Bankruptcy

Life throws you unexpected events that can drive you into debt. Job loss, medical bills, divorce, can all put a significant damper on your financial life. And once you’re in too deep, it may feel like you can’t get out. That’s when bankruptcy may be a solution to your problems.

When you’re in a situation like this, it can make sense to explore debt relief options. Examples of debt relief options include:

• Debt settlement
• Debt consolidation
• Consumer proposal
• Bankruptcy

Consider personal bankruptcies as a last resort debt relief option. When you file, all your debts are forgiven (with some exceptions). You may be giving up your most valuable assets, not to mention you could find it tough to obtain credit for seven years. Of course, the Bankruptcy and Insolvency Act governs all the federal laws around it.

Let’s take a closer look at what filing for bankruptcy means and whether it makes sense for you.

Consumer Proposal Vs. Bankruptcy

Before you consider filing for bankruptcy or a consumer proposal, it’s important to understand under what circumstances you can register for either.

You can file for bankruptcy if you’re a resident of Canada who owes more than $1,000, and you’re considered insolvent. It makes the most sense when you’re looking for immediate financial relief and creditor protection.

To file a consumer proposal, you must owe less than $250,000 (not including your mortgage) and be able to afford to repay a portion of your outstanding debts. However, it’s essential to keep in mind that when you file a consumer proposal, its acceptance isn’t guaranteed. A majority of your creditors must accept it. If they reject it, you’ll need to explore another alternative to bankruptcy or a consumer proposal.

Understand your options  

Benefits of Bankruptcy

Filing for bankruptcy isn’t the best choice for everyone, but there are instances when it’s a good idea. Let’s take a look at some of the benefits of filing for bankruptcy.

What are the Pros and Cons of Filing for Bankruptcy >>
Perhaps the most significant benefit of bankruptcy is the automatic stay of proceedings granted when you file. As a result, any wage garnishments stop, you won’t have to deal with collection agency calls, and there won’t be any more threats of legal action.

Compared to other debt relief options, filing for bankruptcy is relatively quick and straightforward.

In many instances, you can obtain a discharge in only nine months.

It tends to be the lowest-cost debt relief option and can make the most sense when you don’t have any non-exempt assets or any surplus income.

Cost of Filing Bankruptcy

Before filing, it’s important to understand that there are both personal and financial costs.

The personal costs of filing for bankruptcy include:

• The time it takes you to complete the paperwork and keeping up with your trustee
• The difficulty of finding new loans or renting an apartment
• Not being able to act as a company director while in bankruptcy

The financial costs of filing can be quite steep. If you own any assets, such as a car or home, you’ll be required to deposit these assets into a trust set up by your trustee. Your trustee will also charge you a monthly base contribution cost during the process (this varies depending on the trustee). Furthermore, you’re limited by how much income you can earn while you’re in the program. If you make any income above this limit, you have to pay it to your bankruptcy trustee.

Steps for Filing Bankruptcy

There are five simple steps involved in filing for bankruptcy with a licensed insolvency trustee.

1. Get a Free Debt Consultation – Contact us to assess your financial situation and discuss your debt relief options to see if filing is right for you.
2. Complete the Paperwork – Once you decide that bankruptcy is the right choice, you’ll need to complete the necessary paperwork to declare bankruptcy.
3. Trustee Files Bankruptcy Documents – When your paperwork is complete, your trustee files the documents with the government, granting you creditor protection.
4. Complete Bankruptcy Duties – When your creditors accept your application, you’re required to perform specific duties. Those tend to include making your payments, providing details about your household budget, going to two credit counselling sessions, and letting your trustee know about any significant changes to your situation.
5. Get Your Certificate of Discharge – Once you perform all your duties satisfactorily, you’ll receive your certificate of discharge. You’ll typically receive your diploma within nine months if this is your first time filing. Especially if you use surplus income payments toward debt.

