Personal Bankruptcy
If your financial difficulties are very serious, and cannot be solved by making arrangements with your creditors, bankruptcy may be the only alternative for you. In order to file for bankruptcy, your debts must total more than CAN$1,000, and you must be unable to pay them when they become due.
Bankruptcy is designed to provide two major benefits:
To permit orderly distribution of a bankrupt's nonexempt assets among creditors without expensive and time consuming legal action; and
To allow the bankrupt a fresh start without the burden of unmanageable debt.
Your Duties and Responsibilities:
Notifying the Trustee of all assets and liabilities at the date of bankruptcy;
Assisting the Trustee in dealing with your affairs;
Attending a meeting of creditors to answer questions regarding your financial situation if required;
Attending two counselling sessions;
Keeping the Trustee advised of your address, phone number and place of employment;
Providing the Trustee with your books and records, such as tax returns, bank statements, etc.; and
Surrendering all credit cards to the Trustee for return to the credit card company.
Contributions from Your Future Income
You will be required to complete and file monthly statements of income and expenses during the period of bankruptcy. The Trustee will use this information, together with government standards, to determine the amount — if any — to be paid into the Bankruptcy Estate during the bankruptcy for the benefit of your creditors.
Credit Collection Proceedings
Wage garnishees and most lawsuits are stopped once you declare bankruptcy. Most creditors are required to deal with the Trustee.
Debts Not Affected by Bankruptcy
Secured creditors are generally not affected by the bankruptcy process. Secured creditors (e.g. a bank, finance company or credit union) may still proceed against pledged assets to recover the debt once they have proven their security to the Trustee.
In addition, certain debts will remain payable after your discharge from bankruptcy, including:
Court-imposed penalties and fines;
Alimony and maintenance payments;
Debts arising out of fraud, misrepresentations, etc.; and
Student loans, if the individual becomes bankrupt within 10 years after you cease to be a student.
The Length of Your Bankruptcy
The Bankruptcy and Insolvency Act provides that, dependant upon income, first time individual bankrupts may be automatically discharged in nine months from the date of filing their bankruptcy. If the automatic discharge is opposed there are three means of being discharged:
The Trustee, in consultation with you may agree on further payments for a period to a maximum of a further 12 months as a condition of being discharged;
Mediation may be held, in certain circumstances; or
The Court will decide whether a discharge will be granted and may extend the period of bankruptcy and set other terms.
Co-Signed Loans
Your filing for bankruptcy does not release the responsibility of a person who co-signed your loan. He or she may be required to pay the debt.
Your Credit Rating
Your credit record will contain information regarding your Bankruptcy or Consumer Proposal for approximately seven to 14 years. Creditors and lenders may review this information when granting new credit. You should notify credit reporting agencies of your discharge from bankruptcy.
Trustee's Fees
In most circumstances, the Trustee's fees are set by government regulations under the Bankruptcy and Insolvency Act. In general, the bankrupt is responsible for payment of Trustee fees prior to discharge. PricewaterhouseCoopers Inc. will arrange flexible terms of payment of these fees. These terms will be discussed with you during a meeting with a qualified insolvency professional at PricewaterhouseCoopers Inc.
Your Assets
The Bankruptcy and Insolvency Act and the laws of Manitoba allow you to keep the following unencumbered assets:
Household furniture and appliances necessary for one household not exceeding a value of CAN$4,500;
Necessary and ordinary clothing;
Equity in your principal residence of CAN$2,500 if single title or CAN$1,500 each, if the title is joint;
One motor vehicle, not exceeding a value of CAN$3,000 if required for your employment or for transportation to and from your place of employment;
Tools, implements and books not exceeding a value of CAN$7,500 used in the practice of your trade or profession;
Pensions, certain RRSPs and certain life insurance policies;
Certain farm equipment, livestock and property;
Necessary food and fuel for six months or its cash equivalent; and
Health aids necessary for your health or mobility.
