Bankruptcy FAQs: everything you need to know

Filing for bankruptcy is a significant decision that can impact your financial future, potentially eliminating your unsecured debts and providing the means for a fresh start. At Spergel, the ‘get rid of debt’ people, we understand that the process of bankruptcy can seem overwhelming and confusing. To help you navigate the process in more simple terms, we’ve compiled a list of bankruptcy FAQs so you can better understand what it’s all about.

Bankruptcy FAQs: understanding bankruptcy

What is bankruptcy?

Bankruptcy is a legal process designed to help individuals or businesses eliminate or repay their debts under the protection of the bankruptcy court. It provides a fresh financial start for those overwhelmed by debt, offering relief from creditors and the potential to discharge unsecured debts.

How does bankruptcy work in Canada?

In Canada, bankruptcy is governed by the Bankruptcy and Insolvency Act (BIA). The process involves working with a Licensed Insolvency Trustee (LIT), who will evaluate your financial situation, determine if bankruptcy is the right solution, and oversee the process from start to finish. Your LIT will manage your assets, communicate with your creditors, and help you complete the necessary paperwork.

Bankruptcy FAQs: debts and exemptions

Which debts are discharged in bankruptcy?

Most unsecured debts are discharged in bankruptcy, including credit card debt, personal loans, payday loans, and medical bills. However, some debts cannot be discharged, such as student loans (if less than seven years old), child support, alimony, court fines, and certain tax debts.

What happens to my debts when I go bankrupt in Canada?

When you file for bankruptcy in Canada, most of your unsecured debts, like credit card debt, personal loans, and lines of credit, are discharged, meaning you are no longer legally required to pay them. However, some debts, such as student loans (if within 7 years of graduation), child support, alimony, fines, and court-ordered payments, are not discharged and must still be paid. Your assets may be sold to repay creditors, but certain exemptions allow you to keep basic necessities. After completing the bankruptcy process, you receive a discharge, which officially eliminates the eligible debts.

What are the bankruptcy exemptions in my province?

Bankruptcy exemptions vary by province in Canada and determine what assets you can keep during bankruptcy. These exemptions typically cover essentials like household items, personal clothing, tools of the trade, and in some cases, a portion of home equity or vehicle value. It’s important to check the specific exemptions for your province, as they differ; for example, Ontario has different exemption limits compared to Alberta or British Columbia.

Are my student loans included?

If it has been at least seven years since you completed schooling, your student loans would be included in your bankruptcy. If it hasn’t been seven years, you will be responsible to pay this debt, which will accumulate interest while you are in your bankruptcy. It is important to note that Spergel does not have the ability to confirm the last time that you were a full or part time student. If you are unsure of this date, please be sure to contact your student loan lenders as this is dependent on the exact date in their records.

Bankruptcy FAQs: creditors

Why are creditors still contacting me?

It has been our experience that the vast majority of creditors respect the insolvency process and will cease collection activities once they are notified, but it can take upwards to 6-8 weeks for creditors to cease calls and/or sending correspondence. If a creditor continues to make collection attempts, advise
your Administrator who will contact them directly. If a creditor was missed on your statement of affairs, they may not be aware of the bankruptcy. In this
case, please provide the name and account information to your Administrator. We will add them to your list of creditors and notify them of the bankruptcy.

How long will it take after filing for bankruptcy for the garnishment of my wages to stop?

Upon the Office of the Superintendent of Bankruptcy issuing the Certificate of Appointment there is an immediate stay of proceedings in effect. This stay stops all collection activity. However, this information will need to be relayed to the partied involved. (i.e., payroll department, garnishing creditor, court). It could take upwards of several weeks, depending on the creditor garnishing wages, for the garnishment to be lifted. It could also take several months to have the garnished funds returned.

Bankruptcy FAQs: assets and property

Will I lose my assets if I file for bankruptcy?

Not necessarily. In Canada, certain assets are exempt from seizure, allowing you to retain essential belongings like clothing, furniture, and tools of your trade. The specific exemptions vary by province. Additionally, you may be able to keep your home and vehicle, depending on their value and the amount of equity you have.

What happens to my house when I file bankruptcy?

When you file for bankruptcy in Canada, what happens to your house depends on its equity. If your home has significant equity (the value of the home minus any mortgage), the trustee may sell it to pay your creditors. However, if the equity is minimal or within the provincial exemption limits, you may be able to keep your home as long as you continue making mortgage payments.

Can I keep my bank account if I file bankruptcy?

Yes, you can keep your bank account when you file for bankruptcy in Canada, but it’s advisable to open a new account at a different bank where you don’t owe money. Any funds in your old account may be used by your trustee to pay creditors, especially if you have debts with that bank.

Can I keep my car if I go bankrupt?

In Canada, you may be able to keep your car when you file for bankruptcy if its value is within the exemption limits set by your province and if you are current on any car loan payments. If the car’s value exceeds the exemption or you can’t keep up with payments, the trustee may seize and sell it to pay your creditors.

