Questions and Answers

• What is bankruptcy?
• How do I go into bankruptcy?
• Who will know?
• Will my creditors stop harrassing me?
• What am I allowed to keep?
• What am I not allowed to keep?
• What about RRSPs?
• As a first time bankrupt, how do I get my discharge?
• How do I get my discharge if I have been bankrupt before?
• Who files my taxes for the year of my bankruptcy?
• What happens to my wages during bankruptcy?
• Do I have enough surplus income to make a proposal to creditors?
• What if I have surplus income during my bankruptcy?
• What is counselling?
• What do I have to do during the process of bankruptcy?
• What about alimony and maintenance payments?
• What about student loans?
• What about tax debt with Canada Revenue Agency?
• How does CRA claim an interest in my property?
• What do I do if I think that CRA might register a secured position against me?
• What debts are not affected or discharged from bankruptcy?
• How much does bankruptcy cost?
• How do I successfully complete my bankruptcy?
• What happens if I do not complete my bankruptcy or if I am not released from bankruptcy?
• What is mediation?
• What are the alternatives to bankruptcy?
• Where can I find other Trustees outside of the Lower Mainland of BC?

What is bankruptcy?

Bankruptcy is a legal proceeding that is available to you in order to resolve your debts. One of the main purposes of bankruptcy legislation is to provide you with the opportunity to free yourself from an unmanageable debt load and start fresh – "a new lease on life."

In order to go into bankruptcy, you must be insolvent. To be insolvent means to:

1. Owe at least $1,000;
2. Not be able to meet your regular payments as they are due to be paid.
   

How do I go into bankruptcy?

There are two ways for you to become bankrupt. The more common way is for you to make an assignment into bankruptcy (i.e. voluntarily go into bankruptcy by approaching a Trustee to have the necessary papers prepared and signed). The other rarely used way is for creditors to ask the Court to make an Order that you are bankrupt. In both of these situations, a Trustee in Bankruptcy is required to administer the bankruptcy.

First steps to filing for bankruptcy:

1. Please review our website so that you have a working knowledge of bankruptcy;
2. Fill in our Personal Bankruptcy Application Form;
3. Phone one of our seven offices to set up a free, confidential, no obligation consultation to discuss your options. The following number will reach the Sands & Associates office that is closest to you: 604-310-0911;
4. Consider your options and make a decision that is best for you.

Who will know?

In a bankruptcy where there are significant free and clear assets (over $15,000), the creditors are notified by mail and a notice is placed in the "legals" section of the newspaper that informs the public of the date of the meeting of creditors. In a bankruptcy where there are minimal free and clear assets (less than $15,000), the creditors are notified by mail only and there is no advertisement in the "legals" section of the newspaper.

The filing of a bankruptcy is public information to which the general public has access. Credit reporting agencies obtain this information and keep it on your credit record for six years after your discharge from bankruptcy. However, this does not mean that you cannot obtain credit during this time; any granting of credit is the decision of the creditor.

Will my creditors stop harrassing me?

Yes, they will! By law, all actions against you must cease once the bankruptcy documents are filed. This does not apply to Family Maintenance Enforcement or to secured creditors such as banks or finance companies that hold, for example, a lien on a car.

What am I allowed to keep?

When you file for bankruptcy in British Columbia, the property you are allowed to keep is called "exempt property" and includes:

• Equity in a home in Greater Vancouver and Victoria = $12,000
  In the rest of the province = $9,000
• Equity in household items = $4,000
• Equity in a vehicle = $5,000
  The vehicle exemption drops to $2,000 if the person is behind on child support payments (to facilitate the enforcement of Maintenance Orders)
• Equity in work tools = $10,000
• Equity in essential clothing and medical aids is unlimited.

What am I not allowed to keep?

In a bankruptcy, any assets that belong to you at the date of bankruptcy which have a resale value that is more than the amount owed on the assets minus any applicable exemptions listed in the above section are the property of the Trustee for the benefit of your creditors. For further clarification, see the following examples (please note that these examples use the British Columbia personal property exemptions and, depending on the province in which you reside, may not be applicable to you):

In this situation, you are required to pay to the Trustee $4,000 in order to keep the vehicle.

