A - Bankruptcy is a legal process that frees you from some and very often all of your debt obligations. While bankruptcy may sound easy and attractive, it is a serious step and you should consider it only as a last resort. If you are in financial trouble, you should talk with a debt counselor about your situation and what options are open to you. You may be eligible to apply for bankruptcy if:
you owe at least $1,000;
you are not able to make your regular payments when they are due on your loan; or
the value of your assets is less than your total debts.
During the period of bankruptcy, the trustee will monitor your finances in bankruptcy. The trustee will use some of your assets to repay as much of your debt as possible to your creditors. Some things you own will not be used, for example, usually you keep your clothes, personal effects, household furniture, and tools of your trade, if any, up to a certain dollar value. In some situations, you may be able to keep your vehicle and house. The trustee will explain the effects of bankruptcy in your specific case.
Once you have completed the bankruptcy period with no complications, you will be released from your pre-bankruptcy dischargeable debts providing there have been no objections to your release.
During the period of bankruptcy you are required to perform certain duties such as attending counselling sessions and keeping the trustee informed of your financial situation. If you fail to carry out these or other duties, the trustee or a creditor may oppose your discharge from bankruptcy.
The Bankruptcy and Insolvency Act is a federal law that sets out the procedures and rules for bankruptcy.
Q - What happens if I cannot pay my debts?
A - If you fail to make your minimum monthly payments on your loans and other debts, they will go into default. This means you may have to pay additional interest, have the credit card company or loan company demand repayment of the entire amount owing, have the debt sent to a collection agency, have your credit rating downgraded, face legal action, and have difficulty getting credit in the future.
If you are having trouble meeting your loan or credit card payments you should get some advice from a credit counselor.
Q - What is a consumer proposal?
A - A consumer proposal is an agreement between you and all your creditors to allow you to settle your debts over a period of time not exceeding five years. Your debts must not exceed $75,000. For example, you might make a proposal to your creditors to pay 60 cents on each dollar you owe. It does not affect the rights of secured creditors. An example of a secured creditor is a bank that has given you a loan secured on your home. If your creditors do not accept your consumer proposal or you fail to complete the terms of the proposal they can take legal action against you. You should contact a credit counselor for further information. To find a credit counselor, you can search under credit counseling, bankruptcy, or consumer proposals on-line or in the Yellow Pages of the phone book.
Q - What are the drawbacks to declaring bankruptcy?
A - There are a number of drawbacks:
You must report your finances on a regular basis to the trustee in bankruptcy, and the trustee may make decisions, which you may not have made yourself, such as selling a vehicle.
Filing for bankruptcy may make it difficult for you to borrow money at least in the short term and will affect your credit rating.
Your ability to get credit after your discharge will depend on whether you can convince potential lenders of your financial rehabilitation.
Your credit rating should improve after bankruptcy if you demonstrate credit worthiness, including a track record of income.
If you declare bankruptcy that includes a student, you will not be able to get a student loan until at least three years has passed since your discharge from bankruptcy.
Q - Do I include my spouse's assets and debts in my bankruptcy?
A - If you own assets jointly with your spouse, or another person then they are included in your bankruptcy proposal. Your share of those joint assets may have to be sold to pay off debts if they are assets that can be seized for sale. It is important to ensure that the trustee knows there are joint assets so that he or she can assess how they should be dealt with.
Q - Is my spouse or partner responsible to pay off my debts?
A - Your spouse, common law or same sex partner is only responsible for your debts if you jointly owe them, for example, you took out joint loans or you have a card on your spouse's or partner's credit card account.
Q - What are the costs involved with declaring bankruptcy?
A - The Bankruptcy and Insolvency Act sets out the fees a trustee is entitled to charge, as well as fees for such things as counseling and filing documents with the Official Receiver. You should talk to a trustee in bankruptcy about the specific costs involved.
Q - If I cannot afford to see a trustee, what can I do?
A You should contact a trustee and set up a meeting. Often trustees will offer an initial consultation at little or no charge. At the consultation you can describe your financial situation and the trustee can discuss options with you. The office of the Superintendent of Bankruptcy will help you find an affordable trustee providing you have received quotes from at least two different trustees in bankruptcy.
Q - What happens if I cannot pay off my student loans?
A - If you fail to make your minimum monthly payments on your student loan, the loan will go into default. This means you may have to pay additional interest, be prevented from applying for a student loan in the future, have your debt sent to a collection agency, potentially have your credit rating downgraded, lose future income tax and GST refunds, face legal action, and lose eligibility for the Federal government's interest relief program.
If you are having trouble meeting you student loan payments you should apply for the government interest relief program. You can apply for this program any time during the repayment period. This program is designed to eliminate most if not all the interest on your student loan. The creditor holding your loan will have the application forms for this program.
Q - Can I declare bankruptcy on my student loans?
A - Yes. You may file for bankruptcy on your student loans at any point, but you cannot be discharged from your student loan until seven years have passed since you were last a full time or part time student.
Declaring bankruptcy on your student loans before this seven-year period may not be much help to you, depending on how much other debt you have.
Once you have completed the bankruptcy period with no complications, you will be released from your pre-bankruptcy dischargeable debts including your student loan, providing it has been seven years since your last attendance at school and there have been no objections to your release.
If it has been less than seven years since your last semester of school and you are having trouble paying your loan, you could apply for bankruptcy on other debts you may have, and once they are discharged you may be able to concentrate on paying off your student loan repayment.
Depending on the circumstances, after 5 years have passed you may be able to apply to court to have your student loans discharged under the hardship provisions of the law, but you should talk with a credit counsellor about your specific situation.
Depending on your situation you may also want to consider a consumer proposal as an alternative to bankruptcy. You should talk with a credit counselor about your situation.
Q - What is a discharge from bankruptcy?
A - A discharge is the last step of a bankruptcy. Upon discharge the court will relieve the amount you owe providing you have fulfilled the requirements of bankruptcy and there are no objections by a trustee, creditor, the superintendent of bankruptcy, or the court.
Q - My loan has gone to a collection agency, what can I do?
A - You have four options if your loan has gone to a collection agency. You can
do nothing, and see what action the agency takes.
contact a debt counselling office that will help you with your debt problems and consult with you on your best course of action.
make a proposal to the collection agency to make payments to them that you can afford.
make a consumer proposal or declare bankruptcy.
Q - Can a collection agency seize my property?
A - A collection agency can only seize property if it has a court order, meaning the agency would have to sue you. However, if it is a government loan, for example, a student loan, the government may seize GST and tax refunds.
What assets can be seized with a court order depends on your individual circumstances. Provincial laws outline a few basic rules as to what property can or cannot be seized. For example, in Nova Scotia the following property cannot be seized:
Furniture or appliances that do not exceed a certain amount. In most instances, collection agencies are not be interested in seizing used furniture or household appliances anyway.
An automobile that you need for work if its value does not exceed $6,500, and there is no public transit. If you do not need the car for your work its value cannot exceed $3,000. However, if a financial institution lent you money specifically to buy the car and you fail to make payments on the loan, the car may be seized whatever its value and whether or not you need it for work.
Tools or items that you use for your employment.
Keep in mind that a collection agency must first sue you in court and get a court order before it can seize any of your goods or money. The collection agency must notify you if they decide to sue you.
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.