What is bankruptcy?
Bankruptcy is a legal process regulated by the Bankruptcy and Insolvency Act. Through a bankruptcy, you may be released of all or most of your debts. The purpose of the Act is to permit the honest, but unfortunate, debtor to be released from debt and have a fresh start.
As part of the process, you may have non-exempt assets that will be sold, and payments to make based on your income level. These are paid to your Trustee for your creditors.
What is a proposal?
A proposal under the Bankruptcy and Insolvency Act is a formal offer from you to your creditors. You propose to pay part or all of your debt to your creditors over a specific period of time.
Unlike a bankruptcy, where your creditors have no choice as to whether or not you go bankrupt, in a proposal your creditors get to vote for or against your proposal. If they vote for it, you can proceed with fulfilling the terms of your proposal. This is done by making payments in the amount outlined in your proposal, to the Trustee, who distributes the money to the creditors.
Once you have fulfilled the terms of the proposal you are released from any remaining debt. Proposals vary from person to person, because they are designed on an individual basis to meet the specific needs of each unique person.
At minimum, a proposal must offer your creditors more money than they would get if you went bankrupt.
Are all debts erased in bankruptcy?
Section 178 of the Bankruptcy and Insolvency Act includes a list of debts NOT erased in bankruptcy. A summary of the more common debts that are not erased are as follows:
Fines and penalties of the courts (including fines or payments for intentional bodily harm, sexual assault and wrongful death
Alimony, maintenance and child support
Debts resulting from fraud or misrepresentation
Student loans (if it is less than seven (7) years since you stopped attending school)
How much will it cost?
What a bankruptcy will cost you depends on your income and family size. There are standards set out by the Canadian government with guidelines as to how much a person should pay based on their income and family size. If your income is low your payment could be as low as $150 per month.
The cost of a proposal is determined entirely by what you propose to your creditors. Whatever amount you proposed to pay your creditors will be your total cost. Just remember, the creditors must agree to the proposal first, and the proposal must pay the creditors more than they would receive if you went bankrupt.
How do I stop a garnishment?
Upon filing either an assignment in bankruptcy or a proposal under the Bankruptcy and Insolvency Act there is an immediate Stay of Proceedings which prevents creditors from suing you, garnishing your wages, or taking any further collection measures against you.
What can I keep in a bankruptcy?
A person who files for bankruptcy is allowed to keep any property that qualifies as exempt under provincial or federal legislation and that has not been given as collateral to the creditors.
Some Typical Manitoba Exemptions:
• Household furnishings not exceeding a total value of $4,500 (note: this is resale value, not replacement value)
• Tools of the trade not exceeding a total value of $7,500, includes:
• One motor vehicle not exceeding the value of $3,000, if necessary as a tool of the trade. This includes a vehicle used to get to and from work
• Equity in a home owned by the person who filed for Bankruptcy, to a maximum of $1,500 each, if in joint tenancy, or $2,500 if not in joint tenancy
• Locked-in pension plans and RRSP
• Some life insurance policies
Manitoba Farmers’ Exemptions:
• Animals necessary for farming operation for 12 months
• Farm machinery and equipment necessary for the ensuing 12 months of operation
• One motor vehicle if required in agricultural operations
• One quarter section of land
Please contact us for a more detailed list of exemptions. Exemptions vary from one province to another.
For Ontario exemptions, please contact our office.
How long am I bankrupt?
In most cases, after a prescribed period of time you are automatically discharged from the bankruptcy. This means that you are no longer bankrupt, and that you no longer have any legal obligation to pay the debts that were included in the bankruptcy.
The length of a bankruptcy varies depending on the circumstances of the individual.
First time bankruptcy, with no surplus income according to the national guidelines: 9 months.
First time bankruptcy with surplus income according to the national guidelines: 21 months.
Second time bankruptcy with no surplus income obligation according to the national guidelines: 24 months.
Second time bankruptcy with a surplus income obligation according to the national guidelines: 36 months.
Third or more time bankruptcy, regardless of surplus income obligations: A person in this situation is not eligible for an automatic discharge, and must attend a court hearing to determine what conditions must be met before the debts are erased.
