Important Facts About Bankruptcy
No-one wants to go bankrupt, but sometimes applying for bankruptcy is the best way to deal with debt and get debt relief. As an Ontario bankruptcy trustee firm helping individuals eliminate debt since 1999, Hoyes Michalos believes there are several facts you should know about bankruptcy before deciding to declare bankruptcy.
What is bankruptcy?
Personal bankruptcy is a legal process where an individual who cannot repay debts to creditors can be discharged from their obligations to repay eligible debts. Debtors assign their rights to non-exempt assets for the benefit of their creditors, in exchange for which they are released from unsecured debts. Bankruptcy in Canada must be filed with a Licensed Insolvency Trustee who ensures that the rules and laws around the bankruptcy process are applied fairly to both the debtor and creditors.
Bankruptcy laws in Canada
Federal bankruptcy laws are set out in the Bankruptcy & Insolvency Act. The BIA defines the proceedings available to individuals seeking resolution to their debts: personal bankruptcy, consumer proposal and a Division I proposal.
Declaring bankruptcy means a fresh start. Bankruptcy legislation is what provides immediate protection from creditor actions, known as an automatic stay of proceedings. Collection agencies and creditors stop calling. Wage garnishments will stop.
Provincial laws also impact your bankruptcy, including legislation that defines what assets are exempt from seizure when you file bankruptcy.
Who qualifies to file bankruptcy?
To be eligible to file bankruptcy in Canada you must be an insolvent person which means you:
- owe at least $1,000 in unsecured debt,
- are unable to pay your debts as they come due or
- you owe more in debts than the value of the assets you own, and
- you must either reside, do business, or have property in Canada.
You do not need to be a citizen to file bankruptcy. You can be a permanent resident or even live abroad but have property here.
What assets do you keep in a bankruptcy?
There are consequences of filing bankruptcy, but this does not mean that you lose everything.
When declaring bankruptcy in Ontario, most personal belongings are exempt from seizure by law. It’s even possible to keep your car and house when filing for bankruptcy. RRSPs are also protected in a bankruptcy in Canada with the exception of contributions made in the last year.
What debts are discharged by bankruptcy?
Bankruptcy eliminates unsecured debts, including credit card balances, bank loans, lines of credit, payday loans, even tax debts. Student loans can also be included in a bankruptcy if you have been out of school for seven years.
Secured debts are not affected by your bankruptcy. Examples would be your mortgage or car loan. Secured creditors have rights to the collateral or assets you pledged against the loan if you are behind on payments.
Some debts remain including support payments, debts due to fraud and court fines.
For more information see our article on debts included in a bankruptcy.
How does your income affect the cost of bankruptcy?
Bankruptcy in Canada is based on the principle that the more you make, the more you will pay. Technically this is called surplus income and this will affect the cost of bankruptcy. If your income is above the government mandated threshold for your family size, you can avoid surplus income by filing a consumer proposal.
How long will you be bankrupt?
The length of bankruptcy depends on two factors: if you’ve filed bankruptcy before and your income level.
If you are a first-time bankrupt with no surplus income, have completed all your duties and if no creditors object, you could begin your life debt free in just 9 months.
If you have surplus income your bankruptcy will be extended to 21 months. Those filing bankruptcy a second and third time will be bankrupt longer.
As part of the bankruptcy process, you will need to attend two credit counselling sessions that will help you learn to manage your money and rebuild credit. At Hoyes, Michalos we offer a free ‘for clients only’ website to help support you through this learning.
There are alternatives to bankruptcy
Not every person experiencing debt problems needs to file insolvency. When you meet with a Licensed Insolvency Trustee for a debt assessment, part of the review includes a discussion of the alternatives to bankruptcy.
A consumer proposal might be a better solution for you. As one of Ontario’s largest consumer proposal administrators, we have the experience to help you choose between claiming bankruptcy and making a debt proposal to creditors.
Evaluate your alternatives to bankruptcy with our Debt Options Calculator.
Should you claim bankruptcy?
Deciding if bankruptcy is the right solution for you begins with a free financial assessment of your situation. You will meet with a Licensed Insolvency Trustee who will ask questions about your debts, your income and your budget.
If filing bankruptcy in Ontario is the right solution for you, your trustee will fully explain the process and answer any further questions you may have.
At Hoyes, Michalos and Associates we are proud to be a team of understanding professionals who can help you decide if personal bankruptcy is the right solution to deal with your debts.