Declaring Bankruptcy
How do I get out of debt? Here’s what’s involved in declaring bankruptcy in Canada. Don’t eliminate from your list of options. It may well be the right choice for you.
Process
Step 1: Contact a debt-relief counselor or another third party who has no financial interest the the solution you choose.
The following information is from the Office of the Superintendent of Bankruptcy’s (OSB) website, as referenced below.
Step 2: Contact a trustee and attend a meeting with him or her to talk about your personal situation and your options.
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.)
Step 3: Work with the trustee to complete the required forms.
- 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).
Step 4: The trustee sells your assets and you make payments to the trustee.
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.
Step 5: The trustee notifies your creditors of the bankruptcy.
Step 6: You attend a meeting of creditors, if one is called.
- 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.)
Step 7: You attend an examination by an officer at the OSB, if required.
(ed: Again, this is a rare occurrence. I have experienced it, and can help you through this stressful process.)
Step 8: You attend two counselling sessions.
Step 9: The trustee prepares a report to the OSB describing your actions during the bankruptcy.
- 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.
Step 10: You attend the discharge hearing, if required.
- 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.
Step 11: The bankruptcy is discharged.
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.
Note that bankruptcy does not affect the liability of someone who guaranteed or co-signed a loan on your behalf.
– from The Office of the Superintendent of Bankruptcy Canada.