Filing for bankruptcy with no assets – what happens?

Posted on 6 December 2022

Written by Jeff Adiken

If you are drowning in debt and living paycheque to paycheque, you may well be considering bankruptcy to gain debt relief. Bankruptcy is the process of assigning any non-exempt assets you may have over to your Licensed Insolvency Trustee in exchange for the clearance of your unsecured debt. It enables you to begin a fresh financial future, and offers protection from your creditors. So, what happens if you are interested in filing for bankruptcy with no assets? In this article, we share all you need to know about filing for bankruptcy with no assets, and whether or not you are eligible for filing bankruptcy.

Filing for bankruptcy with no assets – is it possible?

Provided you meet the eligibility criteria for filing bankruptcy, you can still file for bankruptcy without assets. In Canada, a Licensed Insolvency Trustee is required in order to file bankruptcy – they are the only professionals legally able to file all forms of debt relief in the country. Even if you have no assets, a Licensed Insolvency Trustee can file bankruptcy on your behalf. Where there are no assets or equity to distribute across your creditors, they still have to write off your outstanding debt once you are discharged from bankruptcy. Even if you do have assets when filing bankruptcy, some are protected so that you are not left with nothing. Check out the guide to non-exempt vs exempt assets, which often include a vehicle and sometimes even your home.

What is surplus income?

When filing bankruptcy, surplus income is a key consideration. Your total household income – aside from deductions like child support – is compared to the number of people in your household. The guidelines and thresholds laid out by the Superintendent of Bankruptcy will then establish whether or not you have surplus income. At Spergel, when filing bankruptcy, you are assigned your very own Licensed Insolvency Trustee to walk you through each step of the process. Unlike other bankruptcy firms, you will not be passed from person to person. If you do have surplus income, you will need to pay 50% of the surplus income into your estate – this will then be distributed among your creditors. The other downside of surplus income is that the length of your bankruptcy will increase. In most cases, it will be extended from 9 months in a regular bankruptcy to 21 months.

How does bankruptcy clear you of your debts?

When your bankruptcy term ends, provided you have met all of your bankruptcy obligations including attending credit counselling sessions, you will be discharged from bankruptcy. This means you are cleared of your unsecured debt, and you no longer owe the debts to your creditors. Bankruptcy covers most unsecured debts like credit card debt, payday loans, and tax debt. Do note that some unsecured debts including child support and alimony cannot be filed as part of your bankruptcy. That said, by filing your other unsecured debts in the bankruptcy, it will likely free up your funds to make these payments much more manageable. Your Licensed Insolvency Trustee will help to explain these details to you.

Does bankruptcy cost?

You may be wondering if there is a cost associated with bankruptcy, and if so – how do you afford it when you have no assets or money? Many Canadians are indeed surprised to discover there is a cost for filing bankruptcy, although arguably it is a small price to pay for clearing all of your unsecured debts and gaining peace of mind. These fees include a base contribution cost to cover the administration of your bankruptcy, and also a surplus cost and an asset cost, although if you have no assets it is unlikely that these would be applicable. If your income is below the threshold, you will not need to make any surplus income payments. So, if you are filing for bankruptcy with no assets or money, how can you go bankrupt? The answer ultimately depends on why you have no money. If this is because all your funds are going towards repayments on debts like credit card debt, payday loans and so on – a bankruptcy will resolve this for you. Equally, if you do not have surplus income or assets, the cost of your bankruptcy will be low, and certainly less than the amount you are paying each month to your creditors. If you have no money because you are not working, a bankruptcy may not be the best form of debt relief for you and another option like a consumer proposal may be more appropriate for you. Many Canadians wish to file bankruptcy so that their creditors cannot pursue a wage garnishment. If you do not have wages, they cannot be garnished, and so it may make sense to wait until you are working before filing bankruptcy.

If you are struggling with debt and considering filing for bankruptcy with no assets, book a free consultation with Spergel today. We have over thirty years’ experience of helping Canadians battling with debt by walking them through the most appropriate form of debt relief for their circumstances. No matter how bad your situation, you have options and we are here to help.

Jeff Adiken

Jeff Adiken

Jeff Adiken is a Certified General Accountant and Chartered Insolvency and Restructuring Professional with over 18 years’ experience as an LIT (Licensed Insolvency Trustee). He also manages all of Spergel's personal insolvency offices and is our resident expert on credit card debt and debt-free living. When his 'manager hat' comes off at the end of the day, Jeff is happiest spending quality time with his family at home.

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