Banks don’t want you to consider government options (bankruptcy or consumer proposals); they’d prefer to sell you yet another (consolidation) loan. Trustees want you to consider a consumer proposal before bankruptcy (they earn more that way). Debt-negotiation companies demand you pay upfront based on the percentage of your debt, regardless of their results.

The following information is from the Office of the Superintendent of Bankruptcy’s (OSB) website, as referenced below. 

To find a trustee in your area, consult the Yellow Pages and search using the keywords Bankruptcy Trustees. You can also perform a search through the Trustee Directory.

The trustee will evaluate your financial situation and provide you with an explanation of the merits and consequences of the various options available to help you to solve your financial problems. (ed: remember that you have the right to find the trustee with whom you feel most comfortable, the one you trust the most. Each will give you a free consultation. In Victoria, there are seven trustees. You have the right to meet with them all, ask for their opinions, and consider their advice. Your debt-relief consultant may be able to recommend one for you.)

The trustee will then file the bankruptcy with the Office of the Superintendent of Bankruptcy. Responsibilities of the Bankrupt

• disclose all of his or her assets (property) and liabilities (debts) to the trustee;
• advise the trustee of any property disposed of in the past year;
• surrender all credit cards to the trustee;
• attend the first meeting of creditors (if a meeting is requested by the creditors);
• attend two counselling sessions;
• advise the trustee in writing of any address changes;
• attend an examination at the Office of the Superintendent of Bankruptcy, if required; and
• generally assist the trustee in administering the estate.

The trustee will prepare the necessary documents and file them with the OSB. You will then formally be declared bankrupt. From that point on, the trustee will deal directly with your creditors.

Once you are bankrupt,

• you will stop making payments directly to your unsecured creditors;
• garnishments against your salary will stop; and
• lawsuits against you by your creditors will be stayed (stopped).

The trustee will then sell your assets, except those exempted by provincial and federal laws, and hold the proceeds in trust for distribution to your creditors. This includes all existing assets as well as those acquired prior to the discharge of your bankruptcy.

Once you have filed for bankruptcy, you cannot dispose of any assets assigned to the trustee.

During the bankruptcy, you will also be required to make payments to your trustee for distribution to your creditors.

The trustee determines how much you will be required to pay. She or he calculates the amount by taking into account your total income, income standards issued by the OSB, and your personal and family situation.

The trustee will notify all of your creditors about your bankruptcy. Depending on the expected size of your bankruptcy estate and whether or not there are requests from creditors or the OSB, there may be a meeting of creditors.

The purpose of this meeting is to

• allow creditors to obtain information about the bankruptcy;
• confirm the appointment of the trustee;
• appoint up to five inspectors to supervise the administration of your estate; and
• allow creditors to give directions to the trustee.

(ed: This seldom happens. Keep in mind that many creditors/banks may have insured your debt, so even when you default, they collect.)

After filing for bankruptcy you may be examined under oath by a representative of theOSB. The purpose of the examination is to question you, the bankrupt, with respect to your conduct, the causes of the bankruptcy and the disposition of your property.

(ed: Again, this is a rare occurrence. I have experienced it, and can help you through this stressful process.)

The purpose of the counselling is to help you discover and understand the causes of your bankruptcy. These sessions will also provide information to assist you in managing your financial affairs in the future.

In certain circumstances, the trustee prepares a report regarding your application for discharge. This report describes your financial situation and analyzes

• your financial affairs;
• the causes of the bankruptcy;
• the manner in which you performed your duties under the Bankruptcy and Insolvency Act (BIA);
• your conduct before and after the bankruptcy;
• whether you were convicted of any offence under the BIA (sections 198 to 208); and
• any other fact that could justify the Court refusing to your discharge.

You will be automatically discharged nine months after filing for bankruptcy if the following conditions are met:

• this is your first bankruptcy;
• your discharge is not opposed by the Office of the Superintendent of Bankruptcy, the trustee or a creditor;
• you have not refused or neglected to receive counselling; and
• you are not required to pay a portion of your surplus income into the bankruptcy estate as per the standard established by the OSB.

If you are required to make payments from your surplus income, you will be eligible for an automatic discharge after contributing part of the surplus to your estate for 21 months.

For a second bankruptcy, if payments from surplus income are not required, automatic discharge takes place 24 months after the date of the bankruptcy. Second-timebankrupts with surplus income, however, are required to contribute part of the surplus to their estate for 36 months, after which they are eligible for an automatic discharge.

(ed: You are allowed to get legal representation for your discharge hearing, consult a lawyer, and/or prepare and read a statement in your defense to the courts. My trustee did NOT tell me I had these rights, and I feel it’s important that you do know this! While nine times out of ten the courts agree with the Trustee, I consulted a lawyer and prepared/presented a statement in my defense, and the courts chose in my favour. A little knowledge goes a long way!)

For bankruptcies filed before September 18, 2009

In many cases, a first-time bankrupt is automatically granted a discharge nine months after filing for bankruptcy unless a creditor, the trustee or the OSB objects.

If you are granted an automatic discharge, there is no Court hearing and the trustee sends you a copy of the discharge.

For those who have been bankrupt before, or who do not qualify for an automatic discharge, the trustee will apply to the Court for an appointment to hear the application for discharge. (This application must be done no later than one year after the date of the filing of your assignment in bankruptcy.)

If you are granted an automatic discharge, there is no Court hearing and the trustee sends you a copy of the discharge.

For those who do not qualify for an automatic discharge, the trustee will apply to the Court for an appointment to hear the application for discharge.

At the hearing, the trustee’s report is used to inform the Court of the circumstances surrounding your bankruptcy.

The Court will choose one of the following discharge alternatives:

• Absolute discharge — With an absolute discharge you will be released from the obligation to repay the debts you had as of the date your bankruptcy was filed, except for certain types of debts that are excluded (see Step 10).
• Conditional discharge — A conditional discharge requires that you fulfill certain conditions prior to obtaining your absolute discharge. Typically, you will be required to pay a certain amount of money, possibly over time. However, the Court may impose other types of conditions as well. Once the conditions are met, an absolute discharge will be granted.
• Suspended discharge — A suspended discharge is an absolute discharge that does not take effect until a future date.
• Discharge refused — The Court has the right to refuse a discharge.

Once you are discharged from bankruptcy, you will be released from the legal obligation to repay the debts you had at the date of bankruptcy, except for certain types of debts that are excluded.

The types of debts that are excluded from discharge include:

• Alimony payments and child support.
• Student loans, if it is less than seven years since you ceased to be a full- or part-time student. However, five years after your studies, you can make an application for release from your student loans on the basis of hardship. Learn more about student loans
• A fine or penalty imposed by the Court.
• Debt arising from fraud.