What is, exactly, a personal bankruptcy?
Bankruptcy is primarily a right that you have, allowing you to protect yourself against your creditors.
Personal Bankruptcy is, first and foremost, a consumer right – defined and protected under both Canadian and Quebec law – which protects you from your creditors.
Ultimately, it is a recourse that allows you, when no other options are available, to prevent your financial situation from getting worse, to regain control of your life and to get a fresh start.
Clear your debts and make a fresh start!
Once your bankruptcy is completed, all your debts will be erased: credit cards, car loan, mortgage, tax debt and more. Some debts are non-dischargeable, such as fines and tickets, alimony, fraudulent debts and student loans (if bankruptcy is within 7 years after the date of graduation).
Put an end to the harassment
Once placed under the protection of the Bankruptcy and Insolvency Act, your creditors will have no recourse against you. They can not get in touch with you directly, they will not have the right to seize your property and you will not have to make their payments.
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Frequently Asked Questions About Personal Bankruptcy
Declaring bankruptcy does not mean that you will lose everything. In many cases, virtually no assets are seized by the bankruptcy.
Furniture which furnishes the main residence, used by the household and are necessary for the life of it, up to a market value of $7,000.
The instruments required for the performance of a professional activity.
Food, linens and clothing necessary for the life of the household.
Papers and family portraits, medals and other decorations.
Donated goods or gains exempt from seizure under certain conditions.
Support awarded in justice, as well as the sums given or bequeathed as maintenance (alimony).
Benefits payable under a supplemental pension plan to which an employer contributes on behalf of its employees, others are declared exempt from seizure by a law governing such plans and contributions that are and must be paid to these plans.
Periodic disability benefits under a contract of insurance against illness or accidents as well as the property of a person which are necessary to overcome a disability.
A certain portion of gross wages and salaries, calculated based on the number of dependents.
Bankruptcy may seem like a long and complicated process, but with the help of an experienced Licensed Insolvency Trustee you will have peace of mind. In most cases, everything goes quickly without problems.
1. Initial meeting with a trustee
The objective of this first meeting is to assess your situation and understand your financial problems.
The trustee will be able to tell you whether bankruptcy is a good option for you. It is often possible to avoid bankruptcy, especially with an alternative such as a consumer proposal.
2. Declaration of bankruptcy
Following the initial meeting, if you decide to proceed with bankruptcy, your trustee will fill out the necessary forms to formalize your bankruptcy.
From this moment on, your trustee will represent you to your creditors. You’ll be protected against wage garnishments, lawsuits and harassment from your creditors.
3. Liquidation of your property and payments to the trustee
Once in bankruptcy, your seizable assets will be liquidated and the funds raised will be put in trust. Many goods are exempt from seizure by the bankruptcy (furniture, alimony, work tools, some services, etc..).
During your bankruptcy, you must also make monthly payments to your trustee. He will ensure the equitable distribution among creditors.
4. The trustee prevents your creditors
This meeting allows your creditors to get informed on the details of your bankruptcy and to meet your trustee. They could then request a meeting of creditors.
5. Meeting of creditors (in some cases)
At this stage, depending on the circumstances of your bankruptcy, your creditors may request a meeting which you must attend.
6. Interrogation by the Office of the Superintendant of Bankruptcy (in some cases)
It may be that the Office of the Superintendent of Bankruptcy asks you questions about your conduct, the causes of your bankruptcy or certain provisions of your property.
7. Consultation sessions
The bankruptcy process gives way to two consultations with a financial reorganization advisor.
During these meetings, we will help you review your budget and set financial goals. We will also talk about personal finances, credit, savings and healthy consumption habits.
8. Trustee’s report
In some cases, for your release, the trustee prepares a report on your situation (your finances, the causes of your bankruptcy, your actions, your conduct during the bankruptcy and any other relevant facts).
9. Court hearing of the discharge (if necessary)
You do not have to attend a parole hearing if you meet the following criteria:
- you are in your first or second bankruptcy,
- your release is not disputed (by your trustee, the Office of the Superintendent of Bankruptcy or creditors)
- you have not refused to participate in counseling sessions offered by your trustee
- you do not have surplus income (according to standards).
