Bankruptcy
Bankruptcy in Toronto | FAQs
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.
- Consultation: The bankruptcy process begins by having your situation reviewed by a Licensed Insolvency Trustee, like the ones at Steve Welker and Company. The Trustee will take the time to review your situation, explain your options, and answer your questions.
- Weigh your Options: We encourage thoughtful consideration of your options to determine if Bankruptcy is appropriate. The Trustee will provide the legal facts and professional advice to help you make the best decision possible.
- File the Papers: If you decide that Bankruptcy is right for you, you’ll meet with the Trustee to sign the papers which your Trustee will then register with the Federal Government. Most of the paperwork you’ll sign is standard government forms. There are no upfront payments to get started.
- Notification: The Trustee will notify every one of your creditors to allow them to participate in your Bankruptcy. All communication with creditors will be handled by the Trustee. Creditors will no longer be able to contact you directly, garnishee your wages, or attempt to collect what you owe them. Their sole contact becomes your Trustee.
- Duties: Every bankrupt must fulfill specific duties before their discharge, which include:
- Attending two free individual credit counselling sessions;
- Reporting income every month;
- Providing income tax information in the year of the Bankruptcy; and
- Making all required payments.
- Discharge: After fulfilling your duties, having the length of your Bankruptcy come to an end, you will receive an automatic discharge. If it is your first time filing for Bankruptcy and you have not been required to make surplus income payments, you may be discharged in as little as nine months. An automatic discharge allows you to have your debts erased without having to set foot in a courtroom or appear before a judge.
- Rebuilding Credit: Once you have been discharged, you can begin rebuilding your credit score. The key to rebuilding credit is paying your bills on time, every time, to organizations that report your payments to one of Canada’s two credit bureaus: Transunion and Equifax.
- A secured credit card is usually the easiest way to obtain credit from a reporting institution immediately after your discharge. This is why we recommend this to every one of our discharged bankrupts.
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.
- Prior Bankruptcies
- A first-time bankrupt is eligible for an automatic discharge after 9 months, while a second time bankrupt is eligible for an automatic discharge after 24 months.
- Your Family Income
- Bankruptcy is geared to income: the more you earn, the more you pay. If your family income exceeds monthly income thresholds, you must share a portion of your income with your creditors. This concept is referred to as Surplus Income. Also, the length of your Bankruptcy will be extended by 12 months if you are required to make these payments. Therefore, if you have surplus income, a first bankruptcy will take 21 months (9 + 12), while a second bankruptcy will take 36 months (24 + 12).
The cost of filing for Bankruptcy depends on what you own and what you earn.
- What You Own
- You may lose some of your assets by filing for Bankruptcy. What you lose depends on what you own.
- Certain assets are exempt. Exempt assets are unaffected by Bankruptcy and are not surrendered to the Trustee or seized by creditors. In Ontario, they are:
- Vehicle equity worth less than $7,117 (most vehicles are exempt);
- Furniture and appliances worth less than $14,180;
- Necessary clothing for you and your dependents;
- Tools of the Trade worth less than $14,405;
- RRSPs contributed more than 12 months ago; and
- Insurance products where a close relative is a beneficiary.
- Non-exempt assets, such as home equity, second vehicles, boats, RESPs, and non-registered investments, to name a few, can either be surrendered to the Trustee or repurchased by the bankrupt.
- For example, if you have $20,000 in home equity and declare Bankruptcy, you can either surrender your home to the Trustee who will sell it for you or pay the Trustee $20,000, who will distribute the proceeds to your creditors.
- What You Earn
- The cost of your Bankruptcy also depends on your income while in Bankruptcy.
- The government has an income threshold based on every size of a family between 1 and 7. As of March 2021, the limits areas outlined below.
| Family Size | 2022 Government Limit |
| 1 | $2,355 |
| 2 | $2,931 |
| 3 | $3,604 |
| 4 | $4,375 |
| 5 | $4,962 |
| 6 | $5,597 |
| 7+ | $6,231 |
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:
- Assets: What they own
- Income: What you earn
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.
- Consumer Proposal vs Bankruptcy: Length
- In general, a bankruptcy lasts 9-36 months, depending on your situation.
- Most Consumer Proposals are 60 months in length, but can be paid off sooner.
