Frequently Asked Questions
We’ve taken some common questions and made them available. Feel free to make your own list before you meet with us so that you can feel more comfortable in your understanding of the process when we talk with you in person.
1. How Do I Enter Into Personal Bankruptcy?
There are two ways you can become bankrupt:
A voluntary bankruptcy is initiated by you. The formal documentation necessary to start the bankruptcy process is prepared by the Trustee and is based upon the information that you have provided to the Trustee. A voluntary bankruptcy is referred to as filing an Assignment in Bankruptcy.
All assets (things you own) and liabilities (amounts you owe) must be disclosed to the Trustee. A creditor cannot be left out for any reason. In bankruptcy or proposal proceedings, all creditors are entitled to be notified and to share in the distribution of any funds. If a creditor is not disclosed, then you may be responsible for payment of the same amount which the creditor would have received if the creditor had been notified.
One or more creditors can ask the Court to make an order putting a person into bankruptcy and appointing a Trustee in Bankruptcy. This order is called a Receiving Order. If such an application is made to Court, you will be given notice of the hearing and you have the right to attend the hearing, be represented by legal counsel and be heard.
2. What Is An Assignment In Bankruptcy?
An Assignment in Bankruptcy is a legal document where you assign or transfer your assets to a Trustee in Bankruptcy for the general benefit of the creditors. This document, when filed with the Official Receiver, is the starting point of a voluntary bankruptcy. The date of filing of the Assignment with the Official Receiver is the effective date of bankruptcy.
Bankruptcy serves to transfer ownership of your assets to the Trustee. The bankrupt person relinquishes their right to deal with these assets. However, certain assets are exempt from seizure (meaning you can keep them) and are not transferred to the Trustee.
The Assignment in Bankruptcy also causes a "stay of proceedings", that prohibits all creditors from taking legal action against you, with the exception of alimony or child support proceedings. Once you are bankrupt, credit collection procedures are terminated and creditors cannot continue with garnishments or lawsuits. Creditors must make their inquiries through the Trustee.
3. What Assets Can I Keep?
In a personal bankruptcy, you can keep certain assets that are commonly referred to as exempt assets. The exempt assets are determined by federal and provincial laws and, therefore, vary from province to province. In the Maritimes, exempt assets generally include:
- A vehicle
- Household goods and personal effects
- Tools of trade
The federal and provincial laws determine the maximum value allowed for each exempt asset. The Trustee can provide you with more specifics.
In addition, you can generally keep any assets (such as a home or car) that are held as security or collateral for a loan. If there is equity in the asset (meaning its value is greater than the loan secured by it), then you will have to make arrangements with the Trustee to pay that equity amount, usually over a period of time. Each situation is different so you will have to discuss your particular situation with the Trustee to determine if any equity payments would be required.
4. Should I Continue To Pay Any Creditors?
Once you become bankrupt, you must not make any further payments to any unsecured creditors. Payments to secured creditors (creditors that have a lien on assets) should only be continued after consultation with the Trustee.
5. May I Keep Assets Which I Have Pledged If I Continue To Pay The Secured Creditor?
In certain circumstances, it may be possible for a bankrupt to keep pledged assets (e.g., house, car, furniture, etc.) provided that:
- The Trustee has determined that the security is valid.
- The Trustee has determined that there is no equity in the asset for the unsecured creditors and has released its interest in the asset or if there is equity (meaning its value is greater than the loan secured by it) then you will have to make arrangements satisfactory to the Trustee to pay this equity to the Trustee for the general benefit of your creditors.
- The Trustee has agreed to leave the asset in your possession.
- You can afford to make the payments and the payments are reasonable in your circumstances
6. What Is The Difference Between A Summary Administration And An Ordinary Administration?
A summary administration is a bankruptcy in which the estimated realization from assets is less than $15,000. Where the estimated realizable value of assets is more than $15,000, the bankruptcy is referred to as an ordinary administration. The majority of personal bankruptcies are summary administrations with no requirement to advertise the bankruptcy in the newspaper and, generally, no meeting of creditors.