If you need to attend a hearing, a judgment will be rendered by the court:
- Absolute discharge: you are free and do not have to pay the debts included in the bankruptcy.
- Conditional discharge: to be released, you must meet certain requirements (often it is to make payments over a given period).
- Suspended discharge: you will be released at a future date.
- Denied discharge: Court refuses to free you from your debts.
If you have completed all the previous steps successfully and you have met your obligations, your bankruptcy is now complete and you are debt free!
Please note that your non-dischargeable debts, if any, remain. These debts include student loans incurred under 7 years before the date of bankruptcy, fines and tickets and fraudulent debts.
How long does a bankruptcy last? Several factors influence the duration of a bankruptcy in Canada, but in most cases, for the first bankruptcy, the duration is 9 months.
Do you have surplus income?
The government has established a grid of “necessary” income for households of different sizes and if your income is higher than this, you have surplus income.
So if your income exceeds the limits set by the government, your bankruptcy will last longer, or 21 months compared to 9 months.
Learn more about surplus income calculation
Note: If you start your bankruptcy without surplus income, but during you get a raise, a bonus or any other increase in income, and thus means your income exceeds the limits, then your bankruptcy will be extended. The reverse is also true, if your average income falls, your bankruptcy could be shortened.
Have you completed all your duties as a bankrupt?
If you have not completed your duties as a bankrupt, your bankruptcy could stretch up time until you do something.
Your duties include, among others, to attend two sessions of mandatory consultation and make the required payments to your trustee.
Has a creditor opposed your discharge?
If you do not have surplus income and you’re at your first or second bankruptcy, you generally do not need to go to court to get your release.
Sometimes a creditor, the Office of the Superintendent of Bankruptcy or trustee opposes your release and if this is the case, you must appear before a judge who will determine whether you can be released.
The cost of bankruptcy is based on your ability to pay and therefore each person pays a reasonable amount depending on their situation.
During your bankruptcy, you will make monthly payments to your trustee. He will then distribute the amounts collected to your creditors. Know that the trustee’s fees are taken from your monthly payments.
For a first bankruptcy, without surplus income, monthly payments typically range between $150 and $200 for the duration of your bankruptcy.
Do you have surplus income?
The government has established a grid of “necessary” income for households of different sizes. If your income is less than these, your bankruptcy will be of shorter duration and therefore you will have less monthly payments to be made.
Learn more about surplus income calculation
Is this your first bankruptcy?
The first bankruptcy is shorter than a second, hence you will have less monthly payments to be made.
Do you have dependents?
Having people who are financially dependent on you greatly reduces your ability to pay and therefore reduces your monthly payments.
Do you have particular essential expenses?
If you have some special expenses, such as high health costs or alimony, it will affect your monthly payments.
Are you eligible for tax refunds?
Your tax being “seizable assets” in a bankruptcy, they may be considered when determining the amount of your payments.
The role of the trustee is often overlooked or misunderstood. In a bankruptcy, he will represent you to your creditors and ensure the smooth running of your bankruptcy.
Although it is not possible to declare bankruptcy without using the services of a Licensed Insolvency Trustee, it is important to understand the role that he plays.
1. The trustee assess your situation with care
The trustee has the responsibility to honestly assess your situation without judging you and in your best interest. He is trained and certified to shed light on your situation and explain your options.
2. The trustee takes care of the bankruptcy procedures
Your trustee must complete all the documents required for the declaration of your bankruptcy. He then files these documents to the Office of the Superintendent of Bankruptcy and warns your creditors.
3. The trustee offers your two consultation sessions
You are entitled to two consultations which aim at identifying the causes of your bankruptcy, give you information on the proper management of a budget, credit, consumption and debt.
4. The trustee follows up on your situation
Each month, the trustee must keep track of your budget, your income and your overall situation. He also collects the monthly payments as previously agreed.
5. The trustee manages your bankruptcy until your discharge
The trustee has the responsibility to bring your case to completion. More precisely, he will ensure the liquidation of your assets, the accounting of your assets, the payment of the final dividend to creditors, the filing of income tax for the year of bankruptcy and the submission of your application for discharge.
