What is personal bankruptcy?

Bankruptcy is intended to be a measure of last resort. It is a legal process which provides immediate financial relief and protection to individuals who are unable to meet their financial obligations. It is governed by federal legislation under the Bankruptcy and Insolvency Act and is applicable in all provinces.

An insolvent person may make an Assignment in Bankruptcy for the general benefit of his creditors. An insolvent person is anyone whose liabilities to creditors exceed $1,000 and who is unable to meet his obligations as they generally become due or has ceased paying his current obligations in the ordinary course of business or whose property is not at a fair valuation or disposition, sufficient to enable payment of all his obligations.

A bankruptcy starts when you instruct a Licensed Insolvency Trustee to file an Assignment in Bankruptcy on your behalf. The Assignment is accompanied by your sworn Statement of Affairs, which is essentially a listing of your assets and liabilities. Notice of the bankruptcy, along with your Statement of Affairs, is sent to your creditors by the Licensed Insolvency Trustee. After filing, a Stay of Proceedings is initiated, whereby no creditor can take or continue any legal or collection action against you.

The Bankruptcy and Insolvency Act provides for an automatic absolute discharge, for most first-time bankrupts, after nine or twenty-one months, depending on income level. For a second time bankrupt, the automatic discharge is available after twenty-four or thirty-six months. An average consumer bankruptcy takes from nine to thirty-six months to reach the discharge state. It formally ends when you receive a Certificate of Discharge from the Licensed Insolvency Trustee or an Absolute Order of Discharge from the Court.

No, there are certain debts which are not eliminated, the most common of which are obligations for alimony and child support, court fines and penalties (such as speeding and traffic tickets) and certain student loans. If you have a mortgage against your house, or a security agreement against a car or furniture, you must keep the payments current if you intend to keep these assets. Utility bills may need to be paid, or satisfactory payment arrangements made, in order to continue service. A Licensed Insolvency Trustee can assist you in determining whether any of your debts may not be eliminated.

Generally, you can keep your personal property and household furnishings with an equity value up to $4,000, a vehicle with an equity value up to $5,000, your Pension Plan, RRSP and RESP. Other exemptions are available for trades people, professionals and farmers. It is important to note that these exemptions may not be available when your possessions have been pledged as security against a loan. All non-exempt property must be delivered to the Licensed Insolvency Trustee, who will turn it into cash to be applied to administrative costs and your outstanding debt.

If there is any equity available over and above your mortgage, it may be affected by a bankruptcy. The Licensed Insolvency Trustee is required to pursue any equity available in a house over and above a basic exemption of $40,000. Even in a bankruptcy, your mortgage payments must be kept current to prevent the loss of the house through foreclosure action.

When you file an Assignment in Bankruptcy, collection and garnishment actions by creditors are stopped immediately, and therefore your paycheques are protected from creditors. However, if your income is sufficient to allow it, you may be required to contribute a portion of your surplus income to the Licensed Insolvency Trustee for the benefit of your creditors. Formal guidelines exist to determine whether such payments must be made.

Yes. There are no restrictions on maintaining bank accounts while you are bankrupt.

There are restrictions on your ability to obtain credit while you are bankrupt. Also, you are required to turn in your credit cards to the Licensed Insolvency Trustee. A Licensed Insolvency Trustee can advise you in your specific situation.

Your principal obligations are to be honest and forthright with the Licensed Insolvency Trustee, to keep in contact with him/her, to advise of any significant change in your circumstances, and to provide such information or attend such meetings as may be required during the course of the bankruptcy. A Notice detailing the duties of the bankrupt is provided to you prior to filing an Assignment in Bankruptcy. The Discharge process may require that you appear before a Registrar, a Court officer who has the authority to deal with bankruptcy matters.

Bankruptcy regulations require that you take part in a program of counselling intended to address issues related to the bankruptcy. There are two mandatory counselling sessions:

  1. First-stage counselling occurs within 60 days of the date of Bankruptcy and covers money management, spending and shopping habits, warning signs of financial difficulties and obtaining and using credit.
  2. Second-stage counselling is held between 30 days and 210 days after completing the first-stage session and covers causes of bankruptcy, follow-up on targets and goals in the first-stage counselling, and referrals, if necessary.

No, consumer bankruptcies are not published in the local newspaper; however, they are often reported in publications and reports of interest to lending institutions. The record of a bankruptcy is maintained as a permanent part of the files of the Superintendent of Bankruptcy. It might also become a part of the Court records. Also, credit reporting agencies are likely to maintain bankruptcy information on their files for six years after discharge.