Frequently Asked Questions about Bankruptcy
If you’re thinking about filing for bankruptcy, you probably have questions about the process and what to expect. Below are answers to bankruptcy FAQs:
What exactly is bankruptcy?
Bankruptcy is a legal process that is governed by the Bankruptcy and Insolvency Act of Canada. When you file an Assignment in bankruptcy, you turn all of your assets (except items that are exempt from seizure*) to a Licensed Insolvency Trustee. If you have assets that are not exempt, the Trustee then sells those assets and uses the money to help repay your debts. At the completion of the bankruptcy, you receive a Bankrupt’s Discharge and your debts are discharged, or eliminated.
*Each province has legislation that makes many personal assets exempt from seizure by creditors.
Will bankruptcy eliminate all my debts?
Bankruptcy will eliminate most debts, but not all. Unsecured debts, which include credit card debt, personal loans, income taxes, and student loans older than seven years, are discharged once your bankruptcy is complete.
Secured debts, such as mortgages or car loans, are not discharged. However, if you cannot afford to continue payments on a secured debt — such as a mortgage or car loan, you can give up the asset to the creditor, and any shortfall will be included in the bankruptcy.
You will still be responsible for child support, alimony, and some court judgments, fines and penalties, as well as any debts that are the result of fraud or misrepresentation.
How much does it cost to go bankrupt?
The fees for going bankrupt are regulated by the Bankruptcy and Insolvency Act. These fees cover the filing of your documents, two mandatory counseling sessions, and the work the Trustee does in dealing with assets and creditors.
The amount you pay is determined by your income and family size. The Canadian government published a yearly document called The Superintendent’s Guidelines. Those guidelines indicate how much a family of various sizes needs to live anywhere in Canada. If your income is greater than the amount indicated for a family of your size, you will be required to pay 50% of the extra income to the Trustee for your creditors. You keep the other 50% of the extra money.
If your income is below the amount indicated in the guidelines, you will likely be asked by the Trustee to pay a minimum fee to cover expenses. Unlike the amount required if you have excess income, this minimum fee varies between trustees.
Will I lose everything?
No. Bankruptcy is not designed to punish you or leave you destitute. Instead, it provides a fresh start. To help you start out, each province has a list of exempt assets. These are items that are not seized during a bankruptcy. While the list of exemptions varies with each province, they include things like personal effects, clothing, furnishings, registered pensions and RRSP’s, etc. In Manitoba there is an exemption for a motor vehicle to get to and from work, and for some equity in your home. Again in Manitoba, there are a number of exemptions for farmers.
How long will I be bankrupt?
First bankruptcies are usually discharged after nine months provided you complete all of your requirements. People with surplus income or previous bankruptcies can expect to be in bankruptcy longer.
Who will know I’ve filed bankruptcy?
While bankruptcies are a matter of public record, it’s highly unlikely anyone other than your creditors will know you’ve filed bankruptcy unless you tell them. In order to find out who has filed bankruptcy, a person must pay a fee and request the information.
How long will bankruptcy remain on my credit report?
A first bankruptcy will remain on your credit report for six years from the date your bankruptcy is discharged, depending on the credit reporting agency. A second bankruptcy can stay on your report for up to 14 years.
Can my wages be garnished in a bankruptcy?
No. In fact, by law, all collection activity stops when you file bankruptcy. This includes wage garnishment, attempts to contact you via phone or mail by creditors, and any other attempt to collect a debt. A legal Stay of Proceedings is issued by the Trustee, and that Stay prevents collection practices against you. This tool is unique to Licensed Insolvency Trustees (LIT), and is one of the major advantages in going to a LIT to seek a solution to debt problems, rather than going to a credit agency. Bankruptcies and Consumer Proposals can only be administered by a LIT.
Will bankruptcy affect my spouse?
Unless you have joint accounts or your spouse has co-signed on any of your accounts, your spouse will not be affected by your bankruptcy.
These bankruptcy FAQs are intended to provide general information. For answers to your specific questions about filing bankruptcy, it’s best to consult with a Licensed Insolvency Trustee in your area.