The Next Step
This information presented here covers some of the common issues relating to bankruptcy and proposals for individuals. It does NOT address all relevant matters and other important factors that should be considered before making a final decision. We encourage you to discuss your financial difficulties with a qualified insolvency professional
The Personal Bankruptcy Process
What are the major steps in personal bankruptcy?
The major steps in making an assignment in bankruptcy are:
meet with a licensed Trustee for an initial assessment
file an assignment in bankruptcy with the Official Receiver
attend an examination by an Official Receiver, if required
attend a meeting or meetings of creditors
attend first and second counselling sessions
in some cases, apply to the Court for a Discharge from Bankruptcy
Each of these steps is discussed in more detail in the following questions.
Who is a Trustee in Bankruptcy?
A Trustee is an individual or a corporation licensed by the government to conduct the bankruptcy process. A Trustee is not a lawyer. You can ask for advice about certain bankruptcy matters but you are not a "client" of the Trustee.
A Trustee is paid by the bankrupt and from the assets of the estate. If there are no available assets, the Trustee looks to the bankrupt for payment of fees and costs. An estimate of fees and costs can be given only after reviewing your file. The Bankruptcy and Insolvency Act sets out the Trustee's fees for both a summary administration and a consumer proposal. A Trustee cannot be discharged without approval from the Court or the Official Receiver, who reviews the statement of receipts and disbursements, including the Trustee's fees and costs.
Who does the Trustee work for?
The Trustee is chosen by the bankrupt. However, the Trustee remains an officer of the Court, with an obligation to look after the creditors' rights and to investigate the affairs of the bankrupt as required. The Trustee also ensures that the rights of the bankrupt, as defined by the Bankruptcy and Insolvency Act, are not abused. The Trustee's primary duties are:
review your situation and counsel you on the alternatives available
administer the proposal, or liquidate your non-exempt assets and turn them into cash for distribution to creditors
administer the bankrupt estate or proposal from beginning to end according to the Bankruptcy and Insolvency Act
Do I have certain duties as a bankrupt?
The bankrupt's duties are listed in Section 158 of the Bankruptcy and Insolvency Act. Read the section carefully and comply with its requirements. You must confirm in writing that you clearly understand your duties as a bankrupt.
The bankrupt's primary duties are:
disclose all of your assets and liabilities to the Trustee
advise the Trustee of any property disposed of in the past year
surrender all credit cards to the Trustee
attend an examination before the Official Receiver, if required
attend the first meeting of creditors (if a meeting is requested by the creditors)
advise the Trustee in writing of any address changes
generally assist the Trustee in administering the estate
What happens to my wages during bankruptcy?
Wage assignments and garnishments are stopped once bankruptcy is declared.
The Trustee reviews the amount of your wages and your living expenses. Your income is then compared to guidelines set out annually by the Superintendent of Bankruptcy. These guidelines take into account the amount of household income and the number of dependents. A copy of the guidelines is available from the Trustee. The Trustee will also supply a monthly income and expense statement form for you to fill out and submit. If you have surplus household income, a portion may have to be paid to your creditors through the Trustee.
Will all of my assets be assigned to the Trustee?
The only assets not assigned to the Trustee for distribution to your creditors are those exempted by provincial law. Discuss this matter with the Trustee. Be sure that all of your assets declared under oath to the Trustee are fully disclosed and properly valued.
Your assets include all existing assets as well as those that may be acquired prior to your discharge. Once you have filed an assignment you cannot dispose of any assets assigned to the Trustee.
A list of provincial exemptions is included in the section Bankruptcy Rules by Province.
What about my secured creditors?
In most cases, bankruptcies and consumer proposals do not affect the rights of secured creditors. If a creditor has a valid security against your property (i.e., car or house), consult with the Trustee about surrendering the asset and obtaining a receipt. If you can afford monthly payments, financial arrangements may be made with the secured creditor.
What happens at an examination by the Official Receiver?