- Consumer Proposal vs Bankruptcy: Your Assets
- In a bankruptcy, all non-exempt assets are either surrendered to the Trustee in Bankruptcy or repurchased by the bankrupt. Exempt assets in Ontario include:
- A vehicle worth less than $7,117
- Furniture and appliances worth less than $14,180
- All necessary clothing for you and your dependents
- Tools of the trade worth less than $14,405
- RRSPs contributed more than 12 months before the Bankruptcy
- The above noted exempt assets are unaffected by a bankruptcy.
- Your assets are never affected by a Consumer Proposal. Filing a Consumer Proposal allows you to keep all your assets or belongings. Since a Consumer Proposal must always provide more money to your creditors than a bankruptcy, the payments you make are in lieu of surrendering any of your belongings to your Trustee.
- In a bankruptcy, all non-exempt assets are either surrendered to the Trustee in Bankruptcy or repurchased by the bankrupt. Exempt assets in Ontario include:
- Consumer Proposal vs Bankruptcy: Cost
- Our minimum fee for a bankruptcy is $1,800 or nine (9) monthly payments of $200.00. Your payment in a bankruptcy will increase if you decide to keep non-exempt assets or earn surplus income.
- For example, if you own a non-exempt $3,600 camper, you can surrender the camper or keep it and pay $3,600 to your Trustee instead. This money will be used for the general benefit of your creditors.
- As a rule of thumb, Consumer Proposal payments will be 30% of your unsecured debt spread over 60 months. This is assuming that this amount is higher than your creditors would receive if you declared Bankruptcy. However, proposal payments can vary significantly and must be high enough to earn the support of at least 50% of your creditors.Bankruptcy vs Consumer Proposal: Creditor Approval
- No approval by your creditors is required to declare Bankruptcy. You are bankrupt after signing the papers, whether your creditors like it or not.
- A Consumer Proposal will be accepted unless creditors representing 50% of your debts vote to reject it.
- If your initial proposal is rejected, you can work with the Trustee to negotiate in hopes of changing your creditors’ minds. If your Consumer Proposal is rejected, you are not automatically deemed bankrupt.
- Bankruptcy vs Consumer Proposal: Your credit rating
- Declaring bankruptcy results in an R9 credit rating for seven years after completing the 9-21 month bankruptcy process as a first-time bankrupt or 14 years after you complete the 24-36 month process as a second-time bankrupt.
- A Consumer Proposal results in an R7 credit rating for 3 years after you complete your proposal.
- An R7 and R9 credit rating are really two shades of black. They’re both unfavourable and frowned upon by lenders.
- Bankruptcy vs Consumer Proposal: Income Tax and HST Refunds
- Your income tax refunds generated in the year of your Bankruptcy or years before your Bankruptcy will be sent to the Trustee by the Canada Revenue Agency for the general benefit of your creditors. Refunds generated in tax years after the year of your Bankruptcy are not taken. HST refunds are also seized but are refunded if you make the required payments.
- You keep all income tax and HST refunds when filing a Consumer Proposal.
- Our minimum fee for a bankruptcy is $1,800 or nine (9) monthly payments of $200.00. Your payment in a bankruptcy will increase if you decide to keep non-exempt assets or earn surplus income.
- Speaking with a Licensed Insolvency Trustee can help you determine if filing a bankruptcy or a Consumer Proposal is the right choice for you based on your 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:
- Bankrupts can lose some of their assets, if not repurchased;
- Bankruptcy is geared to income. Once above certain income thresholds, the more you earn, the more you pay;
- A few specific debts can’t be erased;
- Bankrupts obtain an R9 credit rating. This can make it difficult to get future loans;
- Bankrupts can’t sponsor family and friends wishing to immigrate to Canada during their bankruptcy; and
- Bankruptcy can affect your memberships and licenses. This is a crucial consideration for real estate brokers, accountants, and lawyers, among others.
You are eligible to go bankrupt if:
- You owe more than $1,000; and
- You are insolvent, which means you don’t have the income or assets to pay your debts.
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:
- Own very few non-exempt assets;
- Owe more than $20,000; and
- Do not have surplus income.
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:
- Personal Income Tax;
- HST;
- Source Deductions; and
- Director’s Liabilities.
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:
- National Student Loans @ 1-888-815-4514, or
- Ontario Student Loans @ 1-888-449-4478.
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.
