If you are unable to meet your financial obligations as they come due and are unable to negotiate a settlement with your creditors, you may seek immediate relief from legal action from your creditors by voluntarily assigning your assets to a Licensed Insolvency Trustee.
Technically, everything you own vests with the Trustee at the date of filing an assignment in bankruptcy with the exception of assets exempt from seizure under provincial and federal law. Your assets include all existing assets as well as those you may acquire prior to your discharge. You cannot dispose of any vested assets without the Trustee’s knowledge or consent. Property exempt from seizure under federal laws may include certain federal benefits, pensions and life insurance policies. Amounts held in RRSPs are exempt from seizure in bankruptcy, subject to a possible clawback for contributions made in the 12 months preceding bankruptcy. Provincial exemptions include: (1) The wearing apparel and household furnishings and furniture which are reasonably necessary for the debtor and his family. (2) All fuel and food reasonably necessary for the ordinary use of the family. (3) All grain and other seeds and all cattle, hogs, fowl, sheep and other livestock which are reasonably necessary for the domestic use of the debtor and his family. (4) All medical and health aids reasonably necessary for the debtor and his family. (5) Such farm equipment, fishing nets, tools and implements, or other chattels, as are used in the debtor’s chief occupation, not exceeding an aggregate value of $1,000. (6) One motor vehicle not exceeding an aggregate value of $3,000 or up to $6,500 if required for work.
In order to make an assignment in bankruptcy, you must owe at least $1,000 and be unable to meet regular payments as they come due, or own insufficient property to pay all of your debts.
Bankruptcy is not the only option available to individuals experiencing financial difficulties. For those individuals who may have sufficient income to deal with their credit obligations at a reasonable cost over a period of time, their options may include: (1) Consumer proposal under the Bankruptcy and Insolvency Act, (2) Proposal under Division 1 of the Bankruptcy and Insolvency Act, (3) Informal proposal, (4) Credit counselling. These options will be explained by a Trustee or bankruptcy administrator at an initial consultation. This assessment will review various topics, including your assets and liabilities, your monthly income and expenses, and the alternatives available to you.
As an alternative to filing an assignment in bankruptcy, a debtor can make a consumer proposal to their creditors based on their circumstances under the Bankruptcy and Insolvency Act. A consumer proposal must be offered to all preferred and unsecured creditors. It does not affect the rights of secured creditors and must be completed within 5 years. In order to file a consumer proposal, an individual must owe less than $250,000, excluding a mortgage on their principal residence.
(1) Meet with a Trustee or estate administrator. (2) Preparation of your statement of affairs, which is filed with the Official Receiver (3) Attend an examination by an Official Receiver, if required. (4) Attend a meeting of creditors, if a meeting is called. (5) Attend 2 mandatory financial counselling sessions. (6) Automatic discharge 9 months after the date of bankruptcy if first time bankrupt, providing your income is below the Superintendent’s Standards, or 24 months for a second time bankrupt, providing your income is below the Superintendent’s Standards. If the automatic provisions do not apply or your discharge is opposed, then the application will be made to the Court for discharge from bankruptcy.
(1) Reveal all of your assets and liabilities to the Trustee. (2) Assist the Trustee with the preparation of your statement of affairs. (3) Submit to your Trustee surplus income, if applicable, in accordance with the Superintendent’s Standards. (4) Provide the Trustee with details of any property sold or transferred within the last 5 years. (5) Deliver all credit cards to the Trustee. (6) Attend an examination by an Official Receiver, if required. (7) Attend 2 mandatory financial counselling sessions. (8) Keep the Trustee advised of any change in address. (9) Keep the Trustee advised of any significant change in your monthly income. (10) Assist the Trustee with any issues that may arise in the administration of your bankruptcy estate.
Filing an assignment in bankruptcy will stop most wage attachments or garnishments creditors may have initiated. The Trustee will review your monthly income and expenses and compare them to the standards set by the Superintendent of Bankruptcy. If your income exceeds the standards adjusted for your family circumstances, then a portion will be required to be paid to your Trustee for the benefit of your creditors.
In general, the Bankruptcy and Insolvency Act does not interfere with the rights of your secured creditors. If your creditors have a valid registered secured interest in any of your assets (home, car, etc.) they may allow you to continue with their existing contract in which you make your scheduled payments and retain the asset. Should you owe a debt to Canada Revenue Agency, CRA could file a Certificate of Registration at the Registry of Deeds, which acts as a lien against your property.
Most legal action by unsecured creditors will not continue after filing bankruptcy or a consumer proposal. Legal action by secured creditors or support claims, however, may not be stopped by bankruptcy.
The Official Receiver is a Deputy of the Superintendent of Bankruptcy. The purpose of an examination is to determine the cause of your bankruptcy, review the disposition of any previously owned assets and the status of your current assets and review your conduct.
If your bankruptcy falls under the summary administration guidelines (realizable assets not exceeding $15,000), a meeting of creditors may be required to be called by the Trustee, if requested by the Official Receiver or by creditors who have at least 25% of the total proven claims (these meetings are rarely requested). The purpose of the meeting is to: (1) Confirm the appointment of the Trustee, (2) appoint up to 5 inspectors who supervise the administration of the bankruptcy estate and approve various reports of the Trustee, (3) give directions to the Trustee. You must attend the first meeting and any subsequent meeting of creditors. Failure to attend without a reasonable excuse could be considered an offence under the Bankruptcy and Insolvency Act.
