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Frequently Asked Questions About Bankruptcy in BC

Because few people have detailed knowledge of Canadian bankruptcy laws, many people experiencing a debt problem have fears or misgivings about considering personal bankruptcy.

The reality is that filing bankruptcy in BC is usually a straight-forward process that allows people to get a financial fresh start. You are entitled to live with dignity and without debt and the overwhelming stress it can bring.

Read some commonly asked questions about what happens when you declare bankruptcy and the personal bankruptcy process in BC to get a better understanding of how bankruptcy works.

If you don’t find your question in the list below, please call our office toll-free at 1-800-661-3030, one of our qualified debt management specialists would be happy to help you.

Consultations to discuss your situation and solutions are always free – book your confidential debt consultation here.

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What is bankruptcy?

Bankruptcy is a federally-legislated legal process governed by the Bankruptcy and Insolvency Act that eliminates the debt of a person or business in the event they are unable to repay their financial obligations. There is no permission required from your creditors in order to seek bankruptcy protection; Canadian law gives you the right to get relief from your debts.

Declaring bankruptcy in British Columbia is done with the help of a debt professional called a Licensed Insolvency Trustee – formerly known as a Bankruptcy Trustee or Trustee in Bankruptcy.

“Eligibility” to qualify for personal bankruptcy is very straight-forward. You must owe at least $1,000 and be insolvent (without the means to repay your entire debt at once). A Licensed Insolvency Trustee will help you evaluate whether filing for personal bankruptcy is the best debt option for your situation and will work with you throughout the process if you choose to move forward with filing bankruptcy.

Filing for bankruptcy in British Columbia starts with a free consultation with a Licensed Insolvency Trustee, and the entire process can be done online.

What is insolvency?

“Insolvency” is a term used to describe a financial status of an individual or corporation. Being “insolvent” means that a person (or business) is not able to repay all their debts, or that the debts owing are more than the sum total of the assets they own.

The state of insolvency could arise in many different types of situations. If your assets are worth more than the total amount of your debts, you may still be considered insolvent if you have ceased paying your obligations as they become due.

In order to file for bankruptcy, a person (or business) must be insolvent – however, simply being insolvent does not mean that they are also bankrupt, or that they must declare bankruptcy. Calculating whether a person or business is in fact insolvent is done “on paper”, whereas declaring bankruptcy is a specific legal process and undertaking.

Determining whether you are insolvent can be quite simple in some cases and complex in others, depending on the situation and assets and debts involved. It is always best to connect with a Licensed Insolvency Trustee who can help you assess the situation and explain the options available to you to move forward to deal with your debts.

How do I file for bankruptcy in British Columbia?

There are two ways for a person or business to become bankrupt. The most common is for a person to choose to file for bankruptcy to deal with their unmanageable debt.

Most bankruptcies are considered ‘voluntary’ – which means that the person (or business) unable to pay their debts seeks the services of a Licensed Insolvency Trustee “LIT” (formerly Bankruptcy Trustee) to help with bankruptcy.

In a case where a person chooses a bankruptcy, legal bankruptcy documents would be prepared and signed, which begins the official bankruptcy process. Only a Licensed Insolvency Trustee has the legal authority to help with bankruptcy in British Columbia.

Rarely, a personal or business creditor may petition the court to make an order which then assigns the person or business into bankruptcy.

Your creditors cannot prevent you from filing a bankruptcy.

If you are considering declaring bankruptcy, the first step in the bankruptcy process is to meet with a Licensed Insolvency Trustee for an assessment of your situation.

Book your free debt consultation with a Licensed Insolvency Trustee. We can help you assess whether declaring bankruptcy is the right option for you.

Can my spouse and I declare bankruptcy together?

If both you and your spouse choose to declare bankruptcy to deal with debts you each owe, most Licensed Insolvency Trustees will recommend you proceed with separate bankruptcy filings.

Although a joint bankruptcy filing is technically possible under certain circumstances it is usually not recommended since each person is responsible for completing certain “duties” as part of being discharged (released) from personal bankruptcy. (See more under “What do I have to do during the bankruptcy process?”). There is no clear advantage to couples’ filing a joint bankruptcy; however, joint Consumer Proposals are quite common and can provide benefits in certain circumstances where debts are shared.

Read More: Can my spouse and I declare bankruptcy together?