In this situation, even though you do not owe a secured creditor, you are still required to pay to the Trustee $7,000 in order to keep the vehicle.

In this situation, no money has to be paid to the Trustee because the remaining $3,000 is less than the $5,000 exemption limit and, therefore, is considered "exempt property."

Any assets that you may acquire during the bankruptcy, such as inheritances, gambling winnings, or gifts to which you might become entitled during the bankruptcy, are also the property of the Trustee for the benefit of your creditors.

WHAT ABOUT RRSPs?

You are entitled to keep certain funds that you hold in an RRSP. Depending on your provincial legislation, the contributions that you made in the one-year period before your date of bankruptcy will have to be paid to the Trustee for the benefit of your creditors.

AS A FIRST TIME BANKRUPT, HOW DO I GET MY DISCHARGE?

Normally, an automatic discharge will be issued after 9 months from the date of your bankruptcy in the following circumstances:

1. You have completed two counselling sessions;
2. Your creditors, the Superintendent of Bankruptcy, and the Trustee are not opposing your discharge;
3. You have not had surplus income based on the Superintendent’s Standards during your bankruptcy.

If your surplus income payments are an average of $100 or more based on the Superintendent’s Standards during the first 9 months of your bankruptcy, you are required to continue submitting monthly statements of income and expenses together with any payments for an additional 12 months. You will receive an automatic discharge after 21 months if you have submitted the monthly statements, paid all surplus income accumulated during the 21 months and complied with your duties as a bankrupt. For further clarification, please refer to the following diagram:

HOW DO I GET MY DISCHARGE IF I HAVE BEEN BANKRUPT BEFORE?

If you have been bankrupt once before, you must remain in bankruptcy for a minimum of 24 months. Normally, an automatic discharge will be issued after 24 months from the date of your bankruptcy in the following circumstances:

1. You have completed two counselling sessions;
2. Your creditors, the Superintendent of Bankruptcy, and the Trustee are not opposing your discharge;
3. You have not had surplus income based on the Superintendent’s Standards during your bankruptcy.

If your surplus income payments are an average of $100 or more based on the Superintendent’s Standards during the first 24 months of your bankruptcy, you are required to continue submitting monthly statements of income and expenses together with any payments for an additional 12 months. You will receive an automatic discharge after 36 months if you have submitted the monthly statements, paid all surplus income accumulated during the 36 months and complied with your duties as a bankrupt. For further clarification, please refer to the following diagram:

If you have been bankrupt more than once before, your discharge will not be automatic and must be heard before a Registrar or a Judge after the 36th month of your bankruptcy.

Who files my taxes for the year of my bankruptcy?

You are required to file two income tax returns for the year of the bankruptcy. The pre-bankruptcy tax return covers the period from January 1st through to the date of bankruptcy. The post-bankruptcy tax return covers the period from the date of bankruptcy through to December 31st. The Trustee usually files these returns when the information is supplied. As of the date of bankruptcy, any prior, pre-, and post-bankruptcy tax refunds (if assigned) are the property of the Trustee for the benefit of the creditors. If you are self-employed, you must file the pre- and post-bankruptcy tax returns as well as any required GST returns. Top of Page

What happens to my wages during bankruptcy?

After you have filed for bankruptcy, your earnings, such as self-employed income, commissions, or wages and salaries, go directly to you. There are standards supplied by the Office of the Superintendent of Bankruptcy that instruct the Trustee to collect funds, for the benefit of your creditors, from any earnings above what is reasonable for your personal situation and the number of people in your family. These standards are called the "Superintendent's Standards."

Do I have enough surplus income to make a proposal to creditors?

In consultation with a Trustee, if you have the ability to make a proposal, (i.e. your income exceeds living expenses and the excess will result in a reasonable amount being available to the creditors), then a proposal should be considered.

