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 him or herself of the debt and start over. To file for bankruptcy a person has to be insolvent, which means:

• A person shall owe at least $1,000
• Not be able to meet debts when they are due to be paid

The bankrupt person must keep the trustee informed as to where they are living and also must respond to the trustee’s requests, assisting him as required and providing whatever information is requested. The bankrupt person must also provide the trustee with reports as to their earnings and living expenses, as well as any change in the bankrupt’s family situation.

The trustee will provide the appropriate forms to be filled in, which will provide the trustee with the necessary information. A meeting of creditors is not required unless requested by the Superintendent of Bankruptcy, or by creditors with an aggregate of at least 25% of the proven claims. These meetings are usually held at the office of the trustee.

In a bankruptcy, where there are free and clear assets over $15,000, a notice is placed in the “legal” section of the newspaper notifying creditors of the date of the meeting of creditors. If there are minimal assets less than $15,000, the creditors are notified by mail only – there is no advertisement in the “legal” 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.

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, or a mortgage on a house.

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/her own debt, then the spouse may have to file bankruptcy too.

The property exempt from seizure is set by the Province of Ontario is as follows:

• Personal Belongings – No Limit
• Household Goods – $14,180.00
• Tools of the Trade – $14,405.00
• Farmers – $31,379.00
• Motor Vehicle – $7,117.00
• Home – Principal Residence $10,783.00
• Certain Life Insurance Policies
• Most Pensions and all RRSPs (except the amounts contributed in the last 12 months)

In a bankruptcy, assets in excess of your allowed personal exemption, such as real estate, automobiles, and boats which 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.

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.

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.

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.

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.

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.

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.

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.

• 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.

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.

One key step on the road to recovery is understanding different budgeting techniques. You’ll want to have a firm grasp on how to plan financially for the future so that you can monitor, on a regular basis, what monies are coming in and what’s going out.

Now that you’re not juggling debts, consider using a cash budget. Some fixed bills like mortgage payments or car insurance are easy to set up as direct withdrawals from your bank account, but try using cash for all other things like groceries, toiletries, and gas for your car. It’s amazing how much you think about spending and saving when you hand cash to someone as opposed to plastic.

Utility companies don’t normally report to the credit bureau unless your payments are late. Don’t damage your credit rating further by getting behind on utility bills.

Check your credit report on a regular basis. Make sure that the information pertaining to your bankruptcy is accurate and that anything new you’re trying to re-establish is there as well. If you don’t check its accuracy, no one else will do it for you. You don’t want to find out when it’s too late that there’s incorrect information being reported.

Possibly the fastest, and most common, way to rebuild credit after a bankruptcy is to put a deposit down on a secured credit card. Be careful since it’s a secured card and not a pre-paid card, as they sound similar.

It’s easy to get lured in by lenders offering credit to anyone. Signs that read “all applications approved” are too good to be true. Just because they’ll give you the financing, does not make it a smart choice if they charge 30% interest rates! Unfortunately, one of the most common reasons why we see people filing second bankruptcies is because they signed up for a high interest rate car loan after the first bankruptcy was over.

Prove to the banks that you can be responsible with your finances by investing money into Tax Free Savings Accounts and RRSPs. Putting money into RRSPs can also lead to bigger tax refunds. These can then be used for further savings and large purchases so that you don’t have to borrow funds.

Beware of companies (particularly on the internet) that offer credit repair services. Only you can repair your credit and paying someone a fee does nothing to speed up the process.

If you do need to borrow again, try to remember this golden rule: The amount you borrow should not be any more than what you earn in a month. For example, if you are paid $2000 per month, don’t have debt of more than $2000 at any given time.

Recovering from bankruptcy is not impossible. It’s not a quick fix, and it will require some patience along the way, but the benefits of getting a fresh start make it all worthwhile. Learn more about the new bankruptcy surplus limits for 2019.