If you file for bankruptcy, student loans are only dischargeable under the following circumstances:
- That you have ceased being a student at least 7 years prior to the bankruptcy. In this case, you will be automatically discharged of your student loan after the bankruptcy.
- If the end of your studies goes back at least 5 years prior to the bankruptcy, you can ask the Court to free you from the debt. This will be at the Court’s discretion, and will take into consideration your good will as well as your inability to pay the student loan.
Does a personal bankruptcy or a consumer proposal stop foreclosure proceedings against me (wages, goods, etc.)?
Yes. As soon as you file a consumer proposal or file for bankruptcy, all judicial proceedings to seize your assets are suspended or annulled, except in the following 2 cases:
- In the case of secured creditors. The right to continue proceedings is only limited to their debt. For example, if a secured creditor has a secured credit on your car, the right to seize your assets is limited to the car and not anything else.
- Seizure of child support, if the creditor has obtained the permission of the Court.
Usually, all debts are erased by the bankrupt’s discharge, except for the following, which are listed in Section 178 of the BIA:
- Any debt or liability for alimony;
- Any fine or penalty imposed by a court in respect of bodily harm intentionally inflicted;
- Any debt or liability under an agreement for maintenance and support of a spouse or child;
- Any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity;
- Any debt or liability for obtaining property by false pretenses or fraudulent misrepresentation;
- Liability for the dividend that a creditor would have been entitled to receive, in the case where he has not been informed of the bankruptcy;
- Any Student Loan, if bankruptcy is declared less than 7 years after the bankrupt ceased to be a full-time or part-time student;
- Any debt for interest owed in relation to an amount referred to in any of the previous points (1) to (7).
In order for someone to file for personal bankruptcy, the Bankruptcy and Insolvency Act (BIA) requires that the following two conditions be met:
- You must have at least 1000.00$ of debt, and;
- You must be an insolvent person; this means that you are unable to meet your financial obligations as they become due, and the total value of your assets would not be sufficient to enable payment of all your debts.
However, it is fairly obvious that a person who has only 1000$ of debt should not necessarily file for bankruptcy. Other options are available if your total indebtedness is relatively small.
If the purchase you made were justified and in accordance with your spending habits, there should be no consequences.
However, a creditor could use this motive against you, to oppose your discharge; the fact that you have made purchases on your credit cards, even though you knew that you could not pay them back.
The Bankruptcy and Insolvency Act contains provisions to deal with debtors who commit fraud or other abuses.
A bankruptcy only discharges the person who filed for bankruptcy. Any co-signers are not free from their obligation and can be sued by the creditors for payment of the debt. The co-signer may then be forced to pay the entire loan in your place. Should this occur, the co-signer has the right to claim a dividend from your bankruptcy in the place of the creditor.
Yes, you can. It is relatively common for someone who is unemployed to file for bankruptcy if that person is having financial problems; if he or she cannot pay their bills, filing for bankruptcy can be a viable option. However, you may still have to make monthly payments to the Trustee during the time of your bankruptcy, even if you are unemployed.
Filing for bankruptcy is generally the last resort of people who are in a financial crisis and will have a negative impact on your credit score or credit rating. You will have a credit score of R-9 (the lowest credit score) for the six years following your discharge. However, it is possible to rebuild your credit after bankruptcy.
In order to answer this question accurately, it is important to determine which kind of financing is involved. Is the vehicle leased, is it subject to a secured loan or is it fully paid?
- If the vehicle is leased: Legally, you can keep a leased vehicle if you are bankrupt, provided you continue making the lease payments and assuming the lease company agrees. The leasing company is most likely a secured creditor, which means that they can repossess the car if you do not make your payments. Therefore, if you are considering personal bankruptcy and want to keep your vehicle, it would be wise to consult your leasing company and review the lease agreement to confirm that the vehicle will not be repossessed if you file for bankruptcy. However, giving up your car may reduce your monthly expenses and may be a smart option. If you really need the vehicle, you could always surrender the lease and purchase an inexpensive car to reduce your monthly costs. The new Act in place since July 2008 provides that the lesser may not repossess your vehicle simply because you have filed for bankruptcy. You must, however, make sure that all payments are current and you respect the obligations of the leasing contract.