7. What Will Happen to my Student Loan?
Recent changes in the Bankruptcy and Insolvency Act mean that student loans are extinguished in a bankruptcy or proposal, provided the individual has been out of school for at least 7 years.
For individuals where student loan debt will not be discharged, other options may be available, such as interest relief, debt reduction or, in some situations, a Court-ordered discharge of the entire debt. We recommend that you speak to us about how we can help with your student loan.
8. How Long Am I Bankrupt?
If you are a first-time bankrupt, you will generally be bankrupt for 9 or 21 months provided that you comply with all of your duties. If you are a second-time bankrupt you will generally be bankrupt for 24 or 36 months. The longer bankruptcy periods (21 and 36 months respectively) are applicable when the bankrupt has surplus income payments to make to the Trustee. If you have been bankrupt more than once previously, have not complied with your duties or have committed one or more bankruptcy offences, you will be bankrupt for a period of time determined by the Court taking into account the recommendations of the Trustee and any submissions by your creditors and yourself.
After you have received an Absolute Discharge from your bankruptcy, you will no longer be responsible for any of the discharged debts. However, the fact that you went bankrupt will appear on your credit rating for 6 years (7 years in PEI) after you have been absolutely discharged (14 years if it is not your first bankruptcy).
9. What Happens To My Wages During Bankruptcy?
Your wages, including salaries and commissions, are monitored by the Trustee. Each month you are required to complete an income and expense statement and forward it to the Trustee. This statement shows the amount of net monthly income for your household family unit as well as amounts spent on rent, food, clothing, etc. The Superintendent of Bankruptcy publishes guidelines as to the normal maximum amounts required as living expenses for a household family unit depending upon its size. A portion of any net income earned in excess of these guidelines must be paid by the bankrupt to the Trustee. These payments, if applicable, are referred to as surplus income payments and must be paid to the Trustee monthly.
At the commencement of the bankruptcy, the Trustee will review and determine the surplus income payment requirements. This is based on the Superintendent of Bankruptcy’s guidelines, taking into consideration family obligations and extraordinary circumstances. The surplus income payments will be adjusted based upon actual earnings during the period of bankruptcy. Failure to make the required surplus income payments generally means you will not be discharged from bankruptcy until the payments are made.
10. Who Will Know About My Bankruptcy?
In all bankruptcies, the creditors receive notice of the bankruptcy. Credit bureaus also maintain a record of all bankruptcies, usually 6 years (7 years in PEI) for a first-time bankruptcy. If the bankruptcy is an ordinary administration, the Trustee must publish the notice of bankruptcy in the local newspaper in the area of the bankrupt's residence. If the bankruptcy is a summary administration, the Trustee is not required to publish the notice of bankruptcy in the newspaper. The Office of the Superintendent of Bankruptcy also maintains a permanent record of all bankruptcies.
Normally, employers are not notified of the bankruptcy. It is up to you to decide whether to inform your employer of the bankruptcy. In some cases the employer may be aware of the employee's financial difficulties, and will likely look upon the bankruptcy as a beneficial solution to the employee's problems. It may be necessary for the Trustee to communicate with the employer to stop a garnishment or to obtain information required for filing your income tax returns.
11. What Happens At The Meeting Of Creditors?
The Trustee in Bankruptcy will send notice of the bankruptcy to all the creditors that you identified. In a summary administration a meeting of creditors will not be called unless the creditors request one and this request must be made within 30 days. In an ordinary administration, there must be a meeting of creditors. In the event of a meeting, the bankrupt must attend. The purpose of the first meeting of creditors is to:
- Consider the financial affairs of the bankrupt.
- Affirm the appointment of the Trustee.
- Appoint inspectors.
