Filing for bankruptcy is uncharted territory for many people. If you’re considering bankruptcy in the near future, it’s helpful to know what is required of you beforehand so you can know what to expect. During bankruptcy, there are certain rules you must follow before your bankruptcy is discharged and you are free of your debts. You will be working with a Licensed Insolvency Trustee (LIT) throughout the bankruptcy. In Canada, only LIT’s are licensed to deal with Bankruptcy.
Here are five bankruptcy rules you need to know:
1. You must inform your LIT of your assets and debts.
Assets
In a bankruptcy, your assets, or belongings, are divided into two categories—exempt and non-exempt. You must inform your Trustee of all assets you own in Canada and elsewhere. This includes property, vehicles, cash on hand, RRSPs and pensions. You will also need to provide a pay-stub (if you have one), photo ID, and any other documents that your Licensed Insolvency Trustee needs to get a clear picture of your situation.
Many of your assets will be exempt from seizure by your creditors, and thus, not affected by the bankruptcy. If you have any assets that are not exempt, your Trustee will need to realize their value, by selling them — possibly back to you, if that is what works best in your situation.
Debts
Your Trustee will also need to know approximately how much you owe and to whom. Your list of creditors should include anyone you have borrowed money from, including family and friends. The bankruptcy will erase all of your unsecured debt, including that owed to family and friends. Revenue Canada debt will also be erased in the bankruptcy.
Lastly, bankruptcy will provide you with the opportunity to walk away from any secured debt that is unmanageable or unreasonable. For example, if you owe more on an asset than it is worth, the bankruptcy gives you the opportunity to walk away, with the secured creditor left to realize on the asset, and any remaining debt is discharged in the bankruptcy.
Debts not discharged
Your Trustee will review your debts and let you know if there are any that will not be discharged in the bankruptcy. Child support, alimony, student loans that are less than 7 years old, and any debts resulting from fraud or misrepresentation are not discharged in bankruptcy. Your LIT may need to ask searching questions of you in order to give you the clearest picture possible of what to expect in a bankruptcy.
2. You must disclose all information about assets you’ve recently sold or given away.
In addition to informing the trustee of what you currently own, you are also required to inform him or her of any assets you’ve recently sold, transferred, given away, or cashed within the past twelve months. This rule is designed to help identify and curb potential fraud. For example, let’s say you plan on filing bankruptcy and own a motorcycle that may not be exempt in a bankruptcy. A few months before you plan to file, you sell your motorcycle to a family member for $1. Because you didn’t receive fair value for this, it can be seen as a fraud, and the court may recover the asset.
3. You must complete two Financial Counseling sessions.
Before your bankruptcy is discharged, you must complete two financial counseling sessions. These sessions are done by a Financial Counsellor in your Trustee’s office. At LCTaylor, these sessions are private, not group sessions. During your financial counseling sessions, your counsellor will help you identify the reasons that led to your bankruptcy. You will be given pointers on how to budget and manage money, and what you can do to build a solid and secure financial future.
4. You must keep your trustee informed.
During the bankruptcy process, it is your responsibility to stay in touch with your Trustee and keep him, or her informed of certain things. If you change your phone number or other contact information, move and have a new address, or experience a change in income or employment, you must report these changes to your LIT.
You will also be required to submit monthly income and expense statements to your Trustee for the duration of the bankruptcy (usually 9 months). These monthly statements are key to your financial recovery because they will ensure that you are keeping track of where you are spending your money — the first and most important step in good money management.
5. You may need to make surplus income payments.
If you are employed, you may be required to make surplus income payments to your Trustee each month. Surplus income payments are determined by the guidelines set forth by the government, depending on your family size and income. If your income is greater than the amount that the federal government deems necessary for a family of your size, you will be required to pay half (50%) of the excess income to your Licensed Insolvency Trustee for the benefit of your creditors.
There are several additional duties required of an individual during a bankruptcy that are not dealt with here because they apply to only a few people with specific, and fairly uncommon circumstances. These are five bankruptcy rules with which every bankrupt individual will deal during their bankruptcy. Your discharge from bankruptcy is the point at which the debt is erased, and your obligations are completed. Following your duties as a debtor isn’t difficult, and it pays off handsomely when you secure that discharge as quickly and easily as possible.
If you are interested in exploring the option of bankruptcy further, give LCTaylor a call. We will sit down with you, explore all of your options, and help you find the solution that works best in your situation. It might be bankruptcy. You won’t know, though, until you have explored all the options, and that’s what we are here for. Book your free, confidential consultation today.
Jillian Taylor-Mancusi, LIT