What are the alternatives to bankruptcy?

Many people feel that filing for bankruptcy is the only solution if they need help getting out of debt. However, several debt options in BC exist to help you become debt free.

Usually a person will decide to file for personal bankruptcy only if other debt options are unsuitable.

Some other common options besides personal bankruptcy may include:

  • Trying to work out a repayment, or renegotiated settlement with your creditors on your own.
  • Obtaining a debt consolidation loan through a bank or other traditional lender, which will pay off the individual creditors.
  • Paying a debt or credit counsellor to set up a repayment program with your creditors.
  • Filing a Consumer Proposal to cut your debt by up to 80%, halt interest and stop any collection action. (Consumer Proposals are the number one alternative to filing a personal bankruptcy in Canada).
Meet with a Sands & Associates representative today to discuss the pros and cons of debt solutions available to you.

What debt can be included in a bankruptcy?

Filing a bankruptcy in BC will eliminate virtually all types of debt. Including, but not limited to:

  • Consumer and business debts (credit cards, lines of credit, overdrafts, payday loans, etc.);
  • Income tax debts (income taxes, GST, business taxes, payroll remittances, etc.);
  • Student loans (federal, provincial, private);
  • ICBC debts;
  • Secured debts – should you choose to end the commitment (vehicle shortfall, mortgage foreclosure);
  • Debt for a business for which you have signed a personal guarantee;
  • Debt owing to another person.

Will my creditors stop harassing me if I file for bankruptcy?

Yes, they will! By law, all collection actions against you must cease once official bankruptcy documents are filed.

Filing a personal bankruptcy creates a stay of proceedings, which means that, by law, your creditors will be barred from contacting you for payment, and all collection actions against you must cease once official bankruptcy documents are filed.

Collection calls and letters, wage seizures and bank account freezes are all halted at the beginning of the bankruptcy process.

If you have a mortgage or vehicle loan that you are opting to continue with, these payments will continue.

Watch our short video about how Consumer Proposals in BC impact mortgages and vehicle loans, the same applies in bankruptcy.

Some types of debts (like those to Family Maintenance Enforcement) may not be extinguished by filing a bankruptcy, and the stay of proceedings will not apply.

Who will know if I file for bankruptcy?

Many people considering filing personal bankruptcy are concerned about their privacy. The good news is that the bankruptcy process in BC is actually quite private.

For most personal bankruptcies, only the creditors, the Licensed Insolvency Trustee (Bankruptcy Trustee), the Office of the Superintendent of Bankruptcy (OSB) and the person filing the bankruptcy will be aware of the proceedings.

Credit reporting agencies, also known as credit bureaus, will obtain information about your personal bankruptcy from the OSB and keep this information on your credit history for six years from the date you are discharged from bankruptcy. This is the same amount of time that other transactions the credit bureaus consider “negative” will be reflected (ie. late payment history, collection accounts.) This does not mean that you cannot obtain credit during this time.

During your bankruptcy, one-on-one financial counselling sessions will provide you with tools and resources to help you re-establish your credit rating after bankruptcy.

Watch our short video: Who Will Know About Personal Bankruptcy

How will bankruptcy affect my spouse?

Unless you and your spouse have jointly held debts where they have specifically co-signed (or a supplementary credit card), there will generally be no impact to your spouse if you declare bankruptcy.

One spouse filing bankruptcy does not automatically mean that their spouse is also in bankruptcy, nor will a bankruptcy shift responsibility for the unpaid debts from one spouse to the other.

In the event your spouse is a co-signer, co-borrower or co-cardholder and you file bankruptcy, your spouse would remain responsible for repaying the full balance of the joint debt, less any funds that creditor receives as part of your bankruptcy. If unaffordable, your spouse may wish to consider their options for addressing their debts and seek advice from a Licensed Insolvency Trustee.

A Licensed Insolvency Trustee can assist you in exploring options to manage your debts and whether bankruptcy or another solution may be ideal for your specific situation, as well as that of your spouse.

Read more: Am I responsible for my spouse’s debts?

What am I allowed to keep if I file for personal bankruptcy?

Most people who file for personal bankruptcy keep all their assets.

Provincial laws set out property that you are automatically entitled to keep in the event you file for personal bankruptcy.

Read More: What am I allowed to keep if I file for personal bankruptcy?