What do I do if I have my vehicle and it has not yet been picked up?

The creditor should contact you to make arrangements for pickup of your vehicle that has been given up in bankruptcy but often times it can take several weeks (this generally depends on how far the payments are in arrears). If you have stopped payment to the bank and they have not yet picked up your
vehicle, contact your Administrator who can reach out to the creditor.

Bankruptcy FAQs: process and requirements

How long does bankruptcy last?

The length of bankruptcy varies depending on your situation. For first-time filers, bankruptcy typically lasts 9 to 21 months. However, if you have been bankrupt before or if your income is above a certain threshold, it could last longer. After completing your bankruptcy, you will receive a discharge, officially releasing you from your debts.

What will I need to do during bankruptcy?

During bankruptcy in Canada, you’ll need to complete several key steps:

1. Provide financial information: you’ll need to submit detailed information about your debts, income, expenses, and assets to your Licensed Insolvency Trustee.
2. Attend credit counselling: you must attend two mandatory credit counselling sessions to help you manage finances better in the future.
3. Make required payments: depending on your income and assets, you may need to make surplus income payments or contribute part of your income towards your debts.
4. Surrender non-exempt assets: you may need to hand over certain non-exempt assets to the trustee, which will be sold to pay your creditors.
5. Attend meetings: if required, you might need to attend meetings with your creditors and the trustee.
6. Comply with legal requirements: you must fulfil all legal obligations and cooperate with the trustee throughout the process.

Once all these requirements are met, you’ll receive a discharge, which officially eliminates your eligible debts.

What is surplus income?

Surplus income is the portion of your monthly income that exceeds a government-set threshold based on family size. If you earn more than this threshold, you’ll need to make additional payments, typically 50% of the excess, which can extend the duration of your bankruptcy.

What is the role of a Licensed Insolvency Trustee (LIT)?

A Licensed Insolvency Trustee is a government-regulated professional who administers the bankruptcy process. The LIT’s role is to provide unbiased advice, guide you through the bankruptcy process, and ensure that both your rights and the rights of your creditors are respected. They are the only professionals authorized to file and administer a bankruptcy in Canada.

Bankruptcy FAQs: payments

I want to make up a payment. What do I do?

Contact your Administrator to make arrangements to reschedule the payment.

Could my payments change during my bankruptcy?

The amount you pay into your bankruptcy is based on your income and your assets, not how much you owe to your creditors. The government has income guidelines which are based on the number of people in your household. These guidelines determine how much needs to be paid into your bankruptcy. These amounts can change through the course of your bankruptcy based on your income and nondiscretionary expenses. This is why you’re required to report your income and expenses to the Trustee each month, allowing for the Trustee to make any necessary changes. The Trustee would not adjust your payments without discussing it with you first and would work with you to schedule a payment that you can reasonably afford.

Bankruptcy FAQs: credit bureaus

Does my Trustee have access to my credit report?

The Licensed Insolvency Trustee does not have authorization at the credit bureaus and relies on you to provide an accurate list of creditors. Credit reports and ways to rebuild your credit will be addressed in detail during your second counselling session.

How do I fix my credit report?

If there are errors or items not reported correctly on your credit report, complete a dispute form or request an investigation with the credit bureau. Complete the online form/paper copy forms along with any supporting documents required. It is your responsibility to ensure the credit bureaus are reporting accurately on your report. The credit bureaus are required to provide you with a free copy of your credit report once per year upon request. You can get the request forms from their websites: www.transunion.ca and/or www.consumer.equifax.ca

Why are my debts still showing on my credit report?

Your debts are not extinguished until you complete the terms of your bankruptcy. Should you not complete the bankruptcy, your creditors’ rights will be revived, and they will be able to pursue collection of their debt. After you have been discharged from bankruptcy, your debts will show on your report for 7 years but should also include the comment “include in bankruptcy” which confirms that the account is closed from credit bureau perspective.

Bankruptcy FAQs: taxes

Does Spergel file my taxes for every year I am in bankruptcy?

No, Spergel will file your taxes for the year you filed bankruptcy and, if not already done, the year prior to your bankruptcy. You will be responsible for filling your taxes for all subsequent years.

Why am I unable to electronically file my income taxes?

If you are still in bankruptcy or if the Trustee has not yet finished the administration of your bankruptcy estate, Canada Revenue Agency will have a hold on your tax account. This hold means that you will need to paper file your taxes (send by mail).

Bankruptcy FAQs: impact and aftermath

How will bankruptcy affect my credit score?

Filing for bankruptcy will negatively impact your credit score, and the bankruptcy will remain on your credit report for 6 to 7 years after discharge, depending on the credit bureau. During this time, you may find it challenging to obtain new credit, though rebuilding your credit is possible with time and responsible financial habits.

How long does bankruptcy stay on my credit report in Canada?

In Canada, bankruptcy typically remains on your credit report for 6 to 7 years after your discharge, depending on the credit bureau. This period can extend to 14 years for a second bankruptcy or if you fail to meet the terms of your bankruptcy.

