Personal bankruptcy in Canada is a legal process that provides proven debt relief for individuals burdened with debt who are unable to make their payments. It is regulated by the federal government through the Bankruptcy and Insolvency Act. The purpose of the Act is to permit an honest, but unfortunate, debtor to obtain a fresh start by eliminating most, if not all, of their unsecured debt. If you have at least $1,000 in unsecured debt and you can’t pay your debts, bankruptcy may be an option for you.
Here are the steps you need to know about how to file bankruptcy in Canada:
1) Meet with a Bankruptcy Trustee
The first step in filing for bankruptcy is to arrange a free, in-person consultation with a trustee in bankruptcy to assess your financial situation. A trustee in Canada is licensed by the federal government and is required by law to explain all of your debt relief options to you, including declaring bankruptcy and alternatives to bankruptcy.
2) File with the Official Receiver at the Office of the Superintendent of Bankruptcy
After your initial consultation, if you decide that you still want to file bankruptcy in Canada, your trustee will work with you to complete and file the appropriate forms properly. These forms include information about your assets and liabilities (debts), income and expenses, marital status, dependents and any other information the trustee needs to file with the government.
Once this information is collected you will meet again with your trustee to review the information and sign your bankruptcy paperwork. Your trustee will then electronically file your bankruptcy documents with the Office of The Superintendent of Bankruptcy, who will assign to your file an estate/court number. As soon as the government assigns this estate number, you are now provided with protection from your creditors. Your debts are now frozen (stopping collection agencies from calling), interest charges stop growing and wage garnishments are lifted.
3) The Trustee Notifies Your Creditors and Deals With Your Assets
After filing bankruptcy the trustee will notify all of your creditors, you will no longer need to deal with them or any collection agencies. Your trustee will advise you on what to tell your creditors and collections agencies if they call. A meeting of creditors may be held but this is rare, only about 1 in 1,000 bankruptcies and usually only if you have significant tax debt.
The trustee will deal with any assets except assets listed as bankruptcy exemptions by federal or provincial law. In most provinces you are able to keep your clothing, personal goods and furniture and an inexpensive car within the limits set by each province. The rules vary by province, your trustee will advise you to ensure you utilize all your eligible exemptions
4) Bankruptcy Payments and Duties
During your bankruptcy, you will be required to perform certain duties including making payment to the trustee each month to cover the administration costs of the bankruptcy, providing proof of family income each month, making any required surplus income payments, attending two counseling sessions, providing the trustee with information needed to file your tax returns and assist the trustee in realizing on an non-exempt assets. If a meeting of creditors is called, you will be required to attend.
5) Bankruptcy Discharge
Once all of your duties are complete, you are eligible for discharge. If this is your first or second bankruptcy you are eligible for an automatic discharge which usually takes place within 9 to 21 months. Bankrupts with surplus income are required by law to make payments of a mandated portion of their surplus income to their estate for a period of 21 months. If you do not have surplus income, you will likely be eligible for automatic discharge within 9 months. Your eligibility for automatic discharge will depend upon two things: whether or not you completed all of your duties and whether any creditor objects to your discharge. It is rare for a creditor to object but it does happen. If it does, a court hearing is held and the court will decide whether or not you will be discharged.
6. Credit Repair After Bankruptcy
Congratulations, your bankruptcy is complete. Now you can begin the process of repairing your credit after bankruptcy.