What is Bankruptcy?

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.

What is a Trustee and what do they do?

Cost: In most cases, It will cost you less to use a trustee than other Debt Consultants since trustees have their fees regulated by the government.

Quicker Way to Rebuild Your Credit Rating: Filing a Bankruptcy or a Proposal is often a quicker way to rebuild your credit rating than using a credit counsellor. So long as you are on any kind of payment plan the credit bureau will record this fact. Using a credit counsellor will not give you a better credit rating faster. In fact, you will likely take longer to re-establish a good rating and pay much more.

Full Range of Debt Relief Options: 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.

A person has to use a trustee if he or she goes bankrupt. However, trustees are not just for filing bankruptcy. They are also Professional Debt Consultants and can make arrangements with your creditors on your behalf; provide debt counselling; negotiate settlement agreements and help you make a proposal to your creditors to avoid bankruptcy.

Integrity: If a trustee feels you need the protection of independent legal advice the trustee will refer you to an insolvency lawyer. In some cases the trustee will be able to advise you of a solution that will cost you nothing and have you avoid bankruptcy. Trustees are guided by a stringent code of ethic and will give you the best advice possible even if it means you do not use their services.

Training and Expertise: Trustees are the most highly trained and educated Debt Consultants in Canada. Almost all trustees have both an accounting designation and a university degree. In addition, all must complete and pass a rigorous three-year bankruptcy and law course and be investigated by the RCMP before being granted a trustee license. Ongoing professional development is mandatory.

Your Protection:  When dealing with a trustee you are protected firstly by the fact that the federal government regulates trustees and secondly by the stringent code of ethics to which all trustees are subject. Trustees in bankruptcy are the only debt professionals, in Canada, that are regulated by the government.

Will My Creditors Stop Harassing Me?

Yes. By law, all actions against you must cease once the bankruptcy documents are filed with the Superintendent of Bankruptcy. This does not apply to secured creditors such as banks, holding a mortgage on a house or a lien on a car, nor does it apply to a debt for alimony or maintenance.

 Who Will Know?

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. In a bankruptcy, where there are significant assets, a notice is placed in the legal section of the newspaper notifying creditors of the date of the meeting of creditors. When the documents are filed with the Superintendent of Bankruptcy, the Credit Bureau is notified and the bankruptcy is recorded and will remain on your credit record for six years from the date of your discharge.

How Do I Go Into Bankruptcy?

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.

How Much Am I Allowed to Keep?

An individual in British Columbia is allowed to keep the following assets:

• Equity in a home in Greater Vancouver or Victoria $12,000

• Equity in a home elsewhere in the Province $9,000

• Work Tools $10,000

• Household Furniture and Effects $4,000

• Equity in a Vehicle $5,000

• Necessary clothing and all required medical aids Unlimited

If you are in arrears on a child maintenance order, the vehicle exemption is reduced to $2,000. Under legislation, certain superannuation (pension) plans, retirement savings plans, life insurance policies and court awards for pain and suffering are also exempt.

Will I Lose My House or Car?

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.

What if I Have the Cash Flow to Make a Proposal?

If a person has the ability to make a proposal (i.e. his or her income exceeds their living expenses), then he or she should consider making a proposal. If any person files for bankruptcy when he or she has the ability to make a proposal, it is the Trustee's duty to oppose the bankrupt's discharge. In this case, the bankrupt may be in bankruptcy an additional 12 months beyond the usual 9 months. The bankrupt will be required to make payments in each of these months.

What Don't I Keep?

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.

Are My Spouse's Assets and Liabilities Affected by the Bankruptcy?

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.

What is the main difference between Credit Cousellors and Trustees?

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.

What About My Wages During Bankruptcy?

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. There are standards supplied to the Trustee by the Superintendent of Bankruptcy, which instruct the Trustee to collect funds, for the benefit of creditors, from any earnings above what is reasonable for the number of people in the family and the bankrupt's personal situation.

What Debts are Erased by a Bankruptcy?

Most debts are erased when the person is discharged from bankruptcy (usually in 9 months). The following debts are not erased:

• Fines imposed by a court;

• Debt incurred by misrepresentation or fraud;

• Alimony or maintenance payments;

• Debt for damages imposed by Civil Court for intentional bodily harm, sexual assault or wrongful death;

• Student loans, if bankruptcy occurs within 7 years of ceasing to be a full or part time student.

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.

What About My Alimony or Maintenance?

Alimony or maintenance payments are not affected by bankruptcy. These payments must be kept up-to-date. A bankruptcy does not stop any actions for collection. 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.

How Much Does it Cost?

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 $1,650, which includes all necessary filing fees, disbursements, taxes and counselling fees. Our firm will allow you to pay these fees over time.

What is Counselling and Do I have to Take it?

You must take counselling in order to be eligible for an "automatic nine month discharge". The counselling can be one-on-one, with you and your Trustee, or if you prefer, it can be in a group consisting of other bankrupts and your Trustee. The first counselling session must be held between 10 and 60 days following bankruptcy; the second counselling session must be held no later than 210 days following the date of bankruptcy.

What Happens During Bankruptcy?

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.

When is my Bankruptcy Over?

If you have never been bankrupt before and you have completed the required counselling sessions, and if there are no filed objections to your discharge, then you are eligible to be discharged from bankruptcy automatically after nine months.

If you have been bankrupt before, or if you chose to file bankruptcy when you could have made a viable proposal, or if a creditor, the Superintendent of Bankruptcy or the Trustee have opposed your discharge, then you will not qualify for an automatic discharge. Your discharge will then have to be decided either by a mediation process with the Trustee and the Superintendent's Office, or by the Bankruptcy Court. It is the discharge from bankruptcy that cancels the debts.

What About my Student Loans?

Student Loans can be erased in a bankruptcy if the student was in school 7 or more years ago. This amendment will apply where the debtor obtains his or her discharge on or after July 7, 2008 (PROVIDED that at the time they filed they had ceased to be student for the required seven years) or the debtor had or becomes bankrupt on or after July 7, 2008. 

The amendment that will reduce to five years the period a bankrupt will have to wait to make a “hardship” application to have student loan debt or obligation discharged (BIA , s. 178 (1.1)) is also now in force.  This amendment applies to all debtors notwithstanding when the bankruptcy or the process that results in the bankruptcy is initiated.

What are the alternatives to bankruptcy?

Contact Your Creditors

Explain why you cannot make your payments and suggest an arrangement that could work for both of you. You may be surprised that many creditors are more than willing to co-operate.

Consolidation Loan

You can approach a bank or financial institution about combining or "consolidating" your debts into one loan. This creditor pays off all your debts and, in return, you make a monthly payment to that creditor. Make sure you shop around - interest rates vary. Avoid further credit purchases; this could make your debt load too great for you to handle.

Credit Counselling

Credit counselors will contact your creditors and attempt to work out a repayment plan that is satisfactory to both you and your creditors. In some cases they can work with you and your creditors to set up a payment plan that will allow you to pay your creditors in an orderly way and thus help preserve your credit rating. This operates similar to a debt consolidation loan except you do not borrow the money to pay off your creditors.

A significant disadvantage to credit counselling is that your creditors are not obligated to discontinue collection action once you have filed a repayment plan. If a creditor does not accept your payment plan, they may continue collection action, including garnisheeing your wages.  This may jeopardize the success of your repayment plan.  A BC trustee is the only BC debt professional that will ensure you get protection from your creditors while you implement your repayment plan.

Proposals

View this PowerPoint presentation for an
overview of the Consumer Proposal process.

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 $75,000. 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.