How much does it cost to declare bankruptcy?
You may be surprised to learn that it costs money to claim bankruptcy in Canada. The cost of bankruptcy differs for each individual as it is based on monthly income, expenses, family size, and assets. Without knowing the specifics of an individual situation, we can’t give the exact costs. However, we can walk you through all the considerations that an Ontario bankruptcy trustee will talk about when determining what a bankruptcy will cost.
There are three components to the cost to file bankruptcy in Ontario or any province in Canada:
- Monthly contributions to cover the cost of administration,
- Surplus income payments as dictated by legislation, and
- Assets you keep or lose under bankruptcy law.
There is a financial cost to bankruptcy and it’s different for every person who goes bankrupt; that’s because the government has decided that, the more you earn and the more you own, the more you have to pay to your creditors.
First, let’s look at the cost based on your income. The government knows you need income to live on, so they allow you to keep a portion of your income for living expenses. The amount you get to keep is based on your family size; the bigger your family, the more you get to keep. Earn income over this threshold and you have to pay half of this surplus income to your creditors.
The second cost of bankruptcy is based on the assets you own. In a bankruptcy, you don’t lose everything; just like with your income, the government created rules of what you can keep and what your creditors can have. The rules differ by province, but in Ontario you can keep; most personal possessions and household furnishings, tools you need for work, one motor vehicle depending on its value, most pension and RRSP savings, except recent contributions to an RRSP. There are dollar limits on the value of assets you keep but, in most cases, people find the limits high enough to protect their basic belongings.
Your creditors are entitled to; any equity in your home, investments and other assets, RRSP contributions you have made in the last year, tax refunds you might be entitled to up to the year you go bankrupt. If you have a lot of assets or a high income you should talk to your trustee about a consumer proposal, you can negotiate a plan to settle your debts and keep your assets. If you don’t have any assets and don’t earn any income, you might not even have to file bankruptcy, but if you do, you will need to make payments to cover the cost of administering your bankruptcy.
Your situation is unique.
To get an estimate of what your bankruptcy might cost, please call or email us to arrange a no-charge initial consultation with a Hoyes Michalos professional.
How you pay your fees and monthly payments may differ by trustee. Hoyes Michalos is one of the only Ontario bankruptcy trustees who offer the convenience of flexible pre-authorized payments to help make managing your bankruptcy payments easier. You can set your payments monthly, weekly, bi-weekly – whatever works for you. We do not collect substantial up-front fees which may be the case with some trustees and is often the case with other debt consultants.
Minimum monthly bankruptcy contribution
The minimum cost to file for bankruptcy in Canada is $1,800 for a first-time bankruptcy, payable in 9 monthly installments of $200. You are required to make this minimum contribution to cover administrative costs such as government fees, the bankruptcy trustee’s time, mailing, etc.
Surplus income rule can increase payments
The general concept of a surplus income payment is “the more money you earn the more money you pay” into your bankruptcy for the benefit of your creditors.
The government has set net monthly income thresholds, for a person or a family, to maintain a reasonable standard of living in Canada. Every dollar that a bankrupt makes above this income threshold, is subject to a surplus income payment of 50%. For example, if your income is $400 above the limit, you would be required to make a surplus income payment of $200.
Each month you will be required to send your bankruptcy trustee a copy of your paystub(s), so they can calculate your net income and determine if any surplus income payments are required, and if so how much they will be.
- A first bankruptcy will last for a minimum period of nine months.
- If on average you are paying more than $100 per month in surplus income payments, then your bankruptcy will be extended for an additional 12 months.
However, in the event that you are also paying child support, or have significant medical expenses, then your income will be reduced by these amounts, reducing your surplus income total.
To calculate what your potential surplus income might be, try out our surplus income bankruptcy calculator.
You may lose some assets in a bankruptcy
The final “cost” of a bankruptcy is the assets that you lose when you go bankrupt. In order to be absolved of your debts, you will need to surrender certain assets to your bankruptcy trustee.
Even in bankruptcy you don’t lose everything. Just like with your income, the government created rules of what you can keep, and what your creditors can have. Some assets are exempt from seizure by a bankruptcy trustee. Read more about bankruptcy exemptions in our article about bankruptcy and assets.
In Ontario, the assets you will be required to surrender are:
- Equity in your house if it is greater than $10,000;
- The value of a car with no loans (over the $7,117 exemption limit);
- Investments (like Canada Savings Bonds or other non-exempt assets);
- Tax refunds for prior years that you haven’t yet filed and for the entire year that you are bankrupt;
- Any RRSP contributions that you have made in the last year prior to filing bankruptcy.
The bankruptcy trustee is required to “realize” on your assets, which means “turn them into cash”. The trustee is not required to seize your assets and sell them; they are only required to “turn them into cash”. So, for example, if you have contributed $1,000 to your RRSP in the prior year, you could offer to pay an extra $1,000 to the trustee to keep your RRSP. The trustee and the creditors receive the cash, and you keep your asset.
If you have a lot of assets or a high income, you should talk to your trustee about a consumer proposal. You can negotiate a plan to settle your debts and keep your assets.
What are bankruptcy trustee fees?
All bankruptcy trustee fees are regulated by the federal government and are included as part of your bankruptcy or consumer proposal payments.
Most personal bankruptcies in Ontario are summary administrations. Fees in a summary administration are based on a government tariff set our under Rule 128 of the Bankruptcy & Insolvency Act and are based largely on a percentage of realizations in a bankrupt’s estate. These fees are paid before distribution is made to the creditors so it is effectively the creditors who are paying the bankruptcy trustee’s fees. These fees are calculated as:
- 100% of the first $975;
- 35% up to the next $2,000;
- 50% of receipts over $2,000.
- Reimbursement for credit counselling fees, filing fees, and administration costs.
You are not required to pay an extra fee to the trustee. The trustee receives their fee out of the monthly contributions you are making. For example, if you are required to pay $200 per month based on your income that is all you pay. There are no extra fees because the trustee receives their fee out of that $200 per month payment.
Get a free estimate
As you can see, the actual costs of claiming bankruptcy in Ontario are somewhat complicated and vary by individual case. The only way to get an accurate answer on exactly how much an Ontario bankruptcy will cost is to speak with a licensed bankruptcy trustee. At Hoyes, Michalos & Associates we are happy to offer everyone an initial FREE, no-obligation professional consultation.
Let one of our expert, local, trustees in bankruptcy review your situation and explore the cost of all the Ontario debt management options available to you. We will help you determine if bankruptcy is indeed the correct solution and if so, outline exactly how much your individual bankruptcy will cost.
You are not alone; at Hoyes Michalos & Associates we are confident that we can finally help you to successfully resolve your overwhelming debts.