- Give directions to the Trustee with regard to the administration of the bankruptcy, the sale of assets, investigations to be conducted, actions to be taken, etc.
The Trustee will provide the creditors who attend the meeting with a report, either verbal or written, on the administration of the bankruptcy, including an estimate of the realization for the unsecured creditors. The unsecured creditors can either affirm the appointment of the Trustee or substitute the Trustee. Trustees are substituted in very rare circumstances. One or more inspectors may be appointed to represent the creditors and assist the Trustee with the administration of the bankruptcy. It is possible, but unlikely, that there may be other meetings of creditors. If so, the bankrupt may be requested to attend. Creditors' meetings are conducted in a business-like manner and are not held for the purpose of harassing the bankrupt or conducting extensive questioning of the bankrupt. The bankrupt's presence at these meetings is required for the purpose of answering proper questions which may be asked and which are permitted by the chairman.
12. Do I Have Any Other Duties And Responsibilities?
A bankrupt's duties and responsibilities are detailed in the Bankruptcy and Insolvency Act. In summary, the bankrupt person is required to:
- Reveal and turn over to the Trustee all assets in their possession or control and disclose to the Trustee any assets that come into the possession of the bankrupt before their discharge (for example, lottery winnings or an inheritance).
- Submit monthly income and expense statements to the Trustee with proof of net earnings, normally a copy of your pay stubs.
- Make the monthly surplus income payments to the Trustee.
- Turn over all credit cards to the Trustee for cancellation.
- Make available to the Trustee all relevant books and records.
- Attend any examination called by the Official Receiver.
- Assist the Trustee with making an inventory of assets if the Trustee wishes to do one.
- Disclose to the Trustee the details of all property disposed of by sale or gift.
- Attend the first meeting of creditors and any other meetings that may be scheduled.
- Attend a minimum of two counselling sessions.
- File all income tax returns for years prior to the year that the bankruptcy was filed in.
- Provide the Trustee with all information necessary to file income tax returns for the year during which the bankruptcy was filed.
- Generally assist the Trustee.
- Keep the Trustee advised of place of residence, phone number and employer.
It is your responsibility to understand these duties prior to filing an assignment in bankruptcy. The Trustee can answer questions about your duties.
13. Who Files My Income Tax Returns?
The Trustee will file the income tax returns for the year you file for bankruptcy. There are two returns filed: one covers January 1 to the date of bankruptcy (the pre-bankruptcy return) and the second covers the period from the date of bankruptcy until December 31 (the post-bankruptcy return).
You must provide the Trustee with the information required to file these returns. Income tax refunds from prior years and refunds from the pre- and post-bankruptcy returns are assets of the bankrupt's estate and Canada Revenue Agency automatically forwards these refunds to the Trustee. Amounts owing on prior years' income tax returns and the pre-bankruptcy return are debts that are discharged by the bankruptcy. The bankrupt must pay income tax liabilities arising from the post-bankruptcy return.
14. Does The Trustee Conduct Any Investigations?
You may be required to attend at the Office of the Official Receiver for an examination under oath, as to the facts relating to the bankruptcy. The Trustee will also investigate any transactions prior to bankruptcy involving circumstances where the bankrupt transferred assets to any person(s) for other than fair value, or where any creditor(s) received preference over other creditors by payment or by the giving of security. The Trustee may commence legal action to reverse any offensive transactions.
15. What Happens If I Acquire Assets During My Period of Bankruptcy?
Non-exempt assets acquired or purchased during the period of bankruptcy may be taken by the Trustee for the general benefit of the unsecured creditors. These assets include, but are not limited to, inheritances and lottery winnings. You must advise the Trustee if you acquire any non-exempt assets during bankruptcy.
16. What Are Bankruptcy Offences?
The Bankruptcy and Insolvency Act provides for penalties for bankrupts who commit bankruptcy offences. The following are some examples of bankruptcy offences:
- Failure to comply with your duties as defined by the Act.
