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Alberta Bankruptcy FAQs. Bankruptcy Q and A; Bankruptcy Questions and Answers.
Bankruptcy is a Federal law and except for Exemptions, which are set by the provinces and territories, is applicable to all provinces and territories
What is Bankruptcy? Please see our PowerPoint Presentation.
Briefly, the steps are:
Who can File Bankruptcy?You can file bankruptcy or make a proposal if:
Your company, partnership, or business may also file bankruptcy or make a proposal if it meets the above requirements. You should be aware that any unsecured creditor to whom you owe more than $1,000 could try to force you into bankruptcy. This is called a petition in bankruptcy. In this case, the creditor must prove that you have committed an act of bankruptcy, such as not paying your bills as they came due. The court reviews the facts and, if the petition is allowed, issues a receiving order which places you in bankruptcy with a trustee selected by the petitioning creditor. What is a Trustee in Bankruptcy?
The website of the Superintendent of Bankruptcy describes trustees in bankruptcy as follows: A trustee in bankruptcy is a person licensed by the Superintendent of Bankruptcy to administer proposals and bankruptcies and manage assets held in trust. The trustee can give a debtor information and advice about both the proposal and bankruptcy processes and make sure that both the debtor's rights and the creditor's rights are respected. In most cases, It will cost you less to use a trustee than other Debt Consultants since trustees have their fees regulated by the government.
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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.| Unless you're a prominent person and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors. |
In a bankruptcy, where there are significant assets, a notice is placed in the "legals" section of the newspaper notifying creditors of the date of the meeting of creditors. If there are minimal assets, the creditors are notified by mail only - there is no advertisement in the "legals" section of the newspaper.
How is my spouse affected?
| Your spouse will not be affected by your bankruptcy if he or she is not responsible for any of your debt. |
A party can only be held responsible for repayment of a debt if they signed the original contract, loan agreement or credit card application. If your spouse or partner never signed the original contract or requested a credit card, they cannot be held responsible for the debt. In Canada, marriage alone does not make you responsible for your spouse's debts.
With respect to credit cards, there are two ways in which the second party can be held responsible for repayment of the debt. One is where the individual actually requests a secondary card and signs an agreement saying they accept full responsibility for current and future debt. The other is where the credit card company sends a card out in the second individual's name with the primary cardholder's number and the second individual actually signs and uses the card. Use of the card will hold the secondary person responsible for any past and or future debt.
Should you wish to remove your spouse or partner from your credit card or loan document, you must get confirmation in writing from the financial institution. If you do not obtain written confirmation, there is no guarantee the institution has removed the second party from their records.
Also, responsibility for debt between spouses as listed in a separation or divorce agreement does not legally bind a financial institution or creditor. Unless you obtain concurrence to the division and re-assigning of responsibility of debt from the creditor, they have the right to pursue anyone who signed on the debt.
Can my bank refuse to let me open a bank account or cancel my existing account?
No. They cannot. If your bank cancels or refuses to open a bank account for you because you have been or are in bankruptcy they are breaking the laws of the land. The law is set out in Sections 3, 4 and 5 of the Access to Basic Banking Services Regulations of the Bank Act.
The Financial Consumer Agency of Canada (FCAC) is responsible for enforcing these regulations, which will make the rules for obtaining a basic personal bank account clearer for Canadians. For example, a bank can not refuse to open a basic personal account for you just because:
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you don't have a job;
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you are or have been bankrupt;
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you're not depositing money into the account.
A bank must also cash most Government of Canada
cheques for non-customers at no charge.
Call 1-866-461-3222 or e-mail the Financial Consumer Agency of Canada If you believe that a financial institution has breached a consumer law.
You can also lodge a complaint through the Banking Ombudsman. The Ombudsman for Banking Services and Investments (OBSI) is an independent organization that investigates customer complaints against financial services providers, including banks and other deposit-taking organizations, investment dealers, mutual fund dealers and mutual fund companies.
What do I do if I have Canadian debt but now live in a foreign country?