The Bankruptcy and Insolvency Act has also imposed an obligation upon a Trustee that if you file for bankruptcy when you have the ability to make a proposal, it is the Trustee's duty to bring this matter to the attention of the Court. In such a case, the Court may order that you remain in bankruptcy beyond the minimum nine months, and you may be required to make payments in each of these additional months.

See our Proposals section for more information.

WHAT IF I HAVE SURPLUS INCOME DURING MY BANKRUPTCY?

If you have not been bankrupt before and your surplus income payments are an average of $100 or more based on the Superintendent’s Standards during the first 9 months of your bankruptcy, you are required to continue submitting monthly statements of income and expenses together with any payments for an additional 12 months.

If you have been bankrupt before and your surplus income payments are an average of $100 or more based on the Superintendent’s Standards during the first 24 months of your bankruptcy, you are required to continue submitting monthly statements of income and expenses together with any payments for an additional 12 months.

What is counselling?

In a bankruptcy, the Bankruptcy and Insolvency Act requires that you attend two counselling sessions in order to be eligible for a discharge from bankruptcy. These counselling sessions are usually one-on-one between you and your Trustee. In general, counselling sessions deal with budgeting, financial planning, the cause(s) of your bankruptcy, and any other issues that are relevant to your situation.

The first counselling session must be held between 10 and 60 days following the date of bankruptcy; the second counselling session must be held no later than 210 days following the date of bankruptcy. The cost for each individual counselling session is $85 plus GST.

What do I have to do during the process of bankruptcy?

You must keep the Trustee informed of your current address, and co-operate with the Trustee's requests for assistance and information (e.g. income tax information). You must also provide the Trustee with monthly reports of your household income and living expenses, and inform the Trustee of any change(s) in your family situation. The Trustee will supply you with the monthly report forms when you file for bankruptcy. You may also be required to attend a meeting of creditors, which is not held unless required by the Bankruptcy and Insolvency Act or requested by the Superintendent of Bankruptcy or by creditors with a total of at least 25% of the proven claims. These meetings are usually held at the office of the Trustee.

What about alimony and maintenance payments?

Alimony or maintenance payments are not affected by bankruptcy and must be kept up to date. Bankruptcy does not stop collection actions for these types of claims. Unpaid alimony and maintenance are eligible to receive dividends that are available from the bankruptcy estate, and will be paid as a preferred claim for amounts incurred in the year before bankruptcy that remain unpaid at the date of bankruptcy.

What about student loans?

If the date of bankruptcy is more than seven years after the end of your studies, the debt will be released upon your discharge from bankruptcy.

If the date of bankruptcy is less than seven years after the end of your studies, student loans survive your bankruptcy and arrangements will have to be made for repayment of the loan. However, if you have acted in good faith and continues to experience difficulty paying the student loan, a Court can order the discharge of a student loan. This is only applicable if more than five years have passed since the end of studies.

What about tax debt with Canada Revenue Agency?

If you owe Canada Revenue Agency for income taxes, GST, or employee remittances, these debts can be included in a bankruptcy and can be discharged under certain conditions. Generally speaking, a discharge of the debt is granted if you have completed your duties under the Bankruptcy and Insolvency Act and you have complied with making the appropriate filings and installment payments under the Income Tax Act. If CRA has taken appropriate steps prior to the date of bankruptcy to realize on the indebtedness but has been unsuccessful, CRA may then register as a secured creditor against real property (real estate) or your personal property (furniture, vehicles, etc.).

