Over many years we have seen the overwhelming stress that financial difficulty can inflict. Constant harassment by creditors - even at work! Sleepless nights! Problems like this, if neglected, often affect a person’s work and most regrettably cause severe hardship on families.
Our professionals at Grant Thornton Limited are available to review your financial situation and explain the options available to you. You may have alternatives available to you other than bankruptcy. However, even if bankruptcy is the only way for you to get a fresh start financially it is important for you to understand your rights as well as your obligations.
What is Bankruptcy?
Bankruptcy is a legal proceeding that is available to a person to cope with a financial crisis. One of the main purposes of bankruptcy legislation is to help someone, who is hopelessly burdened with debt, to free himself/herself of the debt and start fresh – “a new lease on life.” The rules and requirements for bankruptcy are set out in "The Bankruptcy and Insolvency Act".
To qualify to go bankrupt a person must be insolvent, which means you:
a) Owe at least $1,000;
b) Are not able to meet your debts as they are due to be paid; or
c) Your debts exceed the value of your assets.
How Do I Go Bankrupt?
The most common way for you to go bankrupt is "to make an assignment in bankruptcy". This means you are choosing to go bankrupt. To do that you must meet with a Licensed Insolvency Trustee who will explain the process to you as well as prepare the documents you will have to sign.
You start the process by meeting with one of our Estate Administrators or Licensed Insolvency Trustees. We will find out the details of your particular situation, including what assets you own and what debts you have. We will then explain in detail both a bankruptcy and a Consumer Proposal. If you decide that you want to file for bankruptcy, you will complete our application form. Once we have the completed application, we can then prepare the forms that you are required to sign. You will meet with us to sign the forms and then we will efile your bankruptcy with the Office of the Superintendent of Bankruptcy. You will then be bankrupt.
Should I Have a Lawyer?
Generally, it is not necessary. However, if you feel the need, we would encourage you to seek legal counsel. The Trustee is not a lawyer, and the Trustee does not officially represent you the way a lawyer does.
What Does "Discharged" Mean?
When you go bankrupt your goal is to do everything that is required so that you can be "discharged" from bankruptcy. Being discharged means:
1) You are no longer bankrupt;
2) You are now officially discharged from having to pay your debts;
3) You are allowed to apply for credit (although you may not get it).
What Debts Do Not Go Away in Bankruptcy?
Certain kinds of debts are not erased by bankruptcy.
1) Fines imposed by a Court;
2) Debt incurred by misrepresentation (fraud);
3) Alimony or maintenance payments;
4) Debt for damages imposed by Civil Court for intentional bodily harm, sexual assault or wrongful death;
5) Student loans, if bankruptcy occurs within 7 years of ceasing full or part-time studies.
Also, bankruptcy does not generally interfere with secured debts (i.e. a mortgage or vehicle lease) if there is no equity in the secured asset.
Will My Creditors Stop Harassing Me?
Yes, they will!
By law, all actions against you must cease once the bankruptcy documents are filed. This means that calls from creditors and collection agencies will stop and a creditor cannot garnish your wages. This does not apply to secured creditors such as banks holding, for example, a mortgage on a house or a lien on a car, nor does it apply to debt for alimony/maintenance.
Who Will Know?
In a bankruptcy, if you have significant assets, a notice is placed in the “legals” section of the newspaper notifying creditors of your bankruptcy. However for the majority of bankruptcies this is not necessary. The creditors are notified by regular mail, fax or email. When a bankruptcy is filed it is a public document. The Credit Bureaus are notified of all bankruptcies and the bankruptcy will remain on your credit record for approximately 6 years from the time of your discharge (assuming you have not been bankrupt before).
How Much Am I Allowed to Keep?
Pursuant to the BC Court Order Enforcement Act, any individual in British Columbia who goes bankrupt is allowed to keep the following:
|PROPERTY||VANCOUVER, VICTORIA||OTHER AREAS|
|House equity (principle residence)||$12,000||$9,000|
|Tools of trade||$10,000||$10,000|
|Household and personal effects||$4,000||$4,000|
|Automobile- if behind in family maintenance payments - reduced to $2,000||$5,000||$5,000|
All necessary clothing.