Can I keep making payments on my car or mortgage if I file for bankruptcy?

If you have a vehicle financing agreement (lease or loan), or a mortgage, you can choose to continue with those agreements while you are in bankruptcy.

Conversely, you may decide not to continue those agreements and ultimately include any balances owing in the bankruptcy.

Read More: Can I keep making payments on my car or mortgage if I file for bankruptcy?

Can I keep my RRSPs if I file for personal bankruptcy in BC?

You are entitled to keep your RRSPs if you file a personal bankruptcy in BC, except for amounts contributed in the 12 months prior to your date of bankruptcy.

The Bankruptcy and Insolvency Act provides protection for RRSPs of an unlimited value (except for contributions made in the 12 months prior to bankruptcy) in event that you file a personal bankruptcy.

It is important to note that a transfer between RRSP funds is not the same as an RRSP contribution. Transferring funds from one RRSP to another company is not considered a new contribution.

If you’re considering cashing in RRSPs to pay debts – call us before you take action. RRSP funds lose their protected status once withdrawn and often trigger large tax liabilities for the year in which funds are withdrawn.

Watch our short video: What about RRSPs?

How much does it cost to file for bankruptcy in British Columbia?

In a basic bankruptcy the cost usually totals $2,700. Sands & Associates offers payment plans that allow a person to break the cost up over the term of their personal bankruptcy.

Consultations to discuss your situation and evaluate all your possible debt options are always free, and no referral is required to meet with a Licensed Insolvency Trustee.

All Licensed Insolvency Trustee fees are set by government tariff and are regulated by Industry Canada.

Can tax debt be included in a bankruptcy in Canada?

If you owe money to Canada Revenue Agency (Revenue Canada) for income taxes, GST, or employee remittances, these debts can be eliminated by filing a bankruptcy in BC. Filing a bankruptcy or a Consumer Proposal are the ONLY options for eliminating or negotiating debt to Canada Revenue Agency (Revenue Canada).

Bankruptcy will also stop further collection actions such as a wage seizure or bank account freeze.

In the event Canada Revenue Agency has registered as a secured creditor against your real property (real estate) or your personal property (furniture, vehicle, etc.), we can review with you in detail the rights and remedies of Revenue Canada in your specific situation.

Meet with a Licensed Insolvency Trustee today to learn more about options to deal with tax debt.

Can I go bankrupt on student loans?

Yes - student loans can be wiped out by filing a personal bankruptcy in BC, whether they are private, provincial or federal. Filing a bankruptcy, or making a Consumer Proposal, are the ONLY options for eliminating or negotiating government student loan debts, and private bank-held student loans will be forgiven the same way as other routine unsecured debts (credit cards, etc.).

A wage garnishment or bank account freeze imposed by Revenue Canada for student loan debt would be lifted by filing a bankruptcy.

  • If it has been seven years or more since you last attended school, the government student loans will be fully discharged (released) under your bankruptcy.
  • If it has been less than seven years since you finished your studies, your government student loans survive the bankruptcy filing and need to be repaid after the bankruptcy is completed.
  • If it has been less than seven years, but more than five years since the end of your studies and you are having difficulty repaying your government student loan, a Court can order the discharge of your student loans following your bankruptcy.
Bankruptcy may still be an option for debt forgiveness even if you have a recent student loan. Many people with student loans that survive bankruptcy find their remaining student loan balances are manageable after their other debts have been wiped out.

What debts survive bankruptcy?

While most debts will be discharged (wiped out) by filing a personal bankruptcy in BC, some types of debts may survive. They are:

  • Child and/or spousal support payments;
  • Fines imposed by a court;
  • Money owing for things stolen;
  • Property or services obtained through false pretenses or fraudulent misrepresentation;
  • Award of damages by a court for intentionally inflicting bodily harm or sexual assault;
  • Government student loans if bankruptcy is filed within seven years after the end of studies. (If it has been more than five years however, a hardship court application may be made to release these government student loans.)
Debts that will survive your bankruptcy will be discussed with you during the debt consultation process.

What do I have to do during the bankruptcy process?

To be discharged (released) from bankruptcy, you will need to complete some duties as part of your bankruptcy. These are set out in the Bankruptcy and Insolvency Act and will be discussed with you in further detail before you commit to the official process.

