creditors or collection agencies stop immediately. Creditor protection is provided by powerful federal legislation known as the Bankruptcy and Insolvency Act.
For more information, please visit: https://stevewelker.ca/stay-proceedings/
Yes. When you file for Bankruptcy, you stop making payments to your creditors, and your debts are frozen in time; no further interest is charged.
Yes. Filing for Bankruptcy results in a stay of proceedings, which provides you with protection from your creditors. This immediately stops legal actions against you including pending lawsuits or resulting wage garnishments and frozen bank accounts. Your creditors cannot take any further action to collect from you after filing for Bankruptcy. This creditor protection even protects you from the Canada Revenue Agency.
Like all debt-relief options, Bankruptcy has both advantages and disadvantages. Some potential disadvantages of filing for Bankruptcy include:
You are eligible to go bankrupt if:
Even if you are eligible, it is important to consider all of your options before deciding that bankruptcy is right for you.
Bankruptcy is always a last resort. The Trustees at Steve Welker and Company provide free consultations, will assess your situation, and will take the time to explain all of your options and their respective pros and cons, including Bankruptcy, so that you can make an informed decision.
As a general rule of thumb, Bankruptcy makes sense for people who:
That said, every situation is unique. This is why it is best to speak to one of our Trustees to have your own unique situation reviewed. We can review most situations in a matter of minutes, whether over the phone or in-person during a free consultation.
All tax debt is discharged by Bankruptcy. This includes:
If your personal income tax debt exceeds $200,000 and represents more than 75% of your total debt, then you are considered a high personal income tax debtor, and the Trustee will be required to oppose your discharge. At the resulting discharge hearing, a judge will consider your circumstances and either grant a suspended, adjourned, or conditional order of discharge.
A student loan can be included in a bankruptcy as long as seven years have passed since that day you have concluded your studies. Bankruptcy will erase provincial student debt such as OSAP and federal student debt administered by National Student Loans.
If you are not sure if seven years have passed since you stopped studying, you can call:
If your National Student Loan is in default, contact the Canada Revenue Agency collection department @ 1-866-864-5825.
If the money you borrowed to go to school wasn’t “government-sponsored,” it can be erased through Bankruptcy without waiting 7 years.
If it has been less than 7 years since you finished studying, and you decide to file for bankruptcy anyway, your student loans won’t be erased, and interest will continue to accrue,. However, you will not be required to make payments towards your student loan until your Trustee is discharged. If your student loan is 9 months or more behind in payments when the government is notified of your Trustee’s discharge, you will have 30 days to bring your loan(s) up to date, or it will be sent to the government for collection.
While you need to obtain Trustee authorization to pay the principal portion of your loan during your Bankruptcy, you can make interest-only payments without authorization. If you choose to make payments, they must be made in the form of a cheque or money order and cannot be made by pre-authorized debit. If you are experiencing repayment difficulties, you may apply for repayment assistance at any time.
407 ETR debts can be discharged through Bankruptcy. If you owe money to the 407 and file for Bankruptcy, you’ll once again be able to renew your sticker. Bankruptcy will remove your name from the Ministry of Transportation’s plate denial database and erase any balance owing.
Initial Total Debt: $80,000 (and being garnisheed)
Monthly Payment: $176
Total Repayment: $3,696 or 4.6% of his debt ($176 x 21mo)
The Trustee doesn’t automatically inform your employer of your bankruptcy unless you owe them money. In the vast majority of cases, your employer will never find out about your Bankruptcy. However, certain professional bodies, such as the Ontario Real Estate Association, Law Society of Upper Canada, or Chartered Professional Accountants of Ontario require their members to inform them if they file for Bankruptcy.
Many debts are revolving. This means that you have a credit limit, which you borrow against and repay. Once repaid, the total limit is once again available. Credit reports show a rating between R1 and R9 for each of your revolving debts, with R1 being the best and R9 being the worst. After you declare Bankruptcy, all of your revolving credit will show an R9 credit ratingWhen you file for Bankruptcy, a footnote will be added to your credit report informing potential lenders. This footnote is removed 7 years after you are discharged from your first Bankruptcy and 14 years after being discharged from your second Bankruptcy. This footnote can make it challenging to get a loan.
When you file for Bankruptcy, all of your credit cards must be surrendered for cancellation. After you have been discharged from Bankruptcy, it may be suggested that you get a secured credit card (a card that is backed by a deposit) to help you begin rebuilding your credit rating.
When someone co-signs a loan, they become equally responsible for that loan. If you file for a Bankruptcy, the lender may try to collect that debt from the co-signer.
Unless they are your creditors, your friends and family will only know that you filed for Bankruptcy if you tell them or if they pay $8.00 to specifically search for your name in the federal bankruptcy and insolvency records.
Filing for Bankruptcy does not automatically affect your spouse in any way. However, if you have joint debts with your spouse and file for Bankruptcy, your spouse remains responsible for these debts. This means they will need to make all the required payments, or the creditors could come after them.
No. Bankruptcy is a legal process designed to allow people who have unmanageable debts to erase these debts. It can only be administrated by a Licensed Insolvency Trustee.
Yes, you must include all of your debts in a bankruptcy, but this is a good thing! Bankruptcy represents a fresh start and an opportunity to become debt free. All of your debts will be addressed at the same time
When you file for Bankruptcy, you may lose some assets depending on what you own. Some assets are exempt. For instance, in Ontario, vehicles with less than $7,117 in equity are exempt and therefore unaffected by Bankruptcy. If your vehicle equity exceeds $7,117, you have two options.
Option #1 : Pay your Trustee the amount by which the value of your vehicle exceeds the exemption.
Option #2 : Surrender your vehicle to the Trustee and be reimbursed for the first $7,117 after the Trustee sells it by auction.
Multiple Vehicles : Only one vehicle is exempt in each Bankruptcy. Therefore, if you own two vehicles, you’ll always need to surrender or repurchase the less expensive vehicle.
Financed Vehicles : Many people finance their vehicles. In this case, only the net equity is compared to the exemption. For example:
Since the net vehicle equity of $4,000 is below the provincial exemption in the example above, the bankrupt would have two choices, keep the vehicle and the payments, or surrender the vehicle and include any resulting debt in the Bankruptcy.
Negative Equity – When it pays to return your vehicle : If your vehicle is worth less than the amount you owe on it, your vehicle is “underwater,” and it is probably a good idea to return it as part of your Bankruptcy. We see many people with $20,000 vehicle loans and $10,000 vehicles. In these cases, we suggest returning the vehicle, losing the debt, and buying another vehicle that isn’t underwater.
Leased Vehicles : If you lease your vehicle, then you don’t own it. After declaring Bankruptcy, you can either keep your car and the payments or return the car and stop paying for it. If you choose to return your car, any resulting debt will be included in your Bankruptcy as long as you didn’t make any lease payments after your Bankruptcy.
The Bottom Line : Bankruptcy is flexible, and nearly all the bankrupts we assist can retain their vehicles when it makes sense for them to do so.
Opinion of Value : Regardless, if you are struggling with debt and own a home, it’s crucial to have a realistic sense of your home’s value. Most real estate agents provide free opinions of value, which our Trustees will consider when assessing your situation and explaining your options.
The Bottom Line : Home equity is not exempt. Therefore, if you have $16,000 in net home equity, you can either surrender it or repurchase it in the example above. This concept applies to all non-exempt assets.
Funds in Registered Retirement Savings Plans contributed more than one year ago are exempt and unaffected by Bankruptcy. Voluntary RRSP contributions made in the last 12 months must either be surrendered or repurchased.