What is Bankruptcy?
A bankruptcy is a legal process in Canada legislated under the Bankruptcy and Insolvency Act (BIA) that is designed to eliminate most, if not all your debts. A bankruptcy in Canada can only be filed with a Licensed Insolvency Trustee (LIT). This role was previously known as a “Bankruptcy Trustee.”
Which Type of Bankruptcy Should I File?
Bankruptcy law Canada stipulates that there are two types of personal bankruptcy under the Bankruptcy and Insolvency Act:
- A Summary Administration; and
- An Ordinary Administration Bankruptcy
A summary administration applies to individuals or consumer bankruptcies when the realizable assets (the value of assets when sold) will not exceed $15,000. If you are wondering “which bankruptcy should I file,” know that an ordinary administration bankruptcy applies to both consumers or corporations. If an individual has assets that will exceed the projected realization of $15,000, they will be required to file an ordinary administration bankruptcy. Note that the term “bankruptcy chapter 11” is an American term, not a Canadian one. The rough equivalent to bankruptcy chapter 11 would be a Division 1 Proposal or a CCAA (Companies' Creditors Arrangement Act) filing.
Who Gets Paid First in Bankruptcy Process?
Pursuant to section 136 of the Bankruptcy and Insolvency Act, proceeds from the sale of assets are distributed to repay creditors in the following order:
- Secured creditors;
- Reasonable funeral and testamentary expenses in respect of a deceased bankrupt;
- Administration costs related to the bankruptcy estate such as the expenses and fees of the trustee;
- A levy on dividends paid to secured, preferred and unsecured creditors;
- Various types of unsecured but "preferred creditor" claims, including, certain employee claims, certain types of child and spousal support claims, some types of municipal taxes, claims by landlords, and certain claims for pre-bankruptcy execution fees and costs; and
- Unsecured creditors.
In a Bankruptcy Who Pays Whom?
One of the most common questions that trustees are asked is “in a bankruptcy who pays?” This makes sense as you will want to know what your costs will be. The cost of personal bankruptcy in Canada will vary for each individual as it’s based on your monthly income, non-discretionary expenses, the size of your family unit and assets.
Its best to book a free initial consultation with a Licensed Insolvency Trustee to go over your options and the costs involved. Some believe that a bankruptcy lawyer can assist in these situations, but in Canada, you will need to speak with a trustee. The trustee can help you understand the bankruptcy meaning, the process involved, and compare a consumer proposal vs bankruptcy.
How the Process of Bankruptcy Changes When You Are Married
When to File a Bankruptcy?
How does a Bankruptcy in Canada Work?
A common question that people ask often is related to bankruptcy in Canada and how it works.
According to bankruptcy law Canada, there are certain duties and responsibilities on both you and the trustee upon filing bankruptcy.
- Once the paperwork has been signed, the Licensed Insolvency Trustee will submit the information to the Office of the Superintendent of Bankruptcy;
- Upon filing a bankruptcy there is an automatic stay of proceedings in place. In other words, the unsecured creditors cannot commence or continue any legal action or wage garnishment.
- Within 5 business days the trustee will notify all your creditors of the bankruptcy and provide the necessary paperwork and prescribed forms to submit a proof of claim;
- During the bankruptcy, there are duties that are imposed upon you to fulfill in order to receive a discharge:
- Attend a meeting of creditors, if a meeting has been requested;
- Attend an Official Receiver’s examination if requested;
- Attend two credit counselling sessions within a prescribed period;
- Report your income to the trustee each month while in bankruptcy and provide documentary proof of your income; and
- Make monthly payments to the trustee
- Subject to abiding by all duties under the Bankruptcy and Insolvency Act and providing that the trustee or creditors don’t oppose the discharge, you are eligible for a discharge:
- First time filing without surplus income in 9 months;
- Second time filing without surplus income in 24 months;
- First time filing with surplus income in 21 months; and
- Second time filing with surplus income in 36 months.
Bankruptcy: When to File and How to Get Help
What Happens when I Declare Bankruptcy in Canada?
What Happens to Your Assets when You File a Bankruptcy Canada?
- With bankruptcy filing Canada (regardless of province), you surrender your assets to the trustee for the general benefit of your creditors. However, you do not lose everything when you file a bankruptcy.
- There are bankruptcy exemptions that permit you to keep certain assets. In a bankruptcy, assets are considered exempt based on the rules set by the province you live in. For example, in Ontario the following assets are exempt from seizure:
- Personal effects (i.e. clothing for you and your family), there is no dollar limit;
- Household furniture and appliances up to the value of $13,150;
- Tools of trade up to the value of $11,300;
- One motor vehicle up to the value of $6,600;
- Equity in your home if the amount is less than $10,000;
- Most life insurance policies and pension plans are exempt;
- RRSPs, except for contributions in the 12 months before the date of bankruptcy; and
- For farmers, up to $29,100 for livestock, fowl, bees, books, tools and implements of the trade.
The bankruptcy meaning is not to punish you and leave you with nothing. Therefore, each province and territory has its own exemptions to the bankruptcy law that outline which of your assets, and how much equity, you are allowed to retain.
Can I File Bankruptcy and Keep My Car?
In a bankruptcy, assets are important. Losing a car is a common concern for those considering filing a bankruptcy in Canada. All provinces have laws that exempt one vehicle up to a certain dollar amount from seizure by the trustee. For example, in Ontario, you can own a vehicle up to the value of $6,600 or less and its considered exempt. If, however, the vehicle exceeds the exemption amount, you may still be able to keep the vehicle. You could opt to buy back the non-exempt portion from the trustee during the period of bankruptcy. For example, if you owned a car with a value of $8,000, the non-exempt portion of the vehicle would be $1,400 (being the difference between the fair market value and the exemption amount). You could make monthly payments to the trustee during the bankruptcy to keep the vehicle. If you lease or finance a vehicle and file a bankruptcy, you can keep your vehicle if you are current and remain current on your car loan or lease payments. The leasing or financing company can, however, repossess your vehicle if you default on the agreed terms per the leasing or financing agreement.
Will I Lose My Home if I File Bankruptcy?
Are You Considering Bankruptcy?
Depending on your financial situation, filing for bankruptcy may make sense for you. However, for many people, bankruptcy is not the only option. By meeting with a Trustee, you can understand all of the options that are available to you and make an informed choice for your unique situation. Contact Farber today to book a free debt relief consultation. This can help you become debt free and give you a chance to rebuild your financial life.