The Personal Bankruptcy Process in Ontario
Personal bankruptcy is a process that is designed to give individuals the opportunity to eliminate most (if not all) of their debts and start fresh. It allows “honest yet unfortunate” debtors to begin rebuilding their financial lives. However, personal bankruptcy in Ontario is noted on your credit report. Many people are concerned about this and how long the personal bankruptcy process actually is.
For most people who are first time bankrupts, you can be eligible for discharge from bankruptcy after nine months. However, the length of your bankruptcy could be extended for several reasons.
The first reason that your bankruptcy may be extended is if you need to pay surplus income.
What is surplus income?
The federal government sets the amount of money that families of certain sizes are able to earn each month under bankruptcy to maintain a reasonable standard of living before calculating how much should be available to repay creditors. These are called income thresholds and they are listed by family size. A family of four, for example, will be allowed to keep more to maintain a reasonable standard of living than a family of one. These numbers change each year.
If your family makes less than the amount listed for your family size, you do not need to make surplus income payments. If your family makes more, you will need to make these surplus payments to your trustee. Every dollar that you make over these thresholds is subject to a surplus income payment of 50%. Therefore, if your family makes $200 more each month than the income threshold for your family, you will need to make a surplus income payment of $100 each month that you earn this amount.
Your bankruptcy trustee (who administers your bankruptcy) will inform you if these payments are required. Under bankruptcy, you are required to provide your trustee with monthly income statements and proof of expenses for this reason.
If you are required to make surplus income payments, the length of your bankruptcy will be extended to 21 months, if it is your first time filing for bankruptcy.
If it is not your first time bankrupt
As you can see, if it is your first time filing for bankruptcy, the length of your bankruptcy will likely be nine or 21 months. However, if you have filed for bankruptcy in the past, the length of your bankruptcy will be longer.
If this is your second time filing for bankruptcy and you do not have to make surplus income payments, the length of your bankruptcy will be 24 months.
If it is your second bankruptcy and you do have to make surplus income payments, the length of your bankruptcy will be 36 months.
In your first and second bankruptcies, you will likely be discharged automatically. If it is your third bankruptcy or more, you may not be able to be discharged automatically. If this applies to you, your bankruptcy trustee will need to apply to the bankruptcy court for a discharge hearing.
How Long does Bankruptcy Remain on your Credit Report?
Another concern that many people have before filing for personal bankruptcy in Ontario is what will happen to their credit report.
When you file for personal bankruptcy, a note is placed on your credit report stating this fact. If it is your first bankruptcy, this note will remain for six years after you have been discharged. If you have filed for bankruptcy in the past, this note will remain for 14 years.
Many people worry about this and some avoid filing for personal bankruptcy in Ontario because they are concerned about how it will affect their credit report. However, it is important to look at the overall situation before making a decision. If you are in a position where filing for personal bankruptcy makes sense for you, your credit report has likely already been negatively affected by late or missed bill payments. Failing to change anything will result in continued damage to your credit report. Filing for personal bankruptcy in Ontario gives you an opportunity to start fresh and begin rebuilding your financial life. To understand more about this process, you should speak with a licensed trustee in bankruptcy.