The Details & Facts about Personal Bankruptcy in Ontario
When it comes to personal bankruptcy, many Ontario residents are unfamiliar of the specifics of the process. Unfortunately, this leads to a lot of rumours, distorted facts and untruths. Many of these myths are unfortunately spread by creditors and collection agencies who want to scare people into paying them without speaking to an Ontario bankruptcy trustee first.
Here are a few myths about personal bankruptcy in Ontario and the facts.
Myth: You will lose everything
This is not true. You do not lose all of your assets when you file for personal bankruptcy in Ontario. The goal of bankruptcy is not to punish you. It is to provide you with a fresh start. Therefore, when you file for personal bankruptcy, Ontario law allows you to keep certain items that allow you to live a basic lifestyle. These assets are called "exempt assets.” Each province in Canada has different rules regarding exempt assets.
In Ontario, a person who files for bankruptcy is allowed to keep:
- Personal effects up to $5,650
- Household furnishings up to $11,300
- Tools of the trade up to $11,300
- One personal vehicle up to $5,650
In addition, Canadian law allows anyone in the country who files for bankruptcy to keep RRSP contributions made more than 12 months prior to filing bankruptcy. Contributions made in the last 12 months are not exempt. Locked in pensions and life insurance policies that have a preferred beneficiary are also considered exempt in most cases.
If you own a home that has equity in it, you may be able to keep this. You will work with your Trustee to determine a fair value for your equity and come to an agreement as to how much you need compensate your creditors with, in order to keep your home
Myth: Everyone will find out about my bankruptcy
A lot of people worry about filing for bankruptcy because they are afraid that their friends, family, coworkers and employer will find out. They are worried about being asked questions about their financial lives and having all of their personal financial information displayed publicly. This generally does not happen. Unless you are a very prominent person, no one will really bother to find out that you have filed for personal bankruptcy. Ontario newspapers very rarely publish “legal notices” to alert people of bankruptcies. This is generally only done for larger bankruptcies.
In order for someone to find out about your bankruptcy without you telling them, a person would need to register and pay to search public records for the details. This hardly ever happens and thus it should not be a concern to you.
Filing for personal bankruptcy is between you, your trustee and your creditors. Your trustee will not contact your family members (unless they have co-signed on a loan with you) and they will not call your employer.
Myth: Your credit rating is ruined forever
When you file for personal bankruptcy in Ontario, a note is made on your credit report stating this fact. This note remains for at least six years after you have been discharged from bankruptcy (longer if this is not the first time you have filed for personal bankruptcy.) While this note may make it more difficult to get a loan in the future, it’s important to remember that, if you were in a situation where bankruptcy is an option, your credit report has likely already been damaged by missed payments and other issues.
It’s also important to note that you can rebuild your credit rating after bankruptcy. An Ontario personal bankruptcy does not ruin your credit for the rest of your life. By following good credit habits, you can rebuild your credit rating over time.
Myth: Bankruptcy is the only option
Though it is likely the most well-known option, personal bankruptcy is not the only solution for those who have trouble with debt. In most cases, for most people, there are other options available. Bankruptcy is usually considered the last option, chosen only when no other options will work. In order to understand the different options that are available to you, you may wish to speak with a trustee in bankruptcy.
This is a person who is licensed and trained to review financial situations and provide people with details about the available options. Just because they have the word “bankruptcy” in their name, this certainly does not mean that they will only provide bankruptcy as an option. Trustees in bankruptcy are trained professionals who follow a strict code of ethics. Most will offer a free initial consultation where they will review your particular financial situation and provide you with information on the options you have.
While a trustee may list filing for personal bankruptcy in Ontario as an option, it is often not the only option available.