Canadians living abroad can go into bankruptcy or file a proposal for their Canadian debt in the following ways:
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They can go bankrupt in their country of residence. This will free them of the Canadian debt so long as they live in that foreign country. If they return to Canada that debt will have survived and they will still owe that money.
US Bankruptcy
- They can re-establish residency in Canada and then go bankrupt or file a proposal in Canada.
- They can go bankrupt or file a proposal under Canadian law while still living in that foreign country if:
- They have property in Canada (re: definition of "insolvent person") "Property" includes money, goods, things in action, land and every description of property, whether real or personal, legal or equitable;
- or if they have carried on business in Canada in the preceding year (re: definition of "insolvent person" and definition of "locality of a debtor").
Note:
If you think you qualify to go bankrupt or file a proposal while living in that foreign country the next step would be to fill out our Information Form and then contact us if you used to live in Alberta.
How much am I allowed to keep?
Alberta bankruptcy exemptions or assets you keep in a bankruptcy or a proposal are set by the Alberta government and are the most generous exemptions in Canada.
The property exempt from seizure applies to the equity in the asset. Equity is the excess that the value of an asset has over any charges or encumbrances against that asset.
For example, if you have a car worth $10,000 and there is a $6,000 secured debt against it then the equity in the car is $4,000. In Alberta the exemption for a car is $5,000 so in this example you are entitled to the equity of $4,000 and the unsecured creditors cannot take this.
Property Exempt from Seizure:
- Food required by the debtor and his/her dependants during the next 12 months
- Necessary clothing of the debtor and his/her dependants up to a value of $4000.00
- Household furniture and appliances up to a value of $4000.00
- One motor vehicle not exceeding a value of $5000.00
- Medical and dental aids required by the debtor and his/her dependents. Where the debtor is a bona fide farmer and whose principal source of livelihood is farming.
- 160 acres if the debtor's principal residence is located on that 160 acres and that the 160 acres is part of the debtor's farm
- The equity in the debtor's principal residence, including a mobile home, up to a value of $40,000.00. If the debtor is a co-owner of the residence, the amount of the exemption is reduced to an amount that is proportionate to the debtor's ownership interest.
- Personal property (i.e. tools, equipment, books) required by the debtor to earn income from the debtor's occupation up to a value of $10,000.00
- Where the debtor's primary income is from farming operations, personal property required by the debtor for the proper and efficient conduct of the debtor's farming operations for the next 12 months.
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Effective July 7, 2008 exemptions are in effect for all registered retirement savings plans (RRSP's, RRIF's and DPSP's (Deferred Profit Sharing Plans).
- Contributions made in the 12 months prior to the date of bankruptcy will be recovered (clawed back) for the benefit of the bankruptcy estate for RRSPs in provinces without RRSP exemption laws (BC, Alberta, Ontario, NB, and NS);
- There will be no upper cap on the amount of RRSPs that can be protected;
- There will be no need to set up the RRSPs in a locked in plan to make them eligible for exemption;
- The court will have no jurisdiction to extend the one year claw back period period in an appropriate case.
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 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. Pre bankruptcy tax rebates vest in the trustee for the benefit of the creditors.
You will be asked to volunteer any refunds, receivable from your post bankruptcy return, to the trustee for distribution to the creditors. While you are not legally obliged to give up these funds, the trustee or creditors may apply for a Court Order in this respect or it may be reported to the Court at the time of your discharge.
How do I go into bankruptcy?
| Refer to our 7 Steps to a 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?
| In most cases the cost of a bankruptcy is less than $200 a month for nine months. |
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. In most cases the cost of a bankruptcy is less than $200 a month for nine months.
When is my bankruptcy over?
| In most cases a bankruptcy is over in 9 months, at which time all eligible debt is erased. |
- 9 month automatic discharge for 1st. time bankrupts who fulfill all their duties and who do not have excess income. e.g. less than $3,062.00 a month take home pay for a family of 3. (Note: 1)
- 21 months (or more at the court's discretion) for 1st. time bankrupts who fulfill all their duties. and who have excess income. e.g. more than $3,062.00 a month take home pay for a family of 3. (Note: 1)
-24 months for 2nd time bankrupts who do not have excess income.. e.g. less than $3,062.00 a month take home pay for a family of 3. (Note: 1)
-36 months for 2nd time bankrupts who have excess income. e.g. more than $3,062.00 a month take home pay for a family of 3. (Note: 1)
-Bankrupts with personal income tax debt of $200,000.00 or more representing 75 percent or more of total unsecured claims, are not eligible for an automatic discharge. They must go to court for an adjudication.