If you are a first time bankrupt and you owe CRA more than $200,000 for personal income tax debt (including interest, penalties or fines) and this amount represents 75% or more of the proven unsecured claims in your bankruptcy, you will not be eligible for an automatic discharge. In this case, the Trustee will be required to make an application to court to seek the terms of your discharge from bankruptcy. You will be required to submit monthly statements of income and expenses for at least 9 months. If you are required to pay $100 or more of surplus income under the Superintendent’s Standards in the first 9 months, the Trustee will be unable to make an application to court for your discharge until 21 months have expired. If you should have no surplus income under the Superintendent’s Standards in the first 9 months, the Trustee will make an application to court for the terms of your discharge when the 9 months have expired. For further clarification, please refer to the following diagram:

If you have been bankrupt before and you owe CRA more than $200,000 for personal income tax debt (including interest, penalties or fines) and this amount represents 75% or more of the proven unsecured claims in your bankruptcy, you will not be eligible for an automatic discharge. In this case, the Trustee will be required to make an application to court to seek the terms of your discharge from bankruptcy. You will be required to submit monthly statements of income and expenses for at least 24 months. If you are required to pay $100 or more of surplus income under the Superintendent’s Standards in the first 24 months, the Trustee will be unable to make an application to court for your discharge until 36 months have expired. If you should have no surplus income under the Superintendent’s Standards in the first 24 months, the Trustee will make an application to court for the terms of your discharge when the 24 months have expired. For further clarification, please refer to the following diagram:

How does CRA claim an interest in my property?

If you, or your representative, do not lodge an appeal within 90 days after an income tax assessment, or if you, or your representative, are ultimately unsuccessful in an appeal, CRA may make an application to the Federal Court of Canada to have a judgment issued. CRA may then register a secured claim under your name in the Personal Property Security Registry (British Columbia). This secures all personal property such as furniture, vehicles, etc. to CRA. If real property is involved, CRA may also register a judgment at Land Titles against your interest in property. This then becomes a secured claim in the bankruptcy, and you will have to deal with CRA separately from the bankruptcy proceedings.

In a bankruptcy, secured creditors are outside of the Bankruptcy and Insolvency Act. Depending on provincial legislation, registered secured creditors such as CRA can realize on the assets they hold for security and, in some provinces, claim for any shortfall in the bankruptcy proceedings.

What do I do if I think that CRA might register a secured position against me?

A search of the Personal Property Security Registry (British Columbia) or Land Titles will reveal if CRA has filed a secured claim against you. If there is no entry stating that CRA has registered, you may want to consider filing for bankruptcy or filing a proposal to creditors under the Bankruptcy and Insolvency Act in order to resolve the matter.

CRA has advised that:

1. they will generally honour provincial exemptions under the B.C. Court Order Enforcement Act;
2. they started registering their security position on or after May 1, 1999;
3. they are diligent in registering secured interests against seriously delinquent accounts.

What debts are not affected or discharged from bankruptcy?

Certain kinds of debt are not released by a bankruptcy. They are:

• Fines imposed by a court;
• Money owing for things stolen;
• Property or services obtained through false pretences or fraudulent misrepresentation;
• Alimony or maintenance payments;
• Award of damages by a court for intentionally inflicting bodily harm or sexual assault;
• Student loans if bankruptcy is filed within seven years after the end of studies.

How much does bankruptcy cost?

Trustee fees, filing fees, and counselling fees are regulated by the government. The Trustee is usually paid out of the funds from the liquidation of your assets. If you have no assets available, the Trustee will require a retainer or require that you over time, pay the Trustee's fees and disbursements. In the simplest cases, this amounts to about $1,420 plus counselling costs and GST. Sands & Associates offers payment plans that allows you to make payments over a period of time.

HOW DO I SUCCESSFULLY COMPLETE MY BANKRUPTCY?

Normally, an automatic discharge will be issued after nine months from the date of your bankruptcy in the following circumstances:

1. You have completed two counselling sessions;
2. You have not been bankrupt before. If you have been bankrupt before, your discharge will not be automatic and must be heard before a Registrar or a Judge;
3. Your creditors, the the Superintendent of bankruptcy, and the Trustee are not opposing your discharge. Occasionally, creditors oppose a bankrupt's discharge and the matter is heard before a Registrar or a Judge. A discharge is usually granted when you are only earning sufficient income to reasonably support yourself and your dependents. The Trustee has an obligation to oppose your discharge if you have not completed your duties as a bankrupt.
4. You are not required to make additional payments based on the Superintendent's Standards.

