If you’re wondering how to file for bankruptcy, chances are you are experiencing financial difficulty. Filing for bankruptcy can be a confusing process. While it’s important to get the assistance of a Licensed Insolvency Trustee to review your own personal situation, here is some general information that should help you get a better understanding of how the process works and what your next steps should be.
1. Are you eligible to file for bankruptcy?
In order to file for bankruptcy, you need to owe at least $1,000 and be unable to pay your debts as they become due. Also, your debts need to be greater than the value of all of your assets. In other words, if you were to sell everything you own and still couldn’t pay off your debts, you would meet that requirement.
2. Why you need a Licensed Insolvency Trustee (LIT)
According to the rules set by the Bankruptcy and Insolvency Act of Canada, all bankruptcies must be administered by a Licensed Insolvency Trustee. The role of the Trustee is to act as a go-between for you and your creditors, manage agreements, make sure all of the necessary paperwork is filed correctly and in accordance with the law, and ensure that you, the debtor, fulfil all of the requirements of the Act.
Those are the legislative reasons that you need an LIT. The other, very practical reason you need to see an LIT, is that they are the most experienced, and best qualified debt consultants in Canada. They will be able to assess your situation and review with you all of the options available to you for solving your debt crisis. While bankruptcy is a very good option for many people, it is not the only option. You need to review all the options with your LIT and decide which is the best one for you. Perhaps you will decide that a Consumer Proposal better meets your needs.
3. Gather the necessary documentation
Come prepared for your first visit with your LIT by bringing a list of all of your creditors and approximately how much you owe them, information on your assets and their value, and your most recent pay-stub, or other indication of income.
Proof of residency and your birth certificate will also provide information your LIT needs to complete the necessary paperwork.
4. Filing for bankruptcy
Once you have made the decision to file for bankruptcy, your LIT will prepare all of the necessary paperwork. You will be required to sign a number of documents, including these four:
- Assessment Certificate, which acknowledges that you have received counseling from a Licensed Insolvency Trustee about your options and have chosen to file for bankruptcy.
- Income and Expense Statement that looks very much like your family budget.
- Statement of Affairs that lists all of the money you owe, your assets, and information about you.
- Assignment for the General Benefit of Creditors, which transfers all of your assets that are not exempt, to your Licensed Insolvency Trustee for the benefit of your creditors. This allows your LIT to sell the non-exempt assets and use the money received to pay your creditors.
Your province will have legislation that protects many of your assets from your creditors, so those protected assets would not be signed over as part of the Assignment. In Manitoba your household furnishings and personal effects, registered pensions and RRSP’s, tools of your trade, including a car to get to and from work, and some equity in your house are all exempt, within set limitations. It is vital that you tell your Trustee about all of your assets, so that you have a clear picture of what is exempt and what is not, BEFORE you make the decision to file the Assignment.
After you sign these necessary documents, your Trustee will send them electronically to the Office of the Superintendent of Bankruptcy. Once they are received and accepted you are legally bankrupt.
5. Attend financial counseling sessions with your LIT
You are required to meet with your Trustee for two financial counseling sessions while you are bankrupt. One session should be within the first few months after filing, and one is held before your bankruptcy can be discharged.
6. Submit monthly income and expense statements to your LIT
As part of the process for getting you back on your feet financially, you will be required to submit monthly income and expense statements to your LIT. These will help you to see where your money is going, and prepare you to establish a new budget – one that does not rely on credit cards. These monthly statements also allow the LIT to determine what your monthly payments to estate will be during the bankruptcy.
7. Make monthly payments to your bankruptcy estate
During the bankruptcy, you will be required to make monthly payments for the benefit of your creditors. These payments are NOT based on what you owe. Rather, they are based on your income, your family size, your non-discretionary expenses (for example: child support, alimony, medical expenses) and the Standards provided by the federal government to be used for calculating payment requirements. The Standards give your LIT the standard amount needed in Canada for a family your size. If you earn more than that amount, you are required to pay half of the EXCESS income to your LIT for your creditors for the duration of the bankruptcy. The remaining excess is yours to keep.
8. Provide your LIT with your current address and phone number, and keep that up to date during the bankruptcy
Your Trustee needs to be able to contact you during the course of the bankruptcy. It is your responsibility to ensure that they have current contact information for you.
9. Provide your LIT with the necessary information to file income tax returns for you
Your LIT will be filing at least two tax returns for you — one from January 1st to the date you filed your Assignment (pre-bankruptcy return), and one from the date of the Assignment to December 31st of the same year (post-bankruptcy return). If you have unfiled returns from previous years, the Trustee may also file those. Any refunds coming from previous years or the pre or post bankruptcy returns will go to your creditors. Any taxes owing from the previous years or the pre-bankruptcy period, will be wiped out by the bankruptcy. If there is tax owing in the post-bankruptcy period, it will be your responsibility to pay directly to CRA.
That’s a rough outline of what is involved when you file for bankruptcy. The Bankruptcy and Insolvency Act of Canada is complex, however, the information above contains just the most common factors. It is essential that you get detailed information regarding your specific circumstances from your LIT before you file the Assignment in Bankruptcy.
Your Licensed Insolvency Trustee will administer the entire process and prepare you for a new financial start.
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