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How long will I be in bankruptcy?
Will my creditors stop calling me?
What about my income tax returns?
Can I keep my credit cards if I go bankrupt?
Are there any debts that are not released?
How will bankruptcy affect someone who co-signed or guaranteed one of my debts?
How will my credit rating be affected?
Bankruptcy is a legal process designed to give an honest but unfortunate debtor a fresh financial start. Creditors and collection agencies will stop calling you and any garnishment on your pay will cease. You will be required to turn over your assets (other than those exempt by law) to the trustee who will sell them and distribute the proceeds to your creditors. When you obtain your discharge, most, if not all, of your debts are forgiven.
The first step is to meet with a Trustee in Bankruptcy who will review your financial situation, explain the various options available to you and advise you on the best course of action. You can file for bankruptcy if you are unable to pay your debts when they are due and don’t have sufficient income to make a consumer proposal. If you decide to go bankrupt, the trustee will assist you in completing a formal declaration of your assets, liabilities, income and expenses. The trustee is responsible for filing the bankruptcy documents with the government.
The assets that you are entitled to keep are referred to as exempt assets. Exempt assets vary from province to province. Some of the common exemptions that apply in both Ontario and Quebec are:
 | Household furniture, appliances and personal effects |
| Tools of trade necessary for your work |
| Pensions and certain life insurance policies |
| RRSPs and RRIFs, other than contributions made in the year prior to bankruptcy |
If you live in Ontario and own your car outright, the first $5,650 of the car’s value is also exempt.
If you borrowed money to purchase your car and still owe money on the loan, it is likely that you were required to give the car as security. In most cases, you have the option to keep your car and continue making your usual payments, as long as you stay current on the loan. Your creditor is prohibited from terminating the loan agreement and taking back the car solely because of the bankruptcy.
However, if you can't afford the loan payments or if the value of the car is much less than the remaining balance of the secured loan, you’re likely better off surrendering the car to your creditor. In this event, any shortfall that may arise from the sale of the car will be included as an unsecured debt