Declaring bankruptcy in Ontario
Insolvency is generally unplanned and can feel quite overwhelming if you are unfamiliar with the process. Dealing with collection companies and the threat of legal action heightens stress levels even more. We want to help put a stop to that! Understanding the process and knowing your options is like a breath of fresh air. If you are considering declaring bankruptcy in Ontario, this should be the first article you read. We will go through the process from start to finish so that you know exactly what to expect. There are five main stages, divided into three sections. We will cover what happens before, during, and after filing for bankruptcy in Ontario.
Before Declaring Bankruptcy In Ontario
If you are reading this article, you are likely at this stage, seeking more information before taking the first steps or committing to a path. The good news is that you can take the first steps without committing to anything. Canada’s bankruptcy and insolvency laws ensure that you know your options and get all the information you need before declaring bankruptcy. This is done with the help of a Licensed Insolvency Trustee.
Step 1: A Free Consultation Meeting With A Licensed Insolvency Trustee (LIT)
This is a risk-free consultation meeting with no obligations attached to it. LITs are federally regulated professionals and experts in Canadian insolvency procedures. They are highly trained debt consultants and are bound by a strict code of ethics. The first thing they will do is listen to your situation to learn what you are dealing with.
You Have Options!
The LIT will review all your available options. There are alternatives to bankruptcy in Ontario that you may be interested in. The Trustee will discuss these with you and help you understand how each option deals with debt. Feel free to ask any questions. If bankruptcy is your chosen path the Trustee will review the process of declaring bankruptcy in Ontario, including Ontario’s bankruptcy exemptions and how they would apply in your situation.
Tips On Preparing For A Free Consultation Meeting:
- Bring a list of ALL your debts, including who you owe and how much.
- Write down questions that are important to you and bring them to the meeting.
- Be prepared to talk about your monthly income and expenses
QUESTION: How Does The Trustee Get Paid?
- The Trustee is paid from the funds received during the bankruptcy period that make up the bankruptcy estate. The amount they are paid is regulated by the Office of the Superintendent of Bankruptcy and is the same for all Licensed Insolvency Trustees in Ontario.
Step 2: Preparing the Bankruptcy Documents
Only a Licensed Insolvency Trustee can administer a bankruptcy filing in Ontario. It is not something that you can do for yourself. Once you decide that bankruptcy is the appropriate option and that you are ready to move forward, you will contact your LIT to begin the document preparation. A deposit may be required at this point.
To prepare the documents, the Trustee will need detailed information describing your financial situation. It is essential to be honest and accurate to ensure that you obtain discharge from your debts later on. Be prepared to provide your personal information including your name, address and birthdate. The Trustee will also need a detailed list of your creditors (the people you owe) and your assets. This includes but is not limited to: money in the bank, the value of your home, the balance on your mortgage, pensions, insurance policies, vehicles, and other property that you own. With this information the Trustee will complete the bankruptcy forms required by the government.
Statutory Documents Required For Filing for Bankruptcy in Ontario:
The Assessment Certificate – This document states that you have met with a Licensed Insolvency Trustee and that they have explained all options to you. It confirms that you understand the available options and that you choose to move forward with declaring bankruptcy.
The Monthly Income And Expense Statement – This is an official form (form 65) that includes a detailed monthly budget for you and your family/dependants.
The Statement of Affairs – Also known as Form 79, this document lists all of your current assets and liabilities.
The Assignment For The General Benefit Of Creditors – This is the final document for officially declaring bankruptcy in Ontario and assigning you non-exempt property to the LIT.
There are a few other documents also required by the LIT to file for bankruptcy in Ontario. Once everything has been prepared you will meet with the Trustee to review and sign the documents yourself. This is another good time to ask any questions. The Trustee can provide you with additional information to help you feel at ease. Once you are satisfied, make sure the information is correct and add your signature.
QUESTION: Can I review the documents before meeting to sign them?
- The Trustee will discuss each document with you in detail at the meeting, but you can request to review them in advance if you would like.
Step 3: Filing The Bankruptcy Documents
After witnessing your signature on the bankruptcy documents, the Trustee will send them to the government. There is a specialized electronic filing system in Canada that all Licensed Insolvency Trustees have access to. This ensures that documents are filed the same way in every case. Once your documents are uploaded through the system the Trustee will receive a Certificate of Appointment. This is the official confirmation that your bankruptcy filing has been received, marking the beginning of the bankruptcy period. Your creditors will be notified and instructed to communicate directly with the Trustee. There is a “Stay of Proceedings” that prohibits them from engaging in any collection activity, including charging interest, sending collection agents, garnishing wages, or taking other legal action to recover the debt.
