Bankruptcy is something that most people have heard of. However, many people are unaware of all of the facts surrounding bankruptcy. Generally, in Ontario, bankruptcy can be filed when a person becomes insolvent and cannot pay his or her debts as they become due. An insolvent person becomes bankrupt by voluntarily filing for bankruptcy or being petitioned into bankruptcy by a creditor. That is a costly process, this is not the same as creditor taking you to court. Contrary to popular belief, bankruptcy does not mean that you will lose everything. It also doesn’t mean that your financial life is ruined. In fact, there is relief in a bankruptcy that make it a choice for certain people who are in certain situations.
Here are a few important facts to remember when it comes to bankruptcy in Ontario and in Canada:
- You don’t lose everything.
Some assets are protected under personal bankruptcy. These assets include your vehicle (up to $5,650 in value) as well as clothing, household goods, tools of the trade, RRSPs contributions more than 12 months ago and locked in pension plans and RRIFs. You may be able to keep additional assets, as long as you compensate your trustee for their value.
- Not all debts are erased.
While bankruptcy discharges many debts, there are a few debts that are not eliminated through bankruptcy. These include secured debts such as car loans and mortgages as well as student loans, child support and alimony.
- Bankruptcy does not destroy your financial life forever.
In Ontario, the Office of the Superintendent of Bankruptcy notifies the Canadian credit bureaus of your bankruptcy and this is noted on your credit report. If this is your first time entering into bankruptcy, this note will remain on your report for six years after you are discharged.
Keep in mind though, that if you are in a situation where bankruptcy is an option, your credit rating is likely already damaged. It’s also important to remember that there are ways to successfully rebuild your credit after you have been discharged from bankruptcy.
- Bankruptcy may not affect your spouse.
As long as your debts are yours alone, and not guaranteed or co-signed by your spouse, he or she will not have his or her credit rating impacted by your bankruptcy.
The Bankruptcy Process
The first step in the bankruptcy process comes when you meet with a trustee in bankruptcy. In Ontario and in Canada, this is a person who is licensed by the federal government to help those who have financial problems find the right solution for their situation. If you make the decision to file for bankruptcy, your bankruptcy trustee will help you understand the process and ensure that all of the required forms are completed and filed correctly. The trustee will also ensure that your assets are properly handled and that all exemptions are taken into account. In addition, the bankruptcy trustee will be responsible for all communication with your unsecured creditors during the bankruptcy process, so you won’t have to worry about handling calls from creditors or collection agencies any longer. During bankruptcy, you will be required to take two financial counselling sessions. The goal of these sessions is to help you learn how to properly budget your money, manage your finances and rebuild your financial life after bankruptcy. In addition, the trustee will review information regarding your monthly income and expenses to determine whether there is any surplus which might be paid to your creditors. The government has developed a formula to determine how much a family of a specific size needs to live on in Ontario and that amount is protected from your creditors.
After Discharge from Bankruptcy
In most cases in Ontario, bankruptcies are discharged automatically nine months after filing, if this is your first bankruptcy and if you have been fulfilling all of your duties (working with the trustee, reporting your income, attending counselling, making surplus income payments if needed, etc.). Approximately 30 days after you have been discharged, a certificate of Discharge will be mailed to you. It is a legal document and you retain the original document. You will need to fax this Certificate to the two major credit bureaus (TransUnion and Equifax) in order to begin the process of rebuilding your credit.
There is relief to filing for bankruptcy if you are in a serious financial situation. The most obvious relief is that your debts will be eliminated once you are discharged from bankruptcy. In addition, all collection efforts, including wage garnishment, will stop when you file for bankruptcy. Also, you won’t need to deal with calls from creditors and collection agencies any longer as the bankruptcy trustee will handle all communication with creditors once bankruptcy is filed. Bankruptcy is not for everyone and may not be the best option for your financial situation. Before you make the decision to file bankruptcy, it’s important that you understand the facts regarding bankruptcy in Ontario.