Amad
Pre-bankruptcy
- A single, 33 year old self employed roofer
- Fell behind in filing his income taxes and HST while dealing with some personal issues
- Assisted his family with funeral expenses related to the passing of his late father
- Now working as an employee, he no longer has to worry about income tax installments, tracking business expenses, or collecting and remitting HST he’s earning $600 per week after taxes, but his pay is being garnisheed by the Canada Revenue Agency.
- Struggling with approximately $60,000 in income tax and HST debt, as well as two credit cards totaling $20,000
- He holds $40,000 in RRSPs that he saved early in his career
- He owns a 2 year old vehicle financed through the dealership
After Bankruptcy
- The Canada Revenue Agency’s garnishment of Amad’s pay was stopped, and his paycheque was protected
- Amad paid $176 per month for twenty-one (21) months for a total of $3,696 in Surplus Income
- Amad’s RRSPs and vehicle were exempt and unaffected by the bankruptcy process, although he needed to continue making his car loan payments
Summary
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.
- Filing for Bankruptcy will negatively affect your credit rating, which will make it difficult to get a mortgage. However, once you are discharged from Bankruptcy, you can start rebuilding your credit. The more effective you are at rebuilding your credit, the sooner you will be able to buy a house after filing for Bankruptcy.
- This is one of the most common questions that our Trustees receive as many Canadians are interested in homeownership We suggest:
- Eliminating unmanageable debt first, as unmanageable debt will:
- Make it difficult to save for a downpayment
- Reduce your chances of qualifying for a mortgage
- Put your long-term financial future at risk
- Creating a plan:
- Decide on a maximum purchase price by calculating potential mortgage payments, property taxes, insurance, and other costs to confirm affordability
- Calculate the down payment that you require, and don’t forget about closing costs such as legal fees, and land transfer taxes
- Set a realistic timeline by dividing the amount of money that you need by the number of months until you want to purchase your home.
- Eg. If you need $30,000 as a downpayment and closing costs, and you want to purchase your home in two (2) years, then you need to save $1,250 per month ($30,000 / 24 months). If the monthly savings are too high, then consider delaying your purchase or purchasing a less expensive home.
- In our experience, most people who are struggling with debt are often years away from being in a position to purchase a home, and by the time you are ready to purchase a home your credit will hopefully be restored.
- Eliminating unmanageable debt first, as unmanageable debt will:
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
- Every bankrupt must report their income to their Trustee every month. The more you make, the more you pay, just like income taxes. The Trustee uses your monthly report to calculate your average monthly income and the portion, if any, that you must share with your creditors.
- If you earn more than an amount set by the federal government based on your family size, you will need to make additional payments. These payments are called surplus income payments.
- If you are required to make surplus income payments, it will take longer for you to be discharged from Bankruptcy.
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:
- $20,000 – 2014 Honda Civic
- $16,000 – Secured Loan due to Honda Canada
- $4,000 – Net Vehicle Equity (Exempt and unaffected)
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.
- The short answer: You can keep your home and repurchase your equity or surrender your home, and the Trustee will sell it.
- To illustrate, lets assume the following:
- Home Value = $400,000, owned jointly with spouse
- Less: Mortgage = $340,000
- Less: Selling Costs = $28,000
- Net Home Equity = $32,000
- 50% of Net Equity = $16,000, as spouse is on title as co-owner.Option #1 : Keep your home, and contribute an amount equivalent to your net home equity to your estate, which in the example above is $16,000.Option #2 : The Trustee will retain a real estate agent, sell your home, and attempt to realize your net equity in the home.
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.
- Educational savings held in an RESP are not exempt and must either be surrendered or repurchased.
- If you have considerable educational savings, you might consider filing a Consumer Proposal to erase your debt without affecting your educational savings (RESPs)
- If you and your spouse are both owners of the RESP account then only one half of the account balance is affected.
- Only your contributions and interest earned on them are considered. Any government grants are disregarded.
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.
- If the policy’s beneficiary is the bankrupt’s spouse, child, grandchild, or parent, the policy’s cash surrender value is exempt and unaffected by Bankruptcy.
- Term life policies have no value and are also unaffected.
Request free advice from a Licensed Insolvency Trustee
Canadian laws allow you to have a fresh financial start.
Why wait? Take control of your debts now. The sooner you get started, the sooner you will leave debt and stress behind.