- Fraudulent disposition of property.
- Refusal to answer questions at any examination held under the Bankruptcy and Insolvency Act.
- Falsifying a statement or accounting record.
- Concealing, destroying or falsifying books or records.
- Obtaining credit by false representation.
- Concealing or removing property.
- Engaging in a trade or business without disclosing to all persons involved in any business transaction that he or she is an undischarged bankrupt.
- Obtaining credit of more than $1,000 while an undischarged bankrupt without disclosing the fact of being an undischarged bankrupt.
Persons convicted of bankruptcy offences may be fined or imprisoned.
17. What Is A Bankrupt's Discharge?
One of the major purposes of the bankruptcy process is to provide a fresh financial start. A discharge from bankruptcy accomplishes this and occurs at the end of the bankruptcy period. If this is your first or second bankruptcy, then the Bankruptcy and Insolvency Act provides a procedure for an automatic Absolute Order of Discharge, which is one where there is no Court hearing. To qualify for an automatic discharge you must:
- Be a first-time or second-time bankrupt.
- Have complied with your duties under the Bankruptcy and Insolvency Act and cooperated with the Trustee.
- The discharge must not be opposed by any creditor(s), the Trustee or the Superintendent of Bankruptcy.
If a bankrupt does not qualify for an automatic discharge, the Trustee will make application to Court for a discharge hearing and the Court will determine, after considering a report by the Trustee and representations by the bankrupt, what conditions must be satisfied before the discharge occurs. Once the conditions are satisfied, the Court will issue an Absolute Order of Discharge.
18. What If I Don't Get A Discharge?
If the bankrupt fails to complete the conditions of discharge set by the Court in a reasonable time, or if the Court refuses to grant a discharge due to the bankrupt’s conduct, the Trustee will then proceed to close the file and apply to the Court for the Trustee's Discharge. Once the Trustee has been discharged, and if the bankrupt has not received an Absolute Order of Discharge, the bankrupt may be in a worse position than before the bankruptcy. The reasons for this include:
- Once the Trustee has closed the file and has been discharged, the stay of proceedings is over and the creditors may resume collection efforts against the bankrupt.
- A bankrupt remains a bankrupt until an Absolute Order of Discharge is issued. Consequently, each time a bankrupt obtains credit without advising the creditor that he or she is an undischarged bankrupt, a bankruptcy offence is committed.
- Any assets acquired, such as lottery winnings, inheritances, savings, etc., can be seized by creditors until an Absolute Order of Discharge is obtained.
Consequently, it is extremely important that the discharge terms are resolved before the Trustee closes the file.
19. Who Pays For The Trustee's Services?
The Trustee's fee for a summary administration bankruptcy is set by the Bankruptcy and Insolvency Act. In most cases the person filing for bankruptcy pays the Trustee sufficient funds to cover the Trustee’s fee.
The basic fee covers all services provided by the Trustee. Affordable monthly installments will be discussed with you prior to you filing for bankruptcy. Your monthly or lump sum payment to the Trustee to cover the Trustee's fee is credited against any surplus income payment requirements.
In ordinary administration bankruptcies where there are significant assets and substantial work for the Trustee to do, the Trustee's fee is based on the number of hours spent by the Trustee's staff at the normal billing rates. All Trustee fees are reviewed by the Office of the Superintendent of Bankruptcy and are approved by the Court.
20. Do I Hire The Trustee?
It is a common misconception that the bankrupt "hires" the Trustee. This attitude is quite often reinforced by the fact that the bankrupt:
- Chooses the Trustee.
- Perceives to be paying the Trustee.
- Is guided through the bankruptcy process by the Trustee.
- Has all questions answered by the Trustee.
- Provides the Trustee with detailed information.
- If required, assists the Trustee in selling non-exempt assets.
