Filing for Bankruptcy: Do you Need a Lawyer?
You do not have to have a lawyer to file for bankruptcy in Canada. This is a common question. In fact, bankruptcy cannot be filed through a lawyer. It can only be filed through a licensed trustee in bankruptcy. In the United States, you can file through a bankruptcy lawyer, but that does not apply to Canada. In Canada, bankruptcy lawyers are separate and different from bankruptcy trustees. In most cases, a lawyer is not needed. You can file for bankruptcy with a trustee.
You may choose to hire a lawyer, and that is entirely up to you, however it is not required. Bankruptcy trustees are trained, registered and licensed. They understand the bankruptcy process and work to ensure that the entire process proceeds fairly.
Most trustees offer a free consultation where they will review your financial situation and provide you with information on the available options. If you choose to file for bankruptcy, the trustee will ensure that all paperwork is completed and submitted as required.
Bankruptcy is a legal process. When you file, you receive legal protection from your unsecured creditors. All communication between you and your creditors will be done through your trustee. This means that unsecured creditors cannot contact you or take any steps to collect their debt, such as sending a collection agency after you. Most civil legal action will stop as will many wage garnishments.
The Bankruptcy Process
For the majority of people in the majority of situations, bankruptcy is a relatively straightforward process. This is why, for most bankruptcies, a lawyer is not required. Your trustee will ensure that the process proceeds as it should and he or she will take steps to make sure that the rights of both you and your unsecured creditors are respected.
The trustee will also ensure that you are able to keep all exempt assets. There is a common misconception that you lose everything you own when you file for bankruptcy. This is not the case. Every province has its own list of assets that are considered necessary to live a basic lifestyle. The goal of the bankruptcy process is not to punish you, but instead to ensure that your crditors receive what is legitimately available to them and you receive a fair fresh start. Therefore, certain assets are considered exempt.
You will also likely be able to keep RRSP investments (except those made in the last 12 months) as well as most pension plan funds and insurance policies. Your trustee will provide you with specific details regarding your situation before you file.
During bankruptcy, you are required to provide your trustee with monthly income and expense information. The federal government sets certain income levels for different family sizes. If you make more than the level listed for your family size, you may need to make surplus income payments to your trustee. He or she will let you know if this is required.
The length of the bankruptcy process depends on certain factors. If you have never filed for bankruptcy before and you are not required to make surplus income payments, you will likely be discharged automatically in nine months. If you need to make surplus income payments, you will be discharged after 21 months, as long as it is your first bankruptcy. These time periods will be longer if you have filed for bankruptcy in the past.
Once you are discharged, you are free to begin rebuilding your financial life. A note indicating that you have filed for bankruptcy will remain on your credit report for six years after you have been discharged, if it is your first bankruptcy. If it is not your first time filing for bankruptcy, the note remains on your credit report for 12 years after you have been discharged. However, it is important to consider that bankruptcy provides you with a fresh start. If you were to instead continue to miss debt payments, you could do serious damage to your credit report and not receive the opportunity to start fresh that bankruptcy provides.
As you can see, the bankruptcy process is generally straightforward and administered by a trustee who ensures that everything is handled fairly. For this reason, most personal bankruptcies in Canada do not require a bankruptcy lawyer.