How to File Bankruptcy – The Bankruptcy Process
Filing for bankruptcy does not have to be a scary process. In fact, the act of declaring bankruptcy is a positive step towards eliminating overwhelming debts.
Bankruptcy in Canada is a legal process in which a debtor assigns non-exempt assets for the benefit of his creditors in exchange for which he will be discharged from most debts. It is regulated by the Bankruptcy and Insolvency Act. The purpose of the Act is to permit an honest, but unfortunate, debtor to obtain a bankruptcy discharge from his or her debts, subject to reasonable conditions.
Bankruptcy in Canada must be filed through a Licensed Insolvency Trustee. The trustee’s role in the process is to act as a sort of referee, ensuring that both the debtor and the creditors, are treated fairly and evenly.
Reasons for Filing Bankruptcy
- Eliminates most unsecured debts
- Stops wage garnishments
- Stops collection actions
- Credit counselling to help financial recovery
- Fresh start free from debt
After filing bankruptcy, unsecured creditors will not be able to take legal steps to recover their debts (such as seizing property or wage garnishment) once a bankruptcy procedure has started.
Steps to Filing Bankruptcy in Canada
There are 5 basic steps to filing bankruptcy with a Licensed Insolvency Trustee in Canada:
- Get a free debt assessment,
- Sign the paperwork to declare bankruptcy,
- The trustee files these documents with the government starting your creditor protection,
- Complete your bankruptcy duties, then
- Obtain your Certificate of Discharge which eliminates your debts.
Get a free debt assessment
To start the bankruptcy process, first, you contact a Hoyes, Michalos & Associates licensed insolvency trustee who will assess your financial situation and explain the debt relief options available to you, including bankruptcy and alternatives to bankruptcy. After that, if you still want to declare bankruptcy, the trustee will help you complete several bankruptcy forms for signing. You are considered a bankrupt only when the trustee files the bankruptcy paperwork with the Official Receiver.
Rules pertaining to declaring bankruptcy and the bankruptcy process allow for filing a joint assignment. A joint bankruptcy assignment allows debtors, involved in a close financial relationship, to file for bankruptcy and to see their files dealt with as one file. This is available to debtors if their debts are substantially the same and the bankruptcy trustee believes it is in the best interest of the debtors and creditors.
What forms do I sign to declare bankruptcy?
When filing for bankruptcy in Canada, you will have to sign at least two forms. One is an “Assignment”, and the other is a “Statement of Affairs”. In the bankruptcy assignment, you state that you are handing over all of your property to the bankruptcy trustee for the benefit of your creditors. The statement of affairs is a list of your assets, liabilities, income, and expenses. You will also have to answer several questions about your family, employment, and disposition of assets. Before signing, make sure you understand the legal documents that are part of the bankruptcy file. Although the trustee prepares them from the information you provide, they are your statements. You are responsible for the accuracy of their content. Once these documents have been filed with the Official Receiver, you are legally bankrupt, and, at this point, the bankruptcy process cannot be reversed without a court order. Keep copies of notices and all other bankruptcy documents the trustee sends you.
What happens after I file bankruptcy?
Your stay of proceedings begins immediately after your bankruptcy is filed with the government. That means collection calls stop and your trustee can notify your employer to stop a wage garnishment if needed.
After filing, you stop making payments to your unsecured creditors and make your bankruptcy payments instead.
Read more: What debts are included in a bankruptcy?
Completion of Duties
Once you are legally bankrupt, you are required to perform the bankruptcy duties as outlined in Appendix I of the Act. The trustee will inform you of these duties but generally, they include making your bankruptcy payments, providing information about your monthly budget, attending two credit counselling sessions, and keeping the trustee notified of any material changes to your situation.
Meeting of Creditors
Generally, a meeting of creditors is not necessary but there may be instances where such a meeting will be held. (A creditors’ meeting is only held in about one personal bankruptcy out of 1,000, and generally only if you have significant tax debt). Creditors or the Official Receiver may request one after filing bankruptcy. If a meeting of creditors is called, you must attend this meeting. You may also be required to go to the Official Receiver’s office to answer several questions under oath about your financial affairs.
If a meeting is called, the next step in the bankruptcy process will be preparing a report about your assets and liabilities for the creditors by your bankruptcy trustee, and creditors may ask you related questions. The creditors will then vote to either confirm the trustee’s appointment or substitute a trustee of their choice. The creditors will then have an opportunity to vote for the appointment of inspectors. They may also give directions to the trustee with reference to the administration of the bankruptcy estate.
Examination with the Official Receiver
During the bankruptcy process, the Official Receiver may send you a notice instructing you to appear before him or her for an examination under oath. The Official Receiver will then ask you a number of questions about the causes of your bankruptcy, conduct, disposition of property, and the nature of your debts.
An examination occurs in about 1 out of every 300 bankruptcies, and in most cases, the bankrupt is selected at random for the examination. If you are selected by the government for an examination, your Hoyes, Michalos trustee will meet with you prior to your examination to review the questions you are likely to be asked, and help prepare you for the examination.
When is a Bankrupt Discharged?
There will be an automatic bankruptcy discharge for a first-time bankrupt nine months after they became bankrupt unless the trustee recommends a discharge with conditions or it is opposed by either a creditor, the trustee or the Superintendent of Bankruptcy. In addition, if you have surplus income of more than $200 per month, your bankruptcy will be extended to 21 months in the case of a first bankruptcy.
Schedule a Free Debt Assessment
Still have questions? See our Personal Bankruptcy FAQ page or contact us for a free consultation. We are happy to answer any questions you have about filing bankruptcy over the phone or by email.
Hoyes, Michalos has helped over 60,000 individuals file a bankruptcy or consumer proposal since 1999. Our licensed bankruptcy trustees always take the time to answer any questions you have about how to file for bankruptcy and how bankruptcy will affect you and your family. Contact us so we can help you make a plan to be debt free.
Ready to file? Hoyes Michalos provides bankruptcy services in the following locations:
- Niagara Falls
- North York
- Ottawa West - Kanata
- St. Catharines
- Toronto Downtown
- Toronto Etobicoke
- Toronto Yonge & Bloor
- Personal Bankruptcy in Toronto
Other service areas
We offer the convenience of phone and video-conferencing only services for the following additional areas. Many people find it advantageous to begin the initial consultation and debt assessment over the phone or by video. If you decide to file, you can sign and complete your paperwork electronically. Credit counselling sessions can also be completed through video conferencing, which eliminates the need to miss work or schedule a time to attend the office.