All required medical aids (debtor or dependent).
As well, under other legislation, certain superannuation plans, life insurance plans, RRSP’s, RRIF’s and settlements for "pain and suffering" are all assets that you can keep.
Any contributions made to an RRSP more than 12 months prior to the date of the bankruptcy can be kept. Any contributions that you made to your RRSP in the 12 months before you go bankrupt cannot be kept - they are paid to the Trustee.
NOTE: A husband and wife could have total exemptions as high as $56,000 ($28,000 x 2) in the Duncan, Nanaimo, Port Alberni and North Island areas.
Will I Lose My House/Car?
This depends on how much equity you have in the asset. With a house for example, your equity would be the amount left over after mortgages, penalties, taxes and in certain circumstances, estimated real estate commissions were taken into account. If your equity in the asset is within the allowable exemption limit, then the Trustee will generally “disclaim” any rights to it. You and the creditor would then make arrangements for you to keep the asset and continue paying the mortgage or loan, or the lender would have the right to take back the asset. If your equity exceeds the exemption limit, then you may be able to make an arrangement with the Trustee for you to “buy back” anything over the exemption limit in order to keep your assets.
If your vehicle is secured by a bank or other financial institution, and the Trustee has disclaimed its interest in the vehicle, most secured creditors will allow you to keep the vehicle and continue to make payments under the loan.
A word of caution though; the secured creditor may still choose to seize the vehicle and sell it to recoup the funds under the loan.
What Don't I Keep?
In a bankruptcy, assets (or equity in assets) in excess of your allowed personal exemptions and anything that you acquire during the bankruptcy belongs to the Trustee for the benefit of your creditors. This would include inheritances received or to which you might become entitled, by the death of someone during the time of the bankruptcy. It also includes such things as lottery winnings and anything that you might accumulate, such as assets bought before you are discharged. As well, any cash assets you have at the time of your bankruptcy (such as GIC’s, RESP’s) are generally not allowed as exempt, no matter the amount.
Tax refunds outstanding, as at the date of the bankruptcy, also belong to the Trustee for the benefit of the creditors. Income Tax law requires two tax returns for the year of the bankruptcy. The first (pre-bankruptcy tax return) covers the period January 1st through to the date of bankruptcy. The second (post-bankruptcy tax return) covers the period starting with the date of the bankruptcy and ending December 31st. Any tax refunds for the year in which the bankruptcy occurs and prior years (including GST refunds) are paid to the Trustee for the benefit of the creditors.
Are a Spouse's Assets & Liabilities Affected by My Bankruptcy?
Not directly. You and your spouse are separate individuals. Therefore, unless your spouse also files bankruptcy, their assets and liabilities are not affected. However, his/her assets are owned jointly, e.g. a house or car, it is the Trustee’s responsibility to investigate the one-half interest owned by the person going bankrupt.
If a debt is in both names, then the bankruptcy of one spouse means that the other is now liable for the full debt.
You and your spouse may think of your assets and debts as "ours", but it is important to sort out whose name is on what.
What about My Wages during Bankruptcy?
Your wages are not affected. However, you may be required to make mandatory monthly payments to the Trustee. These are called surplus income payments. The Trustee determines whether or not you have to make these payments based on the number of people in your family and by averaging your earnings over the duration of your bankruptcy. You must keep track of all the money you receive and all the money you spend each month and report it to us on the Income and Expense form that we will provide you with. If you do not make all of these required payments to the Trustee you will not be "discharged" from your bankruptcy. If your income is quite low, you may not be required to make these payments.
Can a Bankrupt Have a Bank Account?
Yes. However, you cannot have overdraft protection on a bank account of more than $999 unless you inform the bank that you are bankrupt.
We strongly suggest that before you sign the papers to go bankrupt you ensure you are banking at a financial institution that you do not also owe money to. This may mean that you will have to open a new bank account. You must use this new bank account and stop using any other accounts. This will prevent your creditors from taking money from your bank account after you are bankrupt.
