FAQ Questions and Answers.
View this PowerPoint presentation for an overview of the bankruptcy process.
Bankruptcy is a legal process that is available to anyone, who is hopelessly burdened with debt, to get a fresh financial start. To go into bankruptcy you must be insolvent, which means:
• You owe at least $1,000;
• You are not able to pay your debts as they are due;
• Your debts exceed the value of your assets;
• You are not already bankrupt.
Trustees in bankruptcy are the only debt professionals, that can provide a full range of debt relief options and the only debt professionals that can guarantee protection from your creditors making any sort of collection attempt.
By law, all actions against you must cease once the bankruptcy documents are filed.
Unless you are a prominent person it is likely that only your creditors will know you have filed bankruptcy. If you have minimal assets, your creditors are notified by mail only. There is no advertisement placed in the local newspaper. However, all bankruptcy filings are public and the general public may access the documents.
There are two ways a person can become a bankrupt. The first and most common way is to make an assignment in bankruptcy (voluntary bankruptcy). The second and rarely used way is for creditors to ask the court to make an order that a person is bankrupt (involuntary bankruptcy). In both cases a Trustee in Bankruptcy is required to administer the process.
Usually, you complete an application form and provide it, along with all related information and documentation, to the Trustee. The Trustee will meet with you to ensure that bankruptcy is the most appropriate option in your circumstances. The Trustee then prepares the bankruptcy documents for you to sign. Once they are signed and filed with the Superintendent of Bankruptcy, you are officially bankrupt.
By law, you are entitled to keep up to $31,000 of equity in specified assets.
An individual in British Columbia is allowed to keep the following assets:
This depends on how much equity you have. With a house for example, your equity would be the amount left over after mortgages, penalties and property taxes are taken into account. If your equity in the asset is within the allowable limit, then the Trustee will generally release the asset to the secured creditor. You and the secured creditor would then make arrangements for you to keep the asset and continue making the mortgage or loan payments. If your equity exceeds the exemption limit, arrangements can often be made with the Trustee for you to “buy back” anything over the exemption limit in order to keep your assets. Please refer to the BC Bankruptcy Exemptions.
When you make an assignment in bankruptcy all your assets (or equity in assets) in excess of the allowed exemption, vests in the Trustee for the benefit of your creditors. This includes inheritances received or to which you might become entitled by the death of someone during the time of the bankruptcy as well as lottery winnings earned during your bankruptcy. All cash assets you have at the time of your bankruptcy, are generally not exempt, no matter the amount.
Not directly. Husbands and wives are separate individuals. Therefore, unless the spouse also files bankruptcy, the spouse’s assets and liabilities are not affected. However, where assets are owned jointly, e.g. a house or car, it is the Trustee’s responsibility to liquidate the one-half interest owned by the bankrupt. Also, if both spouses signed a debt, then the bankruptcy of one spouse means the other is now liable for the full debt.
Your spouse’s assets and wages are not affected if you file bankruptcy.
Trustees are the only debt professionals who can guarantee you protection from your creditors and the only debt professionals who can offer a full range of debt relief solutions. You are protected when using a trustee because trustees fees are regulated by the government.
You must report your income to the Trustee each month. However, earnings after the start of a bankruptcy, such as wages, salaries or commissions, belong to the bankrupt person and are not normally interfered with by the Trustee. The Superintendent of Bankruptcy will set income standards that will allow a debtor a reasonable amount of earnings for comfortable living based on the family size, and any additional earnings must be paid to the bankruptcy estate.
Most debts are erased when the person is discharged from bankruptcy (usually in 9 months). The following debts are not erased:
• Debt that was incurred through fraud or misrepresentation;
• Any alimony, child support, or maintenance payments;
• Student loans (unless the person ceased being a student (full or part time) more than 7 years prior to bankruptcy filing);
• Debt for damages imposed by Civil Court for intentional bodily harm, sexual assault or wrongful death;
• Also, bankruptcy does not generally interfere with secured debts (i.e. a mortgage or vehicle lease) if there is no equity in the secured asset.
Alimony or maintenance payments must be kept up-to-date when in bankruptcy. Also, if you have alimony or maintenance arrears outstanding when you file for bankruptcy, your vehicle exemption limit is reduced from $5,000 to $2,000.
In most cases the cost of a bankruptcy is less than $200 a month for each of 9 months. The amount you are required to pay will depend upon your particular circumstances. The Trustee will explain to you the amount you are required to pay once your situation has been assessed. In the simplest cases it usually amounts to $1,800, which includes all necessary filing fees, disbursements, taxes and counselling fees. Our firm will allow you to pay these fees over time.
Yes, you are required to take the financial counselling to be eligible for an automatic discharge from bankruptcy after 9 months. You may complete the counselling alone with your trustee, or with a group of other bankrupts (and your trustee.) Two counselling sessions will be held.
You must be co-operative and respond to the Trustee’s requests in providing all information required during your bankruptcy. You must keep the Trustee informed as to where you are living and as to any material changes in your circumstances, you must also provide the Trustee with monthly reports of earnings and expenses. The Trustee will provide you with the appropriate forms to be filled in to provide the necessary information. As well, there may be a meeting of creditors approximately 1-2 months after the commencement of the bankruptcy in which the bankrupt is required to attend. These meetings are usually held at the office of the Trustee.
The majority of people are out of bankruptcy in 9 months.
Bankruptcy Discharge Rules:
Click here for the bankruptcy discharge rules in BC.
Student loans can not be discharged through bankruptcy, unless the person stopped being a student more than 7 years prior to filing bankruptcy.
However, there is a harship application in place that will allow a person to petition the court to include the student loans in bankruptcy 5 years after the student ceased school if the person can prove the debts are causing a hardship.
Under the Bankruptcy and Insolvency Act, a Trustee or an administrator files a Proposal or an arrangement between you and your creditors to have you pay off only a portion of your debts, extend the time you have to pay off the debt, or provide some combination of both. To be acceptable, your creditors must be better off under a Proposal than if you go bankrupt.
There are two types of Proposals an individual can file:
Consumer Proposal – A person is eligible if his aggregate debts, excluding debts secured by a principal residence, do not exceed $250,000. The consumer proposals cannot be for more than five years. If the creditors do not accept the Proposal the debtor is not automatically bankrupt. Counselling is required;
Other Proposal – There is no restriction on the amount a person owes. If the creditors do not accept the Proposal the person is automatically bankrupt effective as at the date of the creditors’ meeting. Counselling is not required.
People can also contact their creditors, take credit counselling, and/or get a consolidation loan.