How can I rebuild my credit after my bankruptcy is done?

To rebuild your credit after bankruptcy, start by creating a budget and paying bills on time to demonstrate financial responsibility. Consider obtaining a secured credit card or a small loan to help reestablish your credit history. Additionally, monitor your credit reports regularly to track your progress and correct any inaccuracies.

Bankruptcy FAQs: additional considerations

Can I file for bankruptcy more than once?

Yes, you can file for bankruptcy more than once, but the process and consequences differ. If you file for a second bankruptcy, the process will take longer (24 to 36 months), and it will have a more severe impact on your credit report. Subsequent bankruptcies will further extend the time the bankruptcy remains on your credit report.

Are there alternatives to bankruptcy?

Yes, there are alternatives to bankruptcy that may be better suited to your situation. These include:

• Consumer proposal: a legally binding agreement to pay a portion of your debts over a period of up to five years.
• Debt consolidation: combining multiple debts into a single loan with a lower interest rate.
• Debt management plan: working with a credit counsellor to negotiate a repayment plan with your creditors.

These options may have less impact on your credit score and allow you to avoid the more severe consequences of bankruptcy.

How do I know if bankruptcy is right for me?

Bankruptcy may be the right choice if you’re unable to meet your debt obligations, have tried other debt relief options without success, and are facing legal actions from creditors. However, it’s essential to consult with a Licensed Insolvency Trustee to evaluate your financial situation and discuss all available options before making a decision.

What happens after bankruptcy?

After bankruptcy, you will be discharged from most of your debts, giving you a fresh start. However, it’s important to focus on rebuilding your credit and managing your finances responsibly. You can do this by creating a budget, saving regularly, and obtaining and using credit wisely. Over time, these efforts will help restore your credit score and financial health.

How much does bankruptcy cost?

In Canada, the cost of filing for bankruptcy typically ranges from about $1,800 to $2,500, depending on your income and the complexity of your case. These costs include trustee fees and mandatory payments based on your income, with the possibility of higher payments if you have surplus income.

Does bankruptcy affect my spouse?

Bankruptcy typically does not directly affect your spouse’s credit or financial situation if the debts are solely in your name. However, if your spouse co-signed or guaranteed any of your debts, they would become fully responsible for those debts after your bankruptcy. Additionally, if you have joint assets, those could be affected depending on how they are handled during the bankruptcy process. Overall, your spouse’s financial standing is only impacted if they are legally tied to your debts or assets.

What can I expect from my initial (free) consultation with a Licensed Insolvency Trustee?

During your initial (free) consultation with a Licensed Insolvency Trustee, you can expect a review of your financial situation, including your debts, income, and assets. The trustee will discuss your options for debt relief, explain the bankruptcy process or alternatives, and answer any questions you have about the implications and procedures involved.

What’s the minimum amount of debt required when filing bankruptcy in Canada?

In Canada, there is no minimum amount of debt required to file for bankruptcy. You can file for bankruptcy regardless of the amount of debt you have, as long as you are unable to pay your debts as they come due and your liabilities exceed your assets.

Why should I choose a consumer proposal over bankruptcy?

A consumer proposal might be preferable to bankruptcy if you want to avoid the more severe impact on your credit and potentially retain more of your assets. It involves negotiating with creditors to pay a portion of your debts over time, typically with less damage to your credit rating and fewer long-term consequences compared to bankruptcy.

What happens if I file a second time for bankruptcy in Canada?

If you file for bankruptcy a second time in Canada, the process typically lasts longer – 24 to 36 months compared to the 9 to 21 months for a first bankruptcy. Additionally, it will have a more severe impact on your credit report, and the bankruptcy will remain on your credit report for 14 years instead of 6 to 7 years.

Can I apply for a credit card or a loan?

While you are in bankruptcy, you are legally obligated to disclose the bankruptcy to the lender if you are applying for credit over $1,000. As long you have disclosed that fact, you may apply for credit. Any debt incurred after your date of filing is considered a “post-bankruptcy” debt which you are responsible for. Whether or not you are approved is at the discretion of the lender.

How do I get a copy of my Discharge Certificate?

You will receive your Certificate of Discharge or Court Ordered Discharge by regular mail once it has been issued. If you lost or misplaced your Discharge and require another one be sent to you, contact your Administrator.

I’ve called my Estate Administrator and I can’t get a hold of them. What do I do?

Please understand that our call volumes are quite high, and we make a strong attempt to give each person the care and quality they deserve. If you leave a voicemail, your Administrator will return your call by the next business day.

Bankruptcy can provide relief and a fresh start for those overwhelmed by debt, but it’s not a decision to be taken lightly. Understanding the bankruptcy process, its implications, and the alternatives available is crucial to making an informed choice. At Spergel, our Licensed Insolvency Trustees are here to help you navigate this journey and find the best solution for your financial situation. Book your FREE, no-obligation consultation today to discuss your options.