In all cases, if the person who has filed for bankruptcy does not meet their obligations under the Act, or if a creditor, the Trustee, or the Superintendent of bankruptcy opposes the discharge, then they are not eligible for an automatic discharge, and must attend a court hearing to determine what conditions must be met in order to receive a discharge.
Why is it important to seek professional help early?
Bankruptcy is a legal process regulated by the Bankruptcy and Insolvency Act. Through a bankruptcy, you may be released of all or most of your debts. The purpose of the Act is to permit the honest, but unfortunate, debtor to be released from debt and have a fresh start. As part of the process, you may have non-exempt assets that will be sold, and payments to make based on your income level. These are paid to your Trustee for your creditors.
Should I cash in my RRSPs to pay back my creditors?
Cashing in RRSPs is one option your Trustee will review with you. It may not be the best solution for you.
How do I know it is time to seek professional help to deal with my debt problem?
Generally, one or more of the following things have been happening to you:
• You find you do not have adequate funds in your bank account to pay for necessities, and you are often using your credit card to “tide you over”
• You are borrowing money from family or friends, or from a payday loan service to get you from payday to payday
• You are not paying off, or down, the balance on your credit cards each month, but are just making the minimum payment
• It would take more than a year to pay off all your outstanding debt (except your mortgage)
• Your monthly installment debt payments exceed 20% of your net income
• Creditors are harassing and threatening you
• Utility companies are cutting off services
• You have had cheques bounce or your debit card refused
• Your wages have been garnished
How is my credit rating affected?
Information concerning your bankruptcy or proposal could show up on your file at the credit bureau for a period of six (6) to seven (7) years after your discharge from bankruptcy. If you have been bankrupt before, this period could be extended to as much as 14 years. This only means potential lenders will know you have been bankrupt. It does not mean they will refuse you credit. It is the lender’s individual credit scoring system that determines access to credit.
Should you wish to improve your credit record after obtaining your discharge from bankruptcy you may wish to talk to your bank or credit union to find out what steps they suggest for you. If you have saved up a down payment, you are borrowing money to purchase something on which the lender can take security, and you have not had credit problems since the bankruptcy, it is unlikely obtaining credit again will be a significant problem.
How do I go about filing a bankruptcy or proposal?
The best way to get detailed information about filing an assignment in bankruptcy or a proposal is to contact us. There is no cost for this and there is no obligation to proceed.
When you contact us we will set up an appointment to speak with you and review your financial situation. We can do this either by telephone, if you live in a remote community, or in person at our office in either Winnipeg, Manitoba or Kenora, Ontario. We will review all options available to you including options other than those offered under the Bankruptcy and Insolvency Act. We will ensure all your questions are answered and that you have a clear understanding of what the various options and processes are.
Once we have spoken with you, you are free to either take further time to think about your options or to make arrangements to proceed with the filing of a bankruptcy or proposal.
Do I have to tell my employer if I go bankrupt?
In most cases, the employer does not need to know that you are filing an assignment in bankruptcy. There are exceptions, however. For example, if your wages are being garnished, the Trustee would need to contact your employer in order to have the garnishment stopped.
When is a credit proposal a viable option?
A credit proposal is a viable option if you have either a lump sum to offer your creditors, or a reliable source of income on which you can depend for the entire length of the proposal. If your income fluctuates greatly, or if your current employment is not long-term, a proposal might not be a viable option for you.
Will I lose my house?
Many people do not lose their homes in a proposal or bankruptcy. However, every situation is unique and careful review is needed. Much will depend on the value of the house and the amount owing on it.
Will I lose my car?
Whether or not you lose your car will depend on a many factors. Have you given it as security? Do you use it to get to and from work? How much is it worth? If it is secured, can you afford the payments? We will review all for the issues involved in determining whether you lose your car, and that information will help you decide what option would be best in your situation.
A family member has offered to lend me money, is this a good idea?
People with significant debt problems often borrow from family and friends, or get family and friends to co-sign for them. You need to understand the problems that this can cause both you and your family members.