How Does a Bankruptcy Affect a Co-Signer?
The co-signer will continue to have liability for the debt. Your bankruptcy does not cancel a co-signer's responsibility to pay the debt.
What Is Counselling and Do I Have To Take It?
You must attend two counselling sessions in order to be “discharged” from your bankruptcy. These sessions are held in our office with the Estate Administrator or the Trustee. They usually last up to an hour. We will discuss budgeting, financial management, and the causes of bankruptcy. The first counselling session must be held between 10 and 60 days following your date of bankruptcy; the second counselling session must be held no later than 210 days following your date of bankruptcy.
What Else Do I Have To Do?
You must ensure that the Trustee has your current contact information (address, telephone number and email address).
You must assist and co-operate with the Trustee, including supplying any information or documents the Trustee may request.
In relatively rare situations, your creditors may ask to have a meeting with you. If this should happen you are required to attend. The meeting is usually held at the office of the Trustee.
In rare situations, you may be required to meet with a representative from the Office of the Superintendent of Bankruptcy at which time you would have to answer questions under oath. These meetings, too, are usually held at our office.
When Is My Bankruptcy Over?
As we explained above, your goal is to be discharged from your bankruptcy. The Bankruptcy and Insolvency Act has quite involved rules about when someone can be discharged.
If you have never been bankrupt before, have no surplus income to pay, and have done everything else required in your bankruptcy, then you would be automatically discharged from bankruptcy after nine months.
If you have been bankrupt once before, have no surplus income to pay, and have done everything else required in your bankruptcy, then you would be automatically discharged from bankruptcy after twenty-four months.
If you have never been bankrupt before, have done everything else required in your bankruptcy, but have surplus income to pay you will be eligible for an automatic discharge from bankruptcy after twenty-one months.
If you have been bankrupt once before, have done everything else required in your bankruptcy, but have surplus income to pay you will be eligible for an automatic discharge from bankruptcy after thirty-six months.
If you have done everything required in your bankruptcy but have not finished paying the required surplus income you will not be discharged until all of the surplus income has been paid. There is a process called "mediation" that will determine when you will pay the unpaid surplus income. Once it has been paid you will be discharged.
If you have been bankrupt more than once before you will have to go to Court where the decision about your discharge will be made.
If a creditor, the Superintendent of Bankruptcy or the Trustee have opposed your discharge, then you will have to go to Court where the decision about your discharge will be made.
Obtaining your discharge is important because it is what actually eliminates your responsibility for paying your debts. If you do not do what is required in the bankruptcy and therefore do not get discharged the Trustee will have to close your file. If this should happen your creditors will then be able to resume collection efforts against you.
What about Alimony and Maintenance?
Alimony/maintenance payments and child support payments are not affected by bankruptcy. Although you must include these debts with the liabilities you tell the Trustee you have they are debts that you must continue to pay. The bankruptcy does not discharge your obligation to pay this type of debt. These debts are often referred to as "debts that survive bankruptcy." A bankruptcy does not stop any actions for collection.
Also, if you have alimony/maintenance or child support arrears outstanding when you file for bankruptcy, your vehicle exemption limit is reduced from $5,000 to $2,000.
What about Student Loans?
Student loans (including interest) survive bankruptcy if it has not been more than 7 years since you were in school (full or part time) on the date you go bankrupt.
It is very important that you check with Canada Student Loans to find out what they consider to be the date you were last in school. If it is less than 7 years from the date of your bankruptcy you will end up still having to repay your student loans after the bankruptcy is complete.
If your last day in school is not more than 7 years after the date you went bankrupt you can ask the Court to make an Order that says your obligation to pay the student loans will in fact go away with your bankruptcy. However the Court must be satisfied that:
(a) You have been out of school for at least 5 years;
(b) You acted in good faith with regards to the liabilities under the loan; and
(c) You have and will continue to experience financial difficulty to such an extent that you will be unable to pay the liabilities under the loan.