- If the vehicle is subject to a secured loan: If your vehicle is not paid in full and the financial institution has a security on it, the Trustee must first determine the value of the vehicle. If the vehicle is worth more than the balance owed on the loan, the vehicle will either be sold by the Trustee, or, if you want to continue to use the vehicle, an equivalent amount of money will be asked of you. If the value of the car is less than the balance owed on the loan, the creditors will not seize the vehicle, as it is not in their best interest. However, any payments you will need to make for the continued use of the car will be separate from the monthly contributions you need to make to the Trustee during the period of your bankruptcy.
- If your vehicle is paid in full: Procedures have changed since January 1st, 2016 because of the amendments to the Code of Civil Procedure of Québec which mention that some cars that are fully paid may, under certain conditions, be protected from seizure. There may be an amount payable to the trustee to “buy back” your vehicle and thus keep it, if creditors approve.
Since the most recent modifications made to the BIA, in July of 2008, all types of RRSPs are non-seizable, with the exception of any contributions made during the 12 months preceding your bankruptcy and only in the rare cases where they have been made in RRSP plans that would have been seizable in the absence of a personal bankruptcy or consumer proposal.
Child support payments are not dischargeable through bankruptcy. The obligation to continue paying for child support remains as well as the arrears, if there are any due. A bankruptcy does not stop any actions for collection either. These are provable claims and will be paid as a preferred claim for amounts incurred in the year before bankruptcy.
No, your creditors do not have the power to prevent you from filing for bankruptcy. Only the court can order the annulment of a bankruptcy, which rarely occurs, and only in exceptional cases. Once you have declared bankruptcy, creditors must cease their collection procedures against you and must address themselves to the Trustee.
Your spouse’s bankruptcy will not necessarily affect you. Whether you are in a common law union or married, you will not be affected by your spouse’s bankruptcy if you are not jointly responsible for any of your spouse’s debts. If you are jointly responsible for one or more of their debts or obligations, then creditors can demand the full payment from you unless you also file a consumer proposal or personal bankruptcy.
No. The Bankruptcy and Insolvency Act requires that you hand over all your credit cards to the Trustee whether or not you have amounts owed on them. You will not be allowed to have credit during the time of your bankruptcy.
No. The purpose of filing for bankruptcy is to rid yourself of ALL your debts, and to repay your creditors as much as possible. Your creditors must be treated equally, therefore, you cannot file for personal bankruptcy for only certain creditors or debts; all debts must be included.
However, after your bankruptcy, it is not forbidden to make arrangements for the repayment of special or moral obligations, such as the reimbursement of a loan by a family member or a friend.
Yes, you can continue your self-employed business while you are in the bankruptcy process. However, restrictions may apply to certain types of professional activities. You cannot be the administrator of an incorporated company as long as you are not discharged from bankruptcy.
If I file for bankruptcy, will I lose my income tax refunds and how does my bankruptcy affect the preparation of my income tax returns?
Your Licensed Insolvency Trustee will manage the filing of your income tax return for the year preceding the bankruptcy (called the pre-bankruptcy tax return), and, if they have not been filed, the ones for the two years preceding the bankruptcy.
Any amount owed to the governments for these returns will be included in your bankruptcy, and you will not have to pay them directly.
If there are any refunds due to you for the pre-bankruptcy period, the Federal refunds will be remitted to your Trustee for the benefit of your creditors whereas the Provincial ones, which are not seizable, will be remitted to you.
It is also important to note that if you have existing debts with the provincial or federal government, they will keep those tax refunds in order to reduce the debt you owe them.
At the end of the fiscal year, a declaration covering the period after the bankruptcy must be filed (called the post-bankruptcy tax return).
If you owe any amount of income tax for this period, you must pay it. It is not included in your personal bankruptcy.
If there are any refunds due to you for the post-bankruptcy period, the Federal refunds will be remitted to your Trustee, for the benefit of your creditors whereas the Provincial ones, which are not seizable, will be remitted to you.
GST refunds, if applicable, will also be remitted to your Trustee, up to a certain amount specified by the law, and any excess will be remitted to you by the Trustee. Any TVQ tax credits will continue to be sent directly to you.
Note: These dispositions apply for Quebec residents only.