The Stay Of Proceedings:
- Stops creditors from charging interest
- Will stop collection agencies from contacting you
- Also stops creditors from garnishing your wages
- Puts an end to creditors suing you
- Stops any current legal proceedings with creditors
After Declaring Bankruptcy in Ontario
Filing for bankruptcy does not immediately eliminate your debts. This is important to know. Your debts are only officially removed once you have been discharged from bankruptcy. You must first fulfill your duties and obligations as a bankrupt before this can happen. Your LIT will have explained these all to you in detail during the initial consultation and, again, if necessary, at the signing of the documents. There will not be any surprises. It is good practice to maintain a clear channel of communication with your Trustee and to let them know of any situation that may affect your ability to fulfill the obligations.
Step 4: Your Obligations As A Bankrupt
The first thing you will be required to do is surrender any non-exempt assets to the Trustee. The Ontario bankruptcy exemptions will have already been reviewed with you in detail, and you will be well prepared for this step. The Trustee will supervise the sale of any surrendered assets, and the resulting funds will be added to the bankruptcy estate. The bankruptcy estate is the collection of funds that will eventually be distributed to your creditors as required by the Bankruptcy and Insolvency Act (BIA) of Canada.
You will be required to give the Trustee all your credit cards for cancellation. They will take care of closing your credit accounts. The only exception to this is if you have a card that was issued to a third party (employer, spouse, friend, etc.), and you are an authorized user.
Another obligation, contained in the BIA, is for you to attend at least two credit counselling sessions. You have 60 days to complete the first session and 210 days to complete the second session. These are meant to provide you with additional resources and strategies for managing your finances and avoiding problems with debt in the future. The credit counselling can help you understand the skills and habits you will need to start fresh once you are discharged from bankruptcy. Your Trustee will assist in scheduling these appointments for you.
Ongoing Obligations During a Bankruptcy In Ontario:
During your bankruptcy, you will provide your trustee with monthly income and expense statements. These will be used to calculate any “surplus income” as defined by the Office of the Superintendent of Bankruptcy (OSB). Surplus income payments are based on a calculation set by the OSB, with your family size, actual income, living costs, and expenses all being factors. This also will have been reviewed with you in detail prior to declaring bankruptcy in Ontario, so you will not be surprised if you are required to make a surplus income payment.
Your LIT will file your tax returns for the current year and will require all the necessary information to do so. They will file a pre-bankruptcy tax return for the current year up until you declared bankruptcy and a post-bankruptcy tax return for the remainder of the period. Any tax refunds during this time will be sent directly to your Trustee and added to the Bankruptcy Estate.
Your final obligation is to make a base payment each month to the bankruptcy estate. This is described in the BIA and is separate from any surplus income payments. The LIT receives and manages all of your contributions and any funds that make up the bankruptcy estate. Funds will be allocated to administer the bankruptcy and distributed to your creditors following the process described in the BIA.
Your Obligations After Declaring Bankruptcy In Ontario:
- Surrender any non-exempt assets
- Give the LIT all your credit cards
- Attend two credit counselling sessions
- Submit monthly income and expense statements
- Make surplus income payments (if applicable)
- Provide necessary information for filing tax returns
- Make monthly base payment
QUESTION: How much do I have to pay if I have no assets and little to no income?
- If it is your first time declaring bankruptcy and you have relatively low income (or no income), you will pay $200 per month for nine months.
Step 5: Being Discharged From Bankruptcy
At the end of the bankruptcy term, if you have completed your obligations, you will be officially discharged from bankruptcy. This is the legal process that releases you from your debts. If it is your first time declaring bankruptcy in Ontario, and you do not have any surplus income, you can qualify for an automatic discharge after nine months. This is common in most cases. If it is your second time declaring bankruptcy, you may be eligible for an automatic discharge after 24 months. To qualify for an automatic discharge, you must have completed all your duties and obligations as a bankrupt, and it must not be opposed by your creditors or the LIT.
If you do not qualify for an automatic discharge, then the Trustee will make an application to the courts for you to be discharged. In this case, there will be a discharge hearing with you and the LIT present. The role of the LIT at a discharge hearing is to present the facts of the bankruptcy case. Your creditors can attend and will have an opportunity to object. Following the hearing you will either be discharged or required to take additional steps before submitting an application to the Registrar in Bankruptcy.
QUESTION: What if I do not make the necessary payments or fulfill the obligations?
- You cannot be discharged from bankruptcy and released from your debts until you have completed all your duties. If you are struggling or have any issues, please contact your Trustee right away. It may be possible to get additional time.
Getting Help From a Spergel LIT
Now that you understand the process of declaring bankruptcy in Ontario, you can take a deep breath. Canadian insolvency laws are designed to help honest Canadians who are burdened by debt get a fresh start. Take the next step and schedule a free consultation meeting with a Licensed Insolvency Trustee to have even more weight lifted off your shoulders. It is confidential, and there is no obligation to move forward with anything. You will leave with a clear understanding of your options and be able to make an informed decision. Schedule a free consultation with us online today.
For more information on how bankruptcies work in Canada, visit our Learning Center.