Shortly after filing for bankruptcy, you may be examined under oath by an Official Receiver, who is a Deputy of the Superintendent of Bankruptcy. The purpose of this examination is to determine the causes of your bankruptcy, the disposition of any past assets and the status of present assets. Your conduct is also reviewed.
What happens at the first meeting of creditors?
A meeting of creditors may be called if requested by your creditors.
The purpose of this meeting is to:
confirm the appointment of the Trustee
appoint up to five inspectors who supervise the administration of the bankrupt estate, including approval of the Trustee's statement of receipts and disbursements
allow creditors to obtain information about the bankruptcy
allow creditors to give directions to the Trustee
The quorum for the creditors' meeting is one creditor with a proven claim. If there is no quorum, the Trustee is automatically confirmed. The bankrupt is expected to attend the first and any subsequent meetings of creditors. If the bankrupt is unable to attend, written notice must be sent to the Trustee. Failure to attend the creditors' meeting without a reasonable excuse could be considered an offense under the Bankruptcy and Insolvency Act.
Who prepares my tax returns?
You must supply the Trustee with documents to complete two income tax returns during the year in which a bankruptcy occurs. A pre-bankruptcy income tax return must be filed for the period from January 1 to the date of bankruptcy. A post-bankruptcy income tax return must be filed for the period from the date of bankruptcy to December 31.
Income tax refunds from prior years are an asset of the bankrupt estate and must be sent to the Trustee. The Trustee may request that refunds from the post-bankruptcy return be paid to the creditors. Income taxes owing prior to the bankruptcy are discharged. Any amount owing on the post-bankruptcy tax return must be paid by the bankrupt.
When will I get my Discharge from Bankruptcy?
A first-time bankrupt is automatically granted a discharge nine months after filing bankruptcy unless a creditor, the Trustee, or the Official Receiver objects. If you are granted an automatic discharge, there is no court hearing and the Trustee sends you a copy of the discharge.
If this is not your first bankruptcy or if your discharge is opposed, the Trustee sends a discharge application to the Court. You will be advised by the Trustee if you are required to appear in Court for the discharge hearing. At the hearing, the Trustee's report informs the Court of the circumstances surrounding your bankruptcy. The Court will choose one of the following discharge alternatives:
Absolute Discharge: You are no longer responsible for unsecured debts incurred prior to bankruptcy except for those in Section 178 of the Bankruptcy and Insolvency Act.
Conditional Discharge: You may be required to pay a certain amount of money to your creditors through the Trustee for a specified period (e.g., $100 per month for 24 months). Your discharge is subject to fulfilling the terms and conditions of the order. An absolute discharge will be granted when the specified conditions are fulfilled.
Suspended Discharge: This could be an absolute discharge but there is a delay before it comes into effect or is reviewed again by the Court.
Discharge Refused: The Court has the right to refuse a discharge in unusual circumstances. A discharge application may be refused if any of the following are reported to the Court:
your assets are less than 50% of the amount owed to unsecured creditors
you continued to obtain credit while unable to pay all of your existing creditors
you failed to account for any disposal of assets
you contributed to bankruptcy by rash speculation, extravagant living or gambling
you gave preferential treatment to any creditor within three months preceding the date of bankruptcy
you failed to perform any duty imposed by the Bankruptcy and Insolvency Act
Any of your creditors may object to the application for discharge. If the discharge is opposed, the hearing date will be adjourned automatically. At the next hearing, evidence will be given by both the bankrupt and the opposing creditor. The court then grants one of the discharge orders listed above.
Which of my debts are not discharged by bankruptcy?
Debts that are not discharged by bankruptcy are outlined in Section 178 of the Bankruptcy and Insolvency Act. These include:
student loans, if it is less than two years since your schooling finished
fine or penalty imposed by the Court
alimony
liability for dividend to an undisclosed creditor
debt obtained by fraud
liability for support or maintenance of spouse or child under an agreement or Court Order
Also, if you wish to retain an asset that is pledged to a creditor, you must pay the creditor the amount owing, in most cases.