What happens if i do not complete my bankruptcy or if I am not released from bankruptcy?

If you do not complete your duties as a bankrupt, you will not be released from bankruptcy and the Trustee will proceed to be discharged from your bankruptcy. After the Trustee ceases to be involved in your bankruptcy, your creditors may resume collection for full payment of their claims. In addition, your creditors seize any assets in excess of your exemptions to satisfy their claims.

The full performance of your bankruptcy, or the obtaining of your discharge, is what eliminates your responsibility to repay your creditors. If you do not obtain your discharge, the creditors can resume collection for full payment after the Trustee ceases to be involved in the bankruptcy proceedings.

What is mediation?

The purpose of mediation is to resolve conflict in the following situations:

1. Where you do not agree with the recommendation of the Trustee in the Report of the Trustee on the Bankrupt’s Application for Discharge. In this situation, you may, before the expiration of nine months from the date of bankruptcy, send to the Trustee a written request to have the matter determined by mediation.
2. Where you and the Trustee cannot agree on the amount that you are required to pay to your creditors because, in the Trustee’s opinion, you could have filed a viable proposal but did not.
3. Where you and the Trustee cannot agree on the amount that you are required to pay pursuant to the Superintendent’s Standards. In this situation, the Trustee shall request that the matter be determined by mediation.
4. Where a creditor has made a written request for mediation, either within thirty days from the date of bankruptcy or within thirty days after an amendment made by the Trustee regarding the amount that you are required to pay pursuant to the Superintendent’s Standards. In this situation, the Trustee shall request that the matter be determined by mediation.

For further information about mediation, please request a pamphlet from your Trustee.

What are the alternatives to bankruptcy?

Contact your creditors

Explain why you cannot make your payments and suggest an arrangement that could work for both of you. You may be surprised that many creditors are more than willing to cooperate.

Debt Consolidation Loan

You can approach a bank or financial institution about combining or "consolidating" your debts into one loan. This creditor pays off all your debts and, in return, you make monthly payments to that creditor. Make sure that you shop around because interest rates vary. Avoid further credit purchases because this could increase your debt load and make the consolidation loan too difficult to handle.

Informal Proposal

In some cases, we can work with you and your creditors to set up a payment plan that allows you to pay your creditors in an orderly way, thus helping to preserve your credit rating. This operates similar to a debt consolidation loan, except that you do not borrow the money to pay off your creditors.

Private Debt Counsellors

There are a number of private debt counsellors who will make arrangements with your creditors for you to pay off the indebtness in full. The counsellor will review your financial situation and arrange a payment program between you and your creditors. A fee may be charged by the counsellor in order to perform this service.

Proposals to Creditors

Under the Bankruptcy and Insolvency Act, a Trustee files a proposal, which is an arrangement between you and your creditors that allows you to pay off only a portion of your debts, extend the time you have to pay off the debt, or provide some combination of both. To be acceptable, you must offer your creditors more money than what they would expect to receive in a distribution under a bankruptcy.

There are two types of proposals that a person can file:

1. "Consumer Proposal" – You are eligible to file a consumer proposal if your aggregate debts, excluding debts secured by a principal residence, do not exceed $250,000. The consumer proposal cannot exceed a period of five years. In a consumer proposal, you are required to attend two counselling sessions. If the creditors do not accept the consumer proposal, you are not automatically bankrupt.
2. "Commercial Proposal" – There is no restriction on the amount that you owes. The proposal can extend beyond a period of five years and you are not required to attend counselling. If the creditors do not accept the proposal, you are automatically bankrupt as of the date of the creditors' meeting.

These options are more fully explained in our Proposals section.

Where can I find other Trustees outside of the Lower Mainland of BC?

Please refer to the following website to locate a Trustee closest to you:
www.moneyproblems.ca

If you have any questions, please do not hesitate to contact any of our offices.