What is personal bankruptcy?
Bankruptcy is a legal process regulated by the Bankruptcy and Insolvency Act. It provides immediate relief for an individual burdened with a crushing debt-load and offers rehabilitation of the individual. Bankruptcy is a solution only for those who cannot reasonably consolidate their debts, such as filing a Consumer Proposal, over a reasonable period of time.
Who can file for bankruptcy?
- An individual who owes creditors at least $1,000 and;
- Is unable to make regular payments to creditors as they fall due; and, or
- Whose property, at a full evaluation, is insufficient to enable payment of all debts.
If I go bankrupt, will I lose everything?
All assets, except for those governed by provincial exemptions legislation and property held by an individual in trust for another person, vest in the Trustee for distribution among your creditors. The trustee will take and sell your personal items that are valued above a certain dollar value unless they are held for someone else. The Trustee also has to consider if any of your personal assets are “secured” or have been pledged as security against loans. A secured party has rights to the assets held by an individual debtor above that of a Trustee if the security is valid.If you declare bankruptcy, the Trustee will look over any security documents to ensure that they are proper.
In British Columbia, the amount of personal property that is exempt from seizure (items that the Trustee cannot take away from you) in the case of a bankruptcy is the following:
- Household goods $4,000;
- Tools of the trade $10,000;
- Motor Vehicle $5,000 (reduced to $2,000 for maintenance debtors);
- Equity in a Principle Residence ($12,000 in the CRD area, $9,000 outside CRD);
- All necessary clothing and all required medical aids (of debtor or dependent).
What steps are involved in declaring bankruptcy?
1. Meet with a Trustee
Initially, the Trustee will meet with you to provide an assessment of your situation. This is a free consultation.We will inform you of your rights and responsibilities during bankruptcy and will also advise you on other options that may be available to you like filing a Consumer Proposal. If you decide that you need to file for bankruptcy, you will be required to provide information regarding your income and expenses, assets and liabilities.
2. File for bankruptcy
Carefully review and fill out the information forms in as much detail as you can and deliver them to us.From the information contained in these forms, we can prepare your sign-up documents. You will have to come to our office to sign the documents and you should carefully review these documents before you sign them. The signed documents are registered with the Official Receiver of Bankruptcy.Once these forms are registered, you are officially bankrupt.
3. You must follow these requirements:
- Deliver all non-exempt property to us;
- Deliver all credit cards to us for cancellation;
- Deliver all books, records and documents relating to your property of affairs if we request it;
- Attend two mandatory counselling sessions with us;
- Prepare and submit a monthly statement of income and expenses.We will have these forms for you to prepare and will help you in the budgeting process,
attend any meeting that we may call, or answer any questions that your creditors may have. Your creditors must first contact our office if they wish to ask you questions;
- Provide and assist us with the preparation of any outstanding tax returns for the year you declare bankruptcy.We will inform you if other tax returns are needed.
When is my bankruptcy over?
For a first time bankrupt, an automatic discharge will be issued after 9 months from the date of your bankruptcy in the following circumstances:
- You have completed two counseling sessions;
- Your creditors, the Superintendent of Bankruptcy, and the Trustee are not opposing your discharge;
- 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
What types of discharges from bankruptcy are available?
If your discharge is opposed or you have previously been bankrupt, we will arrange for your application for discharge to be heard by the Bankruptcy Court.After hearing our report on your conduct throughout the bankruptcy, your present economic situation, and the opposing creditor’s argument (if any), The Court may issue any of the following orders:
- Absolute: It applies immediately and means that you are no longer responsible for your debts, except for those that cannot be discharged (see debts not included);
- Adjourned: This will postpone the hearing to a later date;
- Conditional: This type is discharge is one where you will be discharged when you satisfy some imposed condition/s such as the performance of a duty or the payment of additional funds to the estate;
- Suspended: You will receive an absolute discharge after a suspended period of time;
- Refused: The Court has the right to refuse to discharge you at all, but this is rarely exercised.
