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Bankrupt meaning – what is bankruptcy in Canada?

Posted on 2 June 2022

Written by Ashvin Sharma

If you are searching for ‘bankrupt meaning’, you are likely looking to learn more about the status of somebody in Canada who is undergoing bankruptcy. Bankruptcy in Canada is the legal process of clearing your unsecured debts in line with the Bankruptcy and Insolvency Act. It is not to be confused with the meaning of insolvent, which comparatively is the inability to pay your debts when they are owed, and lacking the assets to pay for these bills. Insolvency is the prerequisite for filing bankruptcy. If, therefore, you are insolvent and owe over $1,000, you are eligible to file bankruptcy in Canada if you wish. As with all forms of legal debt relief in Canada, a Licensed Insolvency Trustee is required to file bankruptcy. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. In this article, we will explain the meaning of bankruptcy and all you need to know about filing bankruptcy in Canada.

Bankrupt meaning – what is bankruptcy?

In Canada, bankruptcy is the process of clearing any unsecured debts that you cannot pay in order to gain debt relief. A legal process regulated by the Canadian government, bankruptcy is the process of assigning any non-exempt assets over to a Licensed Insolvency Trustee in exchange for the clearance of your debts. Bankruptcy has the additional advantage of offering protection from your creditors and collection calls via a stay of proceedings. As well as offering a fresh financial future, bankruptcy has a number of other advantages. Contrary to popular belief, bankruptcy does not leave you with nothing. Each province offers its own list of exemptions, which allows you to keep a number of essential items including a car and computer for work under a certain value. Once you have been discharged from bankruptcy, you are free from your debt and can move forward with your life. Although bankruptcy can seem like an overwhelming process, a reputable Licensed Insolvency Trustee will be there to help you. At Spergel, unlike other bankruptcy firms, you will be assigned your own trustee to walk you through each step of the journey instead of passing you from person to person.

Why should you file bankruptcy?

According to the Office of the Superintendent of Bankruptcy, in 2020 almost 100,000 Canadians filed for bankruptcy. Bankruptcy in Canada offers a form of debt relief to Canadians in need while treating creditors as fairly as possible. It also aims to support those who are bankrupt by offering coaching on money management and credit counselling to set them up for financial success moving forward. Ultimately, bankruptcy provides a fresh financial future for debtors. It is also an appropriate choice if you need to stop collection calls and creditors contacting you. Bankruptcy activates a stay of proceedings, which prevents legal action from creditors taking place, including wage garnishments. Most first time bankruptcies in Canada last between nine and twenty one months, dependent on your income and some other variables. Once you are discharged from bankruptcy, all your debts will be cleared and you can begin rebuilding your credit score. The cost of bankruptcy is relatively low in comparison to the expense of your debts. Bankruptcy can be triggered for a number of reasons including job loss and unexpected bills, so it is nothing to feel ashamed of. At Spergel, we are here to support you throughout each step of the journey of filing bankruptcy.

Should I file for bankruptcy?

Filing an appropriate form of debt relief is unique to each individual and their financial circumstances. The first step is to understand your finances and to recognize your situation. A Licensed Insolvency Trustee can help you to determine the most appropriate form of debt relief for you. The sooner you do so, the sooner you can begin to gain freedom from your debts. As well as the bankruptcy eligibility criteria, here are some signs that you may benefit from filing bankruptcy:

  • Your credit card debt is racking up, with your credit cards at their limit
  • You are paying off your bills using credit cards
  • You repeatedly miss bill payments
  • You have received threats of legal action for not paying your bills
  • You cannot afford to pay your debts
  • You are reliant on credit for everyday expenses
  • You are stressed or anxious about your finances, and it is affecting your health
  • You have maximized your limit on borrowing and you cannot take out any more credit

This criteria is not exhaustive, and each and every bankruptcy is different. If, however, you feel you need financial support, reach out to a Licensed Insolvency Trustee who can advise whether or not bankruptcy may be right for you.

How does bankruptcy work?

When you file bankruptcy in Canada, you assign any non-exempt assets over to a Licensed Insolvency Trustee in exchange for the clearance of your debts. Your trustee will walk you through the exemptions of your province of residence, and the assets you may be entitled to keep. It is important to note that bankruptcy only clears unsecured debts. As properties and cars are considered secured debts, it is possible to keep your car and home when you file bankruptcy provided you can stay current on your payments. Once your trustee files bankruptcy, a stay of proceedings will be generated and any wage garnishments will stop. Your trustee will notify your creditors, and file any outstanding tax returns for you. You will have some obligations to fulfil including providing your monthly income and attending two credit counselling sessions. Once you are discharged from bankruptcy, any debts filed will officially be cleared. Your bankruptcy will remain on your credit report for around six years, but you can begin to rebuild your credit. Most importantly, life after bankruptcy will begin.

To learn more about the meaning of bankrupt, and whether or not bankruptcy is the right form of debt relief for you, you should book a free consultation with a reputable Licensed Insolvency Trustee at Spergel. We will work with you to understand your unique financial circumstances, and advise you as to the best form of debt relief for you. An alternative to bankruptcy like a consumer proposal or a debt consolidation loan may be more appropriate. Your trustee will explain the advantages and disadvantages of each form of debt relief.

Ashvin Sharma

Ashvin Sharma

Ashvin Sharma is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) overseeing all of Spergel's offices in the Greater Vancouver Area and British Columbia. He is also our resident expert on homeownership debt and health debt. In his spare time, Ashvin loves to play sports, spend time with family and friends, and serves as a volunteer coordinator for "Free-Them", a Canadian organization committed to raising awareness about human trafficking.

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