WHAT IS BANKRUPTCY?
Bankruptcy is a legal proceeding that is available to a person to cope with a financial crisis. One of the main purposes of bankruptcy legislation is to afford the opportunity to a person, who is hopelessly burdened with debt, to free himself of the debt and start fresh - "a new lease on life." To go into bankruptcy it is necessary for a person to be insolvent. To be insolvent means to -:
WHO WILL KNOW?
In a bankruptcy, where there are significant assets, a notice is placed in the "legals" section of the newspaper notifying creditors of the date of the meeting of creditors. If there are minimal assets, the creditors are notified by mail only - there is no advertisement in the "legals" section of the newspaper. Any legal filing of a bankruptcy is a public document which the general public has access to. From this documentation, the Credit Bureau is notified and the bankruptcy is recorded and will remain on your credit record for 6 years. This does not mean that you cannot obtain credit during this time. Any granting of credit is the responsibility of the creditor to approve. HOW MUCH AM I ALLOWED TO KEEP?
The property exempt from seizure, in British Columbia, when a person goes into bankruptcy are as follows: Equity in a home in Greater Vancouver and
Victoria
Equity in Household items = $4,000 Equity in a Vehicle = $5,000. The vehicle exemption drops to $2,000 if the debtor is behind on child care payments (to facilitate the enforcement of Maintenance Orders). Equity in work tools = $10,000 Equity in essential clothing and medical aids is unlimited. WHAT DON'T I KEEP?
In a bankruptcy, assets in excess of your allowed personal exemption such as, real estate, automobiles and boats that are the property of the bankrupt as at the date of bankruptcy and anything that the bankrupt acquires during the bankruptcy vests in the trustee for the benefit of the creditors of the bankrupt. This would include inheritances received or to which the bankrupt might become entitled, by the death of someone during the time of the bankruptcy. It also includes such things as lottery winnings and anything that the bankrupt might accumulate, such as assets bought with any surplus income. Tax refunds outstanding, as at the date of the bankruptcy, also vest in the trustee for the benefit of the creditors. Income Tax law requires a bankrupt to file two tax returns for the year of the bankruptcy. The first (pre bankruptcy tax return) covers the period January 1st through to the date of bankruptcy. The second (post bankruptcy tax return) covers the period starting with the date of the bankruptcy and ending December 31st. Pre bankruptcy tax rebates vest in the trustee for the benefit of the creditors. You will be asked to volunteer any refunds,
receivable from your post bankruptcy return, to the trustee for distribution
to the creditors. While you are not legally obliged to give up these funds,
the trustee or creditors may apply for a Court Order in this respect or
it may be reported to the Court at the time of your discharge.
HOW DO I GO INTO BANKRUPTCY?
There are two ways a person can become a bankrupt. The first and more common way is to have the person make an assignment in bankruptcy (voluntarily go into bankruptcy). The second, and rarely used way, is for creditors to ask the Court to make an Order that a person is bankrupt. In both these cases a Trustee in Bankruptcy is required to administer the bankruptcy.
WHAT ABOUT MY WAGES DURING BANKRUPTCY?
Earnings of a bankrupt after the start of a bankruptcy, such as wages and salaries or commissions, belong to the bankrupt person and are not interfered with by the trustee in the ordinary course of events. There are standards supplied to the trustee by the Superintendent of Bankruptcy which instructs the trustee to collect funds, for the benefit of creditors, from any earnings above what is reasonable for the number of people in the family and the bankrupt's personal situation. WHEN IS MY BANKRUPTCY OVER?
For those people who have not been bankrupt before, an automatic discharge will take place after nine months if the creditors, Superintendent of Bankruptcy or trustee have not opposed your discharge and you have received counselling. Occasionally, creditors do object and the matter goes to mediation or is heard before a Registrar or a Judge. The discharge is usually granted where the bankrupt is only earning sufficient income to keep himself and his dependants reasonably provided for. It is the discharge of the bankrupt, with minor exceptions, that cancels the bankrupt's debts. In the event that you have been bankrupt before, your discharge will not be automatic and must be heard before a Judge or a Registrar. WHAT IF I HAVE THE CASH FLOW TO MAKE A PROPOSAL?