Note: 1 Surplus Income Standards for 2009/10
Can a bankruptcy help alleviate the terrible stress I am under?
| For most people the stress of the financial crisis will vanish as soon as a bankruptcy or proposal is filed. |
Stress is alleviated for a number of reasons. Probably the major reasons are the stay of proceeding and the fact that the trustee will deal with your creditors allowing you to get on with your life.
Will I end up with a better credit rating if I use a credit counsellor?
No! So long as you're on any kind of payment plan the credit bureau will record that fact. Using credit counsellors will not give you a better credit rating faster. In fact, you will likely take longer to re-establish a good rating and pay much more if you use a credit counsellor rather than a trustee.
What is financial counselling and do I have to take it?
You must take financial counselling in order to be eligible for an "automatic nine month discharge". The first counselling session must be held between 10 and 60 days following bankruptcy; the second counselling session must be held no later than 210 days following the date of bankruptcy. The cost for this is $85, plus GST, for each counselling session.
What happens during the bankruptcy?
The bankrupt must keep the trustee informed as to where the bankrupt is living and also must respond to the trustee's requests and assist him as required and provide whatever information is requested. The bankrupt must also provide the trustee with reports as to earnings and living expenses and any change in the bankrupt's family situation. The trustee will provide the bankrupt with appropriate forms to be filled in that 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.
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. Alimony and maintenance are provable claims and will be paid as a preferred claim for amounts incurred in the year before bankruptcy.
What about student loans?
Effective on July 7, 2008 there is a reduction of the student loan discharge period from 10 to seven years. This amendment will apply where the debtor obtains his or her discharge on or after July 7, 2008 or becomes bankrupt on or after July 7, 2008. The amendment that will reduce to five years the period a bankrupt will have to wait to make a “hardship” application to have student loan debt or obligation discharged (BIA , s. 178(1.1) is also now in force. This amendment applies to all debtors notwithstanding when the bankruptcy or the process that results in the bankruptcy is initiated.
The Canada Student Loans Program (CSLP) is implementing changes that will allow borrowers who participate in a bankruptcy-related event to apply for new federal loans while in-study and for debt management measures while in repayment. A bankruptcy-related event includes acts of bankruptcy, filing a consumer proposal and/or participating in a provincial scheme for the orderly payment of debts.
When do these changes take effect and who is affected?
These changes went into effect on May 11, 2004 and are not retroactive. This means that they will apply only to borrowers who participate in a bankruptcy-related event on or after the date of implementation. The regulatory amendments will be published in the Canada Gazette, Part 1, Volume 138, #11 on June 2, 2004.
The changes for borrowers who participate in a bankruptcy-related event include:
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Eligibility for interest free status on full-time students' loans while the borrower is in-study;
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Availability of new student loans for a maximum of three years, provided that the borrower remains in the same program of study and does not drop below full-time status; and
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Access to debt management measures, including Interest Relief and Debt Reduction in Repayment
What measures are available?
Interest Relief and Debt Reduction in Repayment are debt management measures for borrowers who are in repayment and experiencing financial hardship. These measures were previously unavailable to borrowers who participated in a bankruptcy-related event.
Interest Relief (IR) - IR provides relief to borrowers who are experiencing temporary financial hardship. While borrowers are receiving IR, they are not required to make any payments on their student loan (interest OR principal) and the Government of Canada pays the monthly loan interest.
Borrowers may receive up to 54 months of IR. Up to 30 months of IR is available at any point in repayment. Borrowers who use up their 30 months and have not been out of school for 5 years (as indicated by the post-secondary end date specified on the initial application for IR), may receive up to an additional 24 months of extended IR.