The duties generally required are:
  • Attend two financial counselling sessions, held one-on-one at the office of your Licensed Insolvency Trustee
  • Submit a monthly “Statement of Income and Expenses”, to report your household income and living expenses
  • Remit any surplus income required, based on calculations of your household income and the Superintendent’s income standard
  • Provide the information required for the Trustee to file your income tax returns
  • Keep the Trustee informed of your current address
  • Attend a meeting of creditors (if called)

How do I get discharged from bankruptcy?

Being discharged from bankruptcy means that you exit bankruptcy, free of debt. In most bankruptcy cases, you will be granted an automatic discharge from bankruptcy nine months after the date your bankruptcy starts, provided that the duties required have been successfully completed.

In the event you have filed a bankruptcy before, this nine-month term is extended to 24 months before you are eligible to receive an automatic discharge (release) from bankruptcy.

Read More: How do I get discharged from bankruptcy?

What happens to my income during bankruptcy?

After you have filed for bankruptcy your earnings, including wages, commissions, salaries, self-employed income, etc. all continue to go directly to you throughout your bankruptcy.

Wage garnishments previously put in place by creditors collecting on debts included in your bankruptcy will also stop once you have filed bankruptcy.

There is no cap or maximum amount of income you can earn during your bankruptcy. However, if it is expected that you will have substantial surplus income, a Consumer Proposal may be a more suitable option than filing a personal bankruptcy.

Watch our short video: What Happens to my Wages during Bankruptcy?

What is surplus income in bankruptcy?

Surplus income is a calculation used to determine:

• How long a person’s bankruptcy will last; and
• How much a person in bankruptcy needs to pay each month.

Surplus income is the amount that your net income exceeds the Superintendent’s Monthly Income Standards.

Read More: What is surplus income in bankruptcy?

What is financial counselling?

As part of the bankruptcy process, you will need to attend two financial counselling sessions.

These one-on-one sessions are typically held at the office of your Licensed Insolvency Trustee, and the cost for each is already included in the bankruptcy payments.

The first counselling session is usually held within one to two months after the start of your bankruptcy and covers general money management, goal-setting, spending habits, and household budgeting tools.

The second financial counselling session is generally held around six months after the start of your bankruptcy and provides the guidance and tools required to successfully rebuild your credit after the bankruptcy is discharged.

The Bankruptcy and Insolvency Act requires counsellors to be registered Insolvency Counsellors, who have successfully completed a specialized accreditation program and demonstrated significant experience.

Watch: How are clients changed by financial counselling?

What happens to my tax returns during bankruptcy?

The year you file for bankruptcy will be split into two tax returns: a pre-bankruptcy tax return and a post-bankruptcy tax return.

These returns will be filed by your Licensed Insolvency Trustee, using information you provide (ie. T4s, etc.).

Read More: What happens to my tax returns during bankruptcy?

What happens after I file bankruptcy?

After you file bankruptcy you will work through the legal process with your Licensed Insolvency Trustee to receive your official discharge (release). Receiving your discharge from personal bankruptcy means that you have completed the duties required of you and no longer have any legal responsibility to repay the debts that were included in and discharged as part of your bankruptcy – you have achieved a financial fresh start.

Following this key step your Licensed Insolvency Trustee will also be discharged from their role in the bankruptcy process once they have completed all of their duties. These duties commonly include administrative tasks that may not be finalized until after your discharge, such as:

  • Filing income tax returns
  • Distributing dividends to eligible creditors
  • Completing a final accounting of all funds in your bankruptcy estate
Once you’ve been discharged your role is essentially done and you can move forward with your new debt-free life.

Read More: What happens after you file bankruptcy?

How long will a bankruptcy show on my credit report?

A personal bankruptcy will be reflected on a person’s credit history for six years following the person’s discharge (release) from bankruptcy.

This does not prevent you from seeking new credit before the bankruptcy expires from your credit history report.

Read More: How long will a bankruptcy show on my credit report?

Can I file for bankruptcy if I have been bankrupt before?

It is possible to file for bankruptcy more than once, provided you were discharged (released) from your previous bankruptcy. Read More: Can I file for bankruptcy if I have been bankrupt before?

If you have been discharged from a past bankruptcy but are having difficulty paying new debts, you may be able to avoid another bankruptcy and instead resolve your situation by making a Consumer Proposal to creditors. Learn more about alternatives to avoid declaring bankruptcy more than once.