If a person has the ability to make a proposal (i.e. his or her income exceeds living expenses), then he or she should consider making a proposal. If any person files for
bankruptcy when he or she has the ability to make a proposal, it is
the Trustee's duty to oppose the bankrupt's discharge. In this
case, the bankrupt may be in bankruptcy up to an additional 12 months
beyond the usual 9 months. The bankrupt will be required to make
payments in each of these months. WHAT IS COUNSELLING AND DO I HAVE TO TAKE IT?
You must take counselling in order to be eligible for an "automatic nine month discharge". The counselling can be one-on-one, with yourself and your trustee, or if you prefer, it can be in a group consisting of other bankrupts and your trustee. The first counselling session must be held between 10 and 60 days following bankruptcy; the second counselling session must be held no later than 210 days following the date of bankruptcy. The cost for this is $85, plus GST, for each individual counselling session. WHAT HAPPENS DURING THE BANKRUPTCY?
The bankrupt must keep the trustee informed as to where the bankrupt is living and also must respond to the trustee's requests and assist him as required and provide whatever information is requested. The bankrupt must also provide the trustee with reports as to earnings and living expenses and any change in the bankrupt's family situation. The trustee will provide the bankrupt with appropriate forms to be filled in that will provide the trustee with the necessary information. A meeting of creditors is not required unless requested by the Superintendent of Bankruptcy or creditors with an aggregate of at least 25% of the proven claims. These meetings are usually held at the office of the trustee. WHAT ABOUT ALIMONY AND MAINTENANCE?Alimony or maintenance payments are not affected by bankruptcy. These payments must be kept up to date. A bankruptcy does not stop any actions for collection. Alimony and maintenance are provable claims and will be paid as a preferred claim for amounts incurred in the year before bankruptcy.WHAT ABOUT STUDENT
LOANS? A discharge from bankruptcy
does not release a student loan if the bankruptcy occurs within ten
years after finishing studies. A Court can order the discharge
from a student loan at any time after ten years of ceasing to be a student,
and after being discharged from bankruptcy, if the person has acted
in good faith and the person will continue to experience financial difficulty
in paying the student loan. WHAT ABOUT CANADA REVENUE AGENCY (CRA) (FORMALLY REVENUE CANADA) DEBT?
WHAT DOES CRA HAVE TO DO IN ORDER TO EFFECT A SECURED CLAIM? Ninety days after an assessment,
if there is no appeal lodged, CRA can make application to the Federal
Court to have a judgement issued. CRA then must register a secured
claim under the person’s name under the Personal Property Security Registry
(in British Columbia). CRA, if real property is involved, will
also register under Land Titles. WHAT DO YOU DO IF YOU THINK THAT CRA IS GOING TO REGISTER A SECURED POSITION AGAINST YOU? If the debt is large enough, you should see an insolvency lawyer or a Trustee immediately. A search of the Personal Property Security Registry (British Columbia) or land titles will reveal whether CRA has filed a secured claim against you. You may want to consider filing for bankruptcy or consider filing a proposal under the Bankruptcy and Insolvency Act N.B. CRA has advised
that: WHAT DEBTS ARE NOT AFFECTED? Certain kinds of debt are not erased by the bankrupt's discharge. They are:
WHAT DOES IT COST?Trustee fees, filing fees and counselling fees are regulated by the government. The trustee normally is paid out of the funds arising from the liquidation of the bankrupt's assets. If the bankrupt has no assets available, then the trustee will require a retainer or require the bankrupt, over time, to pay the trustee's fees and disbursements. In the simplest cases this amounts to $1,390 plus GST and counselling costs. Our firm has a payment plan that allows you to pay the costs over time.WHAT ARE THE ALTERNATIVES TO BANKRUPTCY?
Contact your creditorsExplain 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 co-operate.Debt Consolidation LoanYou 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 a monthly payment to that creditor. Make sure you shop around - interest rates vary. Avoid further credit purchases; this could make your debt load too great for you to handle.ProposalsUnder the Bankruptcy and Insolvency Act, a trustee or an administrator files a Proposal or an arrangement between you and your creditors to have you 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, your creditors must be better off under a Proposal than if you go bankrupt.There are two types of Proposals an individual can file -:
Counselling is not required. If you want to print an application form (12 pages) please refer to our page "Application Form". |
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