The Trustee will prepare your tax returns for the year of your bankruptcy and any outstanding tax return for the year prior to if not already filed. Two tax returns are required to be filed for the year of the bankruptcy. A pre-bankruptcy return is prepared for January 1st to the date of bankruptcy and a post-bankruptcy tax return is prepared from the date of bankruptcy to December 31st. Any refunds generated from the pre- and post-bankruptcy income tax returns and any prior years income tax returns are considered an asset of your bankruptcy estate. Any balances owing to the Canada Revenue Agency in the pre-bankruptcy period are dischargeable. Any balance owing to Canada Revenue Agency in the post-bankruptcy period must be paid by you.
An individual who has never been bankrupt previously could be entitled to an automatic discharge on the expiration of 9 months after the date of bankruptcy, or 21 months (depending on income), unless a creditor, the Trustee or the Official Receiver objects. If your discharge is opposed, the application will be made to the Court for your discharge. A second time bankrupt could be entitled to an automatic discharge twenty-four months after the date of bankruptcy, or 36 months (depending on income), unless a creditor, or the Trustee Official Receiver objects. If your discharge is opposed, an application will be made to the Court for your discharge.
Absolute Discharge and Automatic Discharge: You are no longer responsible for debts incurred prior to the date of bankruptcy with the exception of those that fall under Section 178 of the Bankruptcy and Insolvency Act. An Absolute Discharge is granted by the Court. An Automatic Discharge does not require Court application. Conditional Discharge: There are certain conditions which you are required to complete as ordered by the Court prior to issuing an Absolute Order of Discharge. Conditions may include but are not limited to paying a specified amount of money into your bankruptcy estate for the benefit of your creditors for a specified time (e.g. $200.00 per month for 12 months). Your discharge is conditional upon you completing the terms and conditions of the order. An absolute order will be issued upon completion of the terms of your conditional order. Suspended Discharge: There is a delay in your absolute discharge coming into effect or it is reviewed by the Court at a later date. Refused Discharge: Under extreme circumstances, the Court has the discretion to refuse a discharge.
Debts not discharged by bankruptcy include: (1) A fine or penalty imposed by the Court. (2) An award for damages from bodily harm, sexual assault or wrongful death. (3) Alimony. (4) Support or maintenance of spouse or child under an agreement or court order. (5) Liability for dividend to an undisclosed creditor. (6) Debt obtained by fraud or misrepresentation (may include EI and CPP overpayments). (7) Student loans when the bankruptcy occurs while still a student or within 7 years after the date on which you cease to be a full-time or part-time student.
Filing an assignment in bankruptcy becomes a part of your credit record and will remain on record for 6 years from the date of your discharge if you are a first-time bankrupt. If you declare bankruptcy more than once, the information will be kept on file for 14 years for each bankruptcy. There are steps you can take after you are discharged to re-establish your credit, which is outlined at your financial counselling sessions.
Only your assets and debts are included in your bankruptcy. However, joint debts and assets must be reflected on your statement of affairs. Bankruptcy does not stop the liability of anyone who has guaranteed or co-signed a loan for you, including your spouse.
All assets acquired prior to your discharge become an asset of your bankruptcy estate and must be reported to your trustee. Lottery winnings, inheritance and life insurance proceeds are considered assets if acquired after filing for bankruptcy and prior to your discharge.
You can operate a bank account; however, if your current bank account is held at a financial institution for which you are currently indebted, you should consider opening an account with a different financial institution to avoid any possible offset of future deposits against pre-bankruptcy debts.
Any calls received after filing for bankruptcy should be referred to the Trustee. The bankruptcy process is there to alleviate the pressure from creditors.
All fees and costs associated with filing an assignment in bankruptcy are paid from your bankruptcy estate to which you contribute and are set by the Bankruptcy and Insolvency Act. The Trustee will review in detail the amount you may have to contribute. The amount you will have to pay will depend on your circumstances (earnings and assets that you have).
(1) Meet with a Trustee or administrator to review your financial position and the options available to you. (2) The Trustee or administrator will help prepare the proposal and file it with the Official Receiver. (3) Attend a meeting of creditors if requested by the Official Receiver or at least 25% in dollar amount of the proven claims of your creditors. (4) Attend 2 mandatory financial counselling sessions. (5) Deemed court approval unless objected by Official Receiver or creditor. (6) Make required payments to the Trustee who distributes funds to your creditors. (7) If the proposal is rejected by your creditors, or if you default on your proposal, there is no automatic bankruptcy, but you will no longer have the protection of the Bankruptcy and Insolvency Act, which will allow the creditors to resume collection procedures.
(1) Until the proposal is withdrawn, rejected or annulled, all unsecured creditors are prevented from continued collection efforts. (2) An accepted consumer proposal is binding on all unsecured creditors and any secured creditors who filed a proof of claim. (3) A consumer proposal does not release debts that fall under Section 178 of the Bankruptcy and Insolvency Act. (4) No creditor or landlord can terminate an agreement just because a consumer proposal was filed.
Your employer cannot fire, suspend or discipline you solely because you filed a consumer proposal. Upon filing a consumer proposal, all wage assignment and garnishments are stopped with the exception of third party demands on government benefits by Canada Revenue Agency, which may remain in effect until the proposal is accepted/deemed accepted by the Court.
The fees associated with filing a consumer proposal are determined by the Bankruptcy and Insolvency Act. All costs are paid from the contributions you make under the consumer proposal.