Debt Reduction in Repayment (DRR) - DRR is a targeted debt management measure available to assist borrowers who have exhausted IR and who continue to experience exceptional long-term financial difficulty. The measure provides a reduction in the borrower's loan principal and aims to reduce the monthly loan payment to an affordable level relative to the borrower's income.
Borrowers in financial difficulty may be eligible for an initial reduction of their loan principal of up to $10,000. Borrowers who continue to experience difficulty in repaying their student loans may be eligible for two additional reductions of up to $5,000 each. In order to be eligible, twelve months must elapse between each reduction. Borrowers will be required to make a minimum monthly loan payment of $25 in order to qualify for the second or third reduction.
New Loans and Interest-Free Status - Borrowers who participate in a bankruptcy-related event while in full-time study may apply for new Canada Student Loans for a maximum of 3 additional years. In addition, borrowers will be eligible for interest-free status on all existing Canada Student Loans. In order to remain eligible for new loans and/or interest-free status, these borrowers must remain in the same program of study on a full-time basis.
Contact for Additional Assistance with Your Student Loan Concerns
To speak to an Alger & Associates professional about how we can help you with your Student Loan concerns as they affect a bankruptcy or proposal, please contact Our Team.
Or, for further clarification contact:
National Student Loans Service Centre
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Public Institutions Division: 1-888-815-4514
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Private Institutions Division: 1-866-587-7452
What about Canada Revenue Agency (CRA) debt?
| Tax debt is erased in a bankruptcy. |
CRA's position is that they, after taking appropriate steps, can register as a secured creditor against real property (real estate) or personal property (furniture or a vehicle, etc.) of a debtor.
What does CRA have to do in order to effect a secured claim?
Ninety days after an assessment, if there is no appeal lodged, CRA can make application to the Federal Court to have a judgement issued. CRA then must register a secured claim under the person's name under the Personal Property Security Registry. CRA, if real property is involved, will also register under Land Titles.
What do you do if you think that CRA is going to register a secured position against you?
If the debt is large enough, you should see an insolvency lawyer or a Trustee immediately. A search of the Personal Property Security Registry or land titles will reveal whether CRA has filed a secured claim against you. You may want to consider filing for bankruptcy or consider filing a proposal under the Bankruptcy and Insolvency Act.
N.B. CRA has advised that:
(a) they will honour provincial exemptions;
(b) they started registering their security position on or about May 1, 1999.
What debts are erased in a bankruptcy?
All unsecured debt is erased in a bankruptcy except for the following:
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Fines imposed by a Court;
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Money owing for things stolen;
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Things obtained by misrepresentation;
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Alimony or maintenance payments.
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Award of damages by a court for intentionally inflicting bodily harm or sexual assault.
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Student loans if bankruptcy is filed prior to or within seven years after the finish of studies.
What does it cost?
| In most cases the cost of a bankruptcy is less than $200 a month for nine months. |
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 minimum estate administration costs. In most cases this amounts to less than $200 a month for nine months.
Will I ever get credit again?
| A diligent and persistent debtor can rebuild his credit in as little as two years. |
Yes, you will get credit again! After you have been discharged from bankruptcy or completed your proposal, you may be a good credit risk, since you have no debt. The bankruptcy and proposal laws of Canada are intended to give you a fresh financial start. The ability to rebuild credit is part of that new start. For more information please click here.
What are the danger signs of Bankruptcy?
Are your creditors constantly contacting you for payment of overdue bills?
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Are you always paying only the minimum balance on your credit cards?
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Do you take cash advances from your credit cards or borrow money from family or friends to pay your regular monthly living expenses?
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Are your wages being garnished or your assets seized?
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Are bill collectors or collection agencies calling you at work for payment of your bills?
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Do you constantly pay interest and service charges on all your debts because you can't pay on time?
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Do you spend more than 40% of your take home pay on your rent or mortgage, house maintenance and utilities?
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Are you always making arrangements with your creditors to catch up on missed payments?
Our Alberta Bankruptcy Trustees CAN HELP.
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