Everything you Should Know about Filing Personal Bankruptcy in Canada
The word “bankruptcy” sometimes sounds scary to some people. They may see this word as a negative one that means they’ve “failed” or they’re “a deadbeat.” However, this very often isn’t true. Most people who are considering filing personal bankruptcy in Canada are “honest yet unfortunate debtors.” These are people who went into debt and external circumstances conspired to make it difficult to repay the debt: they might have had some large unplanned emergency expense; they might have lost their job or there might have been a relationship breakdown.
For example, if you spend all of your money each month on the necessities (your home, food, clothing, transportation, etc.) you won’t be able to save any money. Without savings, unexpected expenses cause you to go into debt. If your car breaks down and you need to pay an expensive repair bill, this increases your debt. If your roof starts leaking, this increases your debt. If you or your spouse gets sick or loses a job, the reduced income could cause your debt to increase even more. Over time, all of these debts start to add up and you find yourself unable to pay them down. This is the situation that personal bankruptcy is designed for.
Filing for Personal Bankruptcy
If you are having financial issues and unable to pay your debts as they become due, personal bankruptcy may be an option for you. In bankruptcy, most – if not all – of your debts are eliminated. In exchange you agree to surrender all of your nonexempt assets, if any, to your trustee for distribution to your creditors. In short, you are given a “fresh start”. Filing personal bankruptcy in Canada must be done by a licensed trustee in bankruptcy. This is a person who has been trained, licensed and registered with the government of Canada to handle bankruptcy situations and consumer proposals.
When you first meet with a trustee, he or she will review your financial situation and your assets. Most trustees in Canada offer this initial consultation at no charge. If the trustee determines that bankruptcy could be an option for you, it is your decision as to whether or not you wish to proceed with this option.
Filing personal bankruptcy in Canada is a legal process. Your trustee will work with you to ensure that all of your paperwork is completed and filed properly. This can be done electronically. Once you file, your debts will be frozen and no additional interest will accrue. In addition, any legal action that your unsecured creditors have filed against you will cease as will any wage garnishments.
Your trustee will communicate with your creditors from this point on. Unsecured creditors are not allowed to contact you directly or send collection agencies after you. For most people, this comes as a great relief. Dealing with creditors and having to handle frequent calls from collection agencies can be very stressful. Many people report feeling relieved once they file for bankruptcy, since these calls stop. This sense of relief is also due to the fact that you are now doing something about your situation and setting yourself up to be in a stronger financial position in the future.
Your Duties During Bankruptcy
During bankruptcy, you will be responsible for providing your trustee with monthly income statements as well as proof of expenses. Based upon this information, your trustee may require you to make surplus income payments to your creditors if your income has increased over the allowable limit since filing for bankruptcy.
You will also need to attend two financial counselling sessions. The goal of these sessions is to provide you with valuable information on budgeting and money management so that you will be able to get control of your financial situation now and in the future. You will also be given information on ways that you can rebuild your credit rating once you are discharged from bankruptcy.
It is also your duty to provide your trustee with updated contact information as needed. If you move, change jobs or change your phone number, your trustee must be given this new information.
Personal Bankruptcy is Not the Only Option
Filing for personal bankruptcy in Canada is not the only way to deal with debt issues. Speaking with a trustee can help you understand the options that are available to you. During your free consultation, your trustee will review your financial situation and provide you with details on all available options. You can then use this information to make an informed choice.