You’ve probably heard of the term “bankruptcy” before. However, if you’re like most people, you may not be entirely sure of what the bankruptcy process entails.
Bankruptcy in Ontario and across Canada is a legal process. Therefore, the terms of the process and the entire process itself are governed by the Bankruptcy and Insolvency Act of Canada. In addition, a federal agency called The Office of the Superintendent of Bankruptcy is responsible for ensuring that all bankruptcies are administered fairly and in an orderly manner by licensed trustees in bankruptcy.
A trustee in bankruptcy is a person who has been licensed and is regulated by the government. A trustee is able to administer insolvencies, bankruptcy and consumer proposal estates.
Bankruptcy is filed when a person becomes insolvent and he or she is unable pay debts as they become due. A person can file for bankruptcy voluntarily or be petitioned into bankruptcy by a creditor. A creditor petitioning someone into bankruptcy is often a costly process and it is not the same as a creditor taking someone to court.
Ontario Bankruptcy Facts and Myths
There are, unfortunately, a lot of myths regarding bankruptcy in Ontario. These myths persist for many reasons, often because many people feel shame or embarrassment when discussing bankruptcy. This can cause people to make guesses or assumptions about the bankruptcy process since they don’t want to ask anyone for more information. In addition, creditors and collection agencies sometimes spread misinformation about bankruptcy in hopes of scaring debtors. Whatever the reason, many people continue to be confused about bankruptcy in Ontario and believe various myths and half-truths.
One of the most common inaccuracies is that you lose everything when you file for bankruptcy in Ontario. This is not true. You could lose some assets if they have material value, but you are also able to keep many assets. Each province and territory in Canada has its own rules regarding exempt assets. For example, when you file for bankruptcy in Ontario, certain assets are exempt. These exempt assets include:
- Up to $5,650 in personal items
- Up to $11,300 in furniture
- Up to $11,300 in tools of the trade (items required to work and earn money)
- Up to $5,650 in a personal vehicle (one only)
In some situations, you may be able to keep your primary residence, if there is minimal equity in your home and you can keep paying the monthly mortgage payment. This will depend on your particular situation and you should speak to your Licensed Insolvency Trustee for more information.
In addition, creditors usually don’t have access to any locked-in pensions, RRSPs or RRIFs. However, RRSP contributions made in the last 12 months prior to the bankruptcy may be lost. This is the case in all provinces across the country.
Another common myth relating to bankruptcy in Ontario is that your credit rating is ruined forever when you file. In fact, some people believe that your credit rating is damaged forever as soon as you speak to a Licensed Insolvency Trustee. This isn’t true. When you file for bankruptcy in Ontario, the Office of the Superintendent of Bankruptcy notifies the major credit bureaus (TransUnion and Equifax.) They make a note of your bankruptcy on your credit report. This note stays on your report for at least six years after you have been discharged from bankruptcy. This note can make it more difficult for you to get new credit.
However, your credit report won’t be ruined forever. It is certainly possible to rebuild your credit rating over time by following good credit practices. This includes borrowing small amounts and repaying these debts on time. You can do this by using a credit card a few times a month on regular purchases and paying the balance each month. This helps you rebuild your credit.
It’s also important to remember that if you are in a situation where you are struggling to pay your debts as they become due and are considering bankruptcy, your credit rating has likely already been damaged by missed payments, late payments and other issues. Avoiding bankruptcy because you don’t want to hurt your credit rating could instead cause you to continue to hurt your rating if you’re unable to pay your bills. Speaking with a trustee can help you understand the financial options available to you, lead to eliminating your debt and put you on the path to restoring your financial life and credit rating.