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:
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.
In a bankruptcy where there are significant free and clear assets (over $10,000), 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 $10,000), 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.
Top of PageYes, 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.
Top of PageWhen you file for bankruptcy in British Columbia, the property you are allowed to keep is called "exempt property" and includes:
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):
| Resale value of vehicle | $12,000 |
| Minus: total amount owed to secured creditor | ($3,000) |
| Minus: the vehicle exemption amount | ($5,000) |
| Total to pay to the Trustee | $4,000 |
In this situation, you are required to pay to the Trustee $4,000 in order to keep the vehicle.
| Resale value of vehicle | $12,000 |
| Minus: total amount owed to secured creditor | $0 |
| Minus: the vehicle exemption amount | ($5,000) |
| Total to pay to the Trustee | $7,000 |
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.
| Resale value of vehicle | $12,000 |
| Minus: total amount owed to secured creditor | ($9,000) |
| $3,000 |
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.
Top of PageYou 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.
Top of PageYou 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 PageAfter 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."
Top of PageIn 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.
Top of PageIn 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.
Top of PageYou 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 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.
Top of PageAlimony 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.
Top of PageIf 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.
Top of PageIf 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, 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.
Top of PageA 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:
Certain kinds of debt are not released by a bankruptcy. They are:
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.
Top of PageNormally, an automatic discharge will be issued after nine months from the date of your bankruptcy in the following circumstances:
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.
Top of PageThe purpose of mediation is to resolve conflict in the following situations:
For further information about mediation, please request a pamphlet from your Trustee.
Top of PageExplain 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.
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.
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.
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.
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:
These options are more fully explained in our Proposals section.
Top of PagePlease 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.
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