|
What is bankruptcy?
Bankruptcy is a legal proceeding that is available to
help 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 burdened with debt, to free himself or herself of the debt and start
over. To file for bankruptcy a person has to be insolvent. Which means:
1. A person shall owe at least $1,000;
2. Not be able to meet your debts when they are due to
be paid.
What happens during the bankruptcy procedure?
The bankrupt person must keep the trustee informed as
to where they are living and also must respond to the trustee's requests
and assist him as required and provide whatever information is
requested. The bankrupt person must also provide the trustee with
reports as to their earnings and living expenses and any change in the
bankrupt's family situation.
The trustee will provide the appropriate forms to be
filled in this 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.
Who will know about it?
In a bankruptcy, where there are free and clear assets
over $10,000, a notice is placed in the "legal's" section of the
newspaper notifying creditors of the date of the meeting of creditors.
If there are minimal assets less than $10,000, the creditors are
notified by mail only - there is no advertisement in the "legal's"
section of the newspaper. From this documentation, the Credit Bureau is
notified and the bankruptcy is recorded and will remain on your credit
record for 7 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.
Will the creditors stop harassing Me?
Yes, they will! By law, all actions against a bankrupt
must cease once the documents are filed. This does not apply to secured
creditors such as banks holding, for example, a lien on a car, mortgage
on a house.
How is my spouse affected by my bankruptcy?
Your spouse, whether common law or married will not be
affected by your bankruptcy if he or she is not responsible for any of
your debt (did not sign an agreement or contract for any of your debt).
If they have a supplemental credit card they are probably responsible
for that debt. Your spouse's credit rating will not be affected by your
bankruptcy and any assets in the spouse's name will not be part of the
bankruptcy.
If your spouse is responsible for any of your debt or
has his own debt then the spouse may have to file bankruptcy too.
What and how much am I allowed to keep?
The property exempt from seizure is set by the
provinces and territories as follows:
| ONTARIO EXEMPTIONS IS AS
FOLLOWS: |
|
Personal Belongings
|
$ 5,650.00
|
|
Household Goods
|
$11,300.00
|
|
Tools of the Trade
|
$11,300.00
|
|
Farmers
|
$28,300.00
|
|
Motor Vehicle
|
$ 5,650.00
|
|
Certain Life Insurance Policies
|
|
Most Pensions and all RRSP’s except the
amounts contributed in the last 12 months.
|
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 person 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. Tax rebates vest in the trustee
for the benefit of the creditors.
How do I go into bankruptcy?
There are two ways a person can go into bankruptcy.
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.
Surplus Income Link
When is my bankruptcy over?
For those people who have not been bankrupt before, an
automatic discharge will take place after nine months or twenty one
months if you have surplus income according to the guidelines for
Bankruptcy. You won’t be discharged if the creditors, Superintendent of
Bankruptcy or trustee have opposed your discharge or if you have not
received two counseling sessions. Occasionally, creditors do object and
the matter goes to court to be heard before a Registrar or a Judge.
In the event that you have been bankrupt before your
discharge will be automatic in 24 months or 36 months if you have
surplus income according to the guidelines for Bankruptcy. You must
again attend two counseling sessions in order to obtain the automatic
discharge.
What if I have the cash flow to make a proposal?
If a person has the ability to make a proposal
(i.e. he or she has surplus income according to the standards set out by
the government), 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. The Trustee or a creditor could 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 attend 2 counselling sessions in order to be
eligible for an "automatic discharge". The counselling sessions are done
one-on-one, with a qualified counselor in a stress free environment.
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.
What about student loans?
If the date of bankruptcy is more than seven years after
the finish of studies, the debt will be wiped out upon the bankrupt's
discharge.
A discharge from bankruptcy does not release a student
loan if the bankruptcy occurs within seven 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 debts are not erased in a bankruptcy?
Certain kinds of debt are not erased by the bankrupt's
discharge. They are:
- Fines imposed by a Court.
- Money owing for things stolen.
- Things obtained by misrepresentation.
- Alimony or maintenance payments.
- Award of damages by a court for intentionally inflicting
bodily harm or sexual assault.
- Student loans if bankruptcy is filed prior to or within seven
years after the finish of studies.
|
How much 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.
|