However, it should be clearly understood that the Trustee has a responsibility to the creditors and the Court as well. It is the Trustee’s responsibility to administer the bankruptcy estate in accordance with the Bankruptcy and Insolvency Act.
21. What Do I Do If A Creditor Sues Me?
Once a person declares bankruptcy a creditor cannot generally continue Court actions. If a creditor commences or continues a Court action against you after bankruptcy or after filing a proposal, you should immediately inform the Trustee of the action.
If a creditor commences a Court action against a person who has been discharged from bankruptcy, the person will usually only have to provide the Court and the creditor with a copy of the final discharge documents for the action to be stopped. In the case of a completed proposal, the debtor would provide a copy of the Certificate of Full Performance.
22. What Is The Trustee's Discharge?
When work on a bankruptcy file is complete, the Trustee must file a formal report with the Office of the Superintendent of Bankruptcy and, depending on the type of file, the Court.
This report includes an accounting of the liquidation of the assets, the various costs of the administration of the bankruptcy, details of the Trustee's fee and a listing of the funds distributed to the unsecured creditors.
The Trustee notifies the bankrupt and the creditors of the time and place of the Trustee's discharge hearing. Anyone who takes exception to the Trustee's administration may make their objection to the Court, whereby a Court hearing will be scheduled to review their concerns.
When the Court finds the Trustee has satisfactorily completed the administration of the bankruptcy, it will grant the Trustee a discharge and the Trustee's duties are concluded.
23. How Do I Qualify For A Proposal?
For a proposal to be acceptable to your creditors, it must generally give the creditors a greater return or payment on their outstanding accounts than they would receive in bankruptcy. You must be able to make the payments. There is no advantage to filing a proposal if you cannot comply with its terms.
For a proposal to succeed, it will generally have to be in a situation where at least one of the following is applicable:
- You have steady employment which provides a level of income above that necessary for normal living requirements.
- Third parties, such as parents, are prepared to provide funding or guarantees for the proposal settlement.
- Certain assets which may not be available to the creditors in a bankruptcy proceeding are voluntarily offered as part of the proposal.
24. What Is The Difference Between A Consumer Proposal And An Ordinary Proposal?
A consumer proposal is a streamlined proposal process that is available to individual debtors whose total debts do not exceed $250,000 (excluding the mortgage on their personal residence). This type of proposal does not require a creditors' meeting, unless requested by the creditors, and there is no automatic bankruptcy if the creditors turn down the proposal.
An ordinary proposal applies to debtors who owe more than $250,000. In this case there must be a creditors' meeting and if the proposal is not accepted by the required majority of creditors, then the person filing the proposal automatically becomes bankrupt.
25. What Kind Of Counselling Is Available To Help Me Choose The Best Alternative?
In order to assess your current situation and advise you on your options we would be pleased to arrange for a no-charge confidential initial consultation. To arrange for your initial consultation, please call one of our Offices or call 1-888-455-6060.
26. How Much Does A Proposal Cost?
The Trustee's fees for a consumer proposal are set by the Bankruptcy and Insolvency Act and are based upon the amount of funds paid to the Trustee under the proposal and is paid from your monthly payment in the proposal. If you file an ordinary proposal, there is usually more work for the Trustee to do and the Trustee's fee is normally based upon the number of hours spent by the Trustee's staff at normal billing rates. Costs will vary depending upon the complexity of the Proposal proceedings and are generally paid for out of funds paid to the Trustee under the proposal.
27. Are all debts discharged by bankruptcy?
A discharge from bankruptcy discharges you from your obligation to pay any debts that you were subject to at the time you filed for bankruptcy, with the exception of the following:
- Fines or penalties imposed by a Court.
- Obligation to pay alimony, spousal or child support.
- Debts arising out of fraud or embezzlement.
- Student loans where the bankrupt has been out of school for less than 7 years unless forgiven by the Court.
If you are concerned about any particular debt or the circumstances in which that debt was incurred, you should discuss the situation with the Trustee.