You would be responsible for retaining a lawyer and making any application to the Court to have this debt discharged.
What about Utilities and Internet Providers?
At the date of bankruptcy, all your creditors must be included in your bankruptcy proceeding. However, your normal monthly utility or other household services are not included if you are not in arrears (the debts have not become due).
If BC Hydro, Fortis Gas, Shaw or Telus are creditors in your bankruptcy or proposal, you may need to pay what is owing in order to keep the service. If you list one of these as a creditor in your bankruptcy or proposal and you still need the service you are taking a risk that your service will be cut off or they will require that you pay a significant deposit. You may wish to contact the service provider to determine how the bankruptcy or proposal will affect the service in your situation.
How Much Does Bankruptcy Cost?
The cost varies with the complexity of the administration. In the simplest cases it usually amounts to $1,850 up to $2,500, which includes filing fees with the Superintendent of Bankruptcy, Trustee fees for administration and counselling sessions together with disbursements.
Duties Imposed Upon the Bankrupt
The bankrupt must fulfill all of the following duties:
While in bankruptcy, you:
(a) May not obtain credit in excess of $999 unless you advise the creditor giving you the credit that you are going through bankruptcy;
(b) May go into business provided you advise people you are dealing with that you are an undischarged bankrupt;
(c) May not sit on the Board of Directors of a limited company;
(d) May not own or acquire any assets in excess of current exemption limits.
What are some resources for considering bankruptcy?
The OSB has also prepared five insolvency-related videos to help you better understand the insolvency process and your available options. These include:
If you have further questions about bankruptcy, please contact our office.
What Are the Alternatives to Bankruptcy?
Contact Your Creditors
Explain why you cannot make your payments and suggest an arrangement that could work for both of you. You may be surprised that many creditors are more than willing to cooperate.
Debt Consolidation Loan
You can approach a bank or credit union about combining or “consolidating” your debts into one loan. The bank or credit union issuing this new loan then pays off all your debts and, in return, you make a monthly payment to them. Make sure you shop around - interest rates vary. Be sure you CLOSE the accounts for the old debts so there is no chance you can use them again! Avoid further credit purchases; this could make your debt load too great for you to handle.
Credit Counselling Society of BC (CCS)
When your income is higher than what you need for basic living expenses but you are having trouble making your payments under normal terms, a Payment plan through CCS may be able to help. They can usually get interest rates reduced, often to zero. The length of time over which you make payments can often be extended as well. When we meet with you we can help you determine if this option is one that you should investigate further. If it is, we will refer you to CCS. They are a non-profit society and charge only nominal fees. Due to their low fees, your required payment is generally lower than with most others that advertise themselves as credit counselors. CCS is the only credit counselor on our referral list.
Under the Bankruptcy and Insolvency Act, a Trustee or an Administrator files a Proposal, which is an arrangement between you and your creditors for you to pay off only a portion of your debts, extend the time you have to pay off the debt, or provide some combination of both. To be acceptable, your creditors must be better off under a Proposal than if you go bankrupt. Each of your creditors then has the opportunity to accept or reject what you are offering.
There are two types of Proposals an individual can file. They are:
(a) “Consumer Proposals” - A person is eligible if his/her aggregate debts, excluding debts secured by a principal residence, do not exceed $250,000. The payments that you would make in the consumer Proposal cannot be for more than five years. If the creditors do not accept the Proposal you are not automatically bankrupt. You must attend two counselling sessions.
(b) “Other Proposals” - There is no restriction on the amount a person owes. And payments are not restricted to just five years. If the creditors do not accept the Proposal the person is automatically bankrupt as of the date that the Proposal was originally filed.
Advantages of a Proposal
Disadvantages of a Proposal
The Credit Bureau will report the Proposal for a period of 3 years after the Proposal has been paid or 6 years in total.
*These FAQ's are not intended to be a legal document with respect to insolvency. They are intended to be a simple guide to the most common areas of concern regarding bankruptcy.