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 isn’t true. Most people who consider 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 their debt: they might have had some large unplanned emergency expense; they might have lost their job; or there might have been a relationship breakdown. What happens when you declare bankruptcy is that you are given a chance to start fresh.
Understanding the Bankruptcy Process in Canada
The bankruptcy process is not there to punish you. As mentioned, it is designed to give people a way to eliminate their debt so they can start their financial lives over. Most people who end up trying to understand what happens in bankruptcy and considering how to declare bankruptcy got into their position due to unfortunate circumstances.
For example, if you spend all 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 could 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 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.
If you are in such a situation, it’s important to understand how bankruptcies work, the requirements to file bankruptcy, the consequences of bankruptcy, and everything about the bankruptcy process.
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 unsecured debts are eliminated. The first step in how to apply for bankruptcy is to speak with a Licensed Insolvency Trustee. This is a person who has been trained, licensed and registered with the Government of Canada to handle bankruptcy situations and consumer proposals.
Filing personal bankruptcy in Canada must be done by a Licensed Insolvency Trustee (sometimes called a licensed trustee in bankruptcy).
How to Apply for Bankruptcy
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. If you want to know how to go bankrupt, the trustee can help answer any questions you may have. They will also explain what happens when you file bankruptcy as well as give you the information you need on how to declare bankruptcy, if this is the route you choose to take.
What Happens When You Declare Bankruptcy?
A common question people have is “How does the bankruptcy process work?”
Filing personal bankruptcy in Canada is a legal process. The trustee will work with you to ensure that all of your paperwork is completed and filed properly. This can be done electronically. What happens in bankruptcy is that, 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.
How Bankruptcies Work
What happens in bankruptcy is that your unsecured debts are eliminated when you file. In exchange, you agree to surrender all of your nonexempt assets - if you have any - to the trustee for distribution to your creditors. In short, you are given a fresh start.
The 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. This is sometimes referred to as “bankruptcy protection.” For most people, this protection 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
How does bankruptcy work? The bankruptcy process is described by law and the Licensed Insolvency Trustee will help you understand how bankruptcies work, answer your bankruptcy questions, and inform you of your duties and responsibilities.
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. While applying for bankruptcy can help some people, each situation is different. 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. If you have any bankruptcy questions, the trustee will answer them.