What about my RRSP’s and other investments?
RRSPs are exempt, however, the contributions made in the one-year period before the date of bankruptcy will have to be paid to the Trustee for the benefit of creditors
Will my spouse be affected?
No. You are considered on an individual basis. However, if your spouse has co-signed any of the debts, (such as having companion credit cards), your spouse could be left responsible for the entire debt if you file bankruptcy. This is true for anyone who has co-signed on your debts.
Your income is reviewed each month and compared to a guideline amount and your spouse’s income is considered as part of this “family income”.
Will my creditors stop harassing me?
Yes. By law, all action against you, including garnishments, are halted. Certain debts such as some court fines, court ordered restitution, alimony and child maintenance are not released by bankruptcy.
How much will I have to pay?
How much you have to pay to any Trustee will depend on your monthly income, assets that you own and a minimum amount payable; generally $1,750 from all of these items combined.If you own items above the exempt amounts, the amount of equity in the assets (amount above a secured claim) will either have to be paid to the Trustee in order for you to keep the assets, or you will have to turn it over to us so we can sell it for the benefit of your creditors.
For each month that you are an un-discharged bankrupt, you have to submit income and expense statements to the Trustee on a monthly basis, showing how much money your family takes home each month. This amount is compared to a federally set income guideline. Any amount above the guideline is considered to be excess income. 50% of this excess is payable to the Trustee and you can keep the remaining 50%.
At a minimum, we need to collect approximately $1,600 from you over the 9-month process, which can be paid as part of a monthly payment plan, government refunds such as GST etc.
The amount of money the Trustee can charge for performing bankruptcy work is mandated under the federal Bankruptcy and Insolvency Act.
Should a lawyer represent me?
Generally, it is not necessary for a debtor to retain his or her own council.However, it is important to realize that the Trustee is not a lawyer nor does the Trustee represent the bankrupt.Rather, the Trustee is an officer of The Court and has a duty to debtors and creditors to fairly administer the Bankruptcy and Insolvency Act.
Are there any debts that cannot be included in the bankruptcy?
Certain kinds of debts (including interest) are not erased by the bankruptcy.These include:
- Fines imposed by The Court;
- Debts incurred by misrepresentation or fraud;
- Alimony or maintenance payments;
- Debt for damages imposed by Civil Court for intentional bodily harm, sexual assault or wrongful death;
- Student loans (if bankruptcy occurs within 10 years of ceasing full or part-time studies);
Also, bankruptcy usually does not interfere with secured debts if there is no equity in the secured asset.
Will my income be monitored?
Each month your income is compared to a federally-set guideline.Any amount earned above the guideline is considered to be “excess income”; you can keep 50% of the excess income, and you have to pay 50% to us for the benefit of the creditors.
The current monthly family guideline amount is as follows (net basis):
The number in the household = Allowable Amount.
For a family of 1: $2,089
For a family of 2: $2,601
For a family of 3: $3,197
For a family of 4: $3,882
For a family of 5: $4,403
For a family of 6: $4,965
For a family of 7+: $5,528
What duties are imposed on me while I am bankrupt?
You must fulfil all of the following duties while you are an un-discharged bankrupt:
- Reveal and turn over to the Trustee all your assets in your possession or control;
- Make available to the Trustee all goods and records relating to personal affairs when requested;
- Attend at the Office of the Official Receiver if and when required, to be examined under oath as to the facts relating to the bankruptcy.
- Provide a complete statement of assets and liabilities, including creditors’ names, addresses, account numbers, invoices, and amounts. Where additional bills or legal documents are received by you, they should be forwarded to the Trustee.If assets or debts were accidentally omitted, the Trustee must be informed promptly;
- Inform the Trustee of the details of all property disposed of during the 12 months prior to the bankruptcy;
- Inform the Trustee of the details of all property disposed of by gift during the five years prior to the bankruptcy
- Inform the Trustee of any material changed in your financial situation.