What is Bankruptcy? What is a Trustee in Bankruptcy? Where can I find out about the new bankruptcy laws? Will my Creditors Stop Harassing me? Who will know? How is my spouse affected? Can my bank refuse to let me open a bank account or cancel my existing account? What do I do if I have Canadian debt but now live in a foreign country? How much am I allowed to keep? What don't I keep? How do I go into bankruptcy? What about my wages during bankruptcy? What if I have the cash flow to make a proposal? Can a bankruptcy help alleviate the terrible stress I am under?

Will I end up with a better credit rating if I use a credit counsellor? What is financial counselling and do I have to take it? What happens during the bankruptcy? What about alimony and maintenance? What about student loans? What about Canada Revenue Agency (CRA) debt? What does CRA have to do in order to effect a secured claim? What do you do if you think CRA is going to register a secured position against you? What debts are erased in a bankruptcy? What does it cost? When is my bankruptcy over? Will I ever get credit again? How do I prepare for my initial consultation with the Trustee?

1. Owe at least $1,000; 

2. Not be able to meet your debts as they are due to be paid.

 

 

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.

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).

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.

 

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.

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:

 

 

 

• 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

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:

What don't I keep?

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.

For those people who have not been bankrupt before, an automatic discharge will take place after nine months if the creditors, Superintendent of Bankruptcy or trustee have not opposed your discharge and you have received counselling.

Occasionally, creditors do object and the matter goes to mediation or is heard before a Registrar or a Judge. The discharge is usually granted where the bankrupt is only earning sufficient income to keep himself and his dependants reasonably provided for. It is the discharge of the bankrupt, with minor exceptions, that cancels the bankrupt's debts. In the event that you have been bankrupt before, your discharge will not be automatic and must be heard before a Judge or a Registrar.  
 

 

What if I have the cash flow to make a proposal?

A proposal allows you to avoid bankruptcy, while paying off only a portion of your debts. 5 Steps in a Consumer Proposal.

If any person files for bankruptcy when he or she has the ability to make a proposal, it is the Trustee's duty to 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.
 

 

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?

Student Loans can be erased in a bankruptcy if the student was in school 7 or more years ago. This amendment will apply where the debtor obtains his or her discharge on or after July 7, 2008 (PROVIDED that at the time they filed they had ceased to be student for the required seven years) or the debtor had 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.

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?

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:

 

 

 

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.

 

How do I prepare for my initial consultation with the Trustee?