Consumer Insolvency & Bankruptcy Statistics in Canada

Nationwide
	2022	2021	2020	2019
Insolvency	100,184	90,092	96,458	137,178
Bankruptcy	24,586	27,461	32,880	54,409
Alberta
Insolvency	14,875	13,956	13,089	16,675
Bankruptcy	2,374	2,731	3,602	5,589
British Columbia
Insolvency	10,167	8,699	8,270	11,221
Bankruptcy	1,821	2,172	2,609	4,134
Manitoba
Insolvency	2,773	2,507	2,527	3,146
Bankruptcy	734	782	787	1,344
Newfoundland & Labrador
Insolvency	1,928	1,737	1,873	3,221
Bankruptcy	674	642	768	1,466
New Brunswick
Insolvency	3,128	2,985	3,365	4,851
Bankruptcy	1,027	1,241	1,486	2,343
Nova Scotia
Insolvency	3,467	3,007	3,498	6,040
Bankruptcy	1,208	1,268	1,599	3,193
Northwest Territories
Insolvency	56	53	47	66
Bankruptcy	3	9	10	9
Nunavut
Insolvency	13	12	12	6
Bankruptcy	0	1	0	0
Ontario
Insolvency	34,736	30,327	33,992	44,852
Bankruptcy	7,133	7,580	9,213	14,577
Quebec
Insolvency	25,433	23,667	26,683	42,865
Bankruptcy	8,795	10,113	11,714	20,038
Prince Edward Island
Insolvency	443	384	426	749
Bankruptcy	169	169	203	386
Saskatchewan
Insolvency	3,116	2,724	2,640	3,453
Bankruptcy	642	744	878	1,317
Yukon
Insolvency	49	34	36	33
Bankruptcy	6	9	11	13

Source: https://www.ic.gc.ca/

Bankruptcy Exemptions

Bankruptcy is restorative, not punitive. If you qualify, you’re able to keep much of what you own, so you can support yourself after your discharge.

As such, several exemptions let you keep certain assets.

Although the federal government sets the guidelines on bankruptcy from coast to coast, the provinces and territories set their own exemptions.

Despite this, some exemptions are common nationwide. For instance, since 2008, Registered Retirement Savings Plans (RRSPs) have been exempt from all provinces and territories. However, the contributions you made to your RRSP 12 months beforehand aren’t exempt.

Other assets commonly exempt from bankruptcy include home equity, motor vehicle equity, pets, and necessary food and clothing. Note that the total worth of the assets exempt may vary between provinces and territories.

Debts Discharged in Bankruptcy

When you file for bankruptcy, you give up some of your assets in exchange for having some of your debts erased. But you may be surprised to hear that filing doesn’t get you off the hook for all debts. Generally speaking, you’ll no longer be responsible for unsecured debts, but you’ll usually still be accountable for secured creditors and debts. (We’ll go over that in the next section.)

With a few exceptions, all your unsecured debts will be forgiven, regardless of the discharge date. Debts that will be discharged in bankruptcy include:

• Credit cards
• Personal consumer loans
• Other unsecured loans and lines of credit such as payday loans, past-due medical bills and insurance premiums
• Past unpaid utility bills
• Student loans (if it’s been more than seven years since you were a student)

Essentially, you won’t owe anything on these debts once they grant your discharge.

Debts That Cannot Be Discharged in Bankruptcy

As mentioned in the last section, you cannot discharge some debts in bankruptcy. These are generally secured debts. Let’s take a look at some examples now.

Wage Garnishment

Most wage garnishment stops when you file, but not all. Bankruptcy does not discharge wage garnishments for child support or alimony.

Bankruptcy and Child Support

You’ll still be responsible for certain judgments imposed on you before you filed for bankruptcy, including child support and alimony.

Student Loans And Bankruptcy

If it’s been less than seven years since you were a student, bankruptcy does not discharge student loans.

Income Tax and Bankruptcy

If you declare bankruptcy, any back taxes, penalties and interest owing won’t go away if the Canada Revenue Agency has placed a lien on your property. You can only get rid of those by filing insolvency with a licensed insolvency trustee.

Bankruptcy FAQs

After Bankruptcy

Although it may eliminate your debts, one of the side effects is that it damages your credit and will stay on your credit report for seven years. To help mitigate that risk and to be once again seen as creditworthy in the eyes of lenders, you can do a few things.

If living beyond your means was the cause, you’ll want to learn to live on a budget. Pay special attention during the credit counselling sessions to learn how to get the most out of budgeting.

You’ll also want to get in the habit of paying your bills on time. If you’re late with utility, cell phone or other bills, it’s likely to appear on your credit report and negatively impact your credit score.

If you’re serious about rebuilding your credit, you’ll want to consider getting a secured credit card. A secured credit card is a credit card whereby you make a deposit payment. By responsibly using your secured credit card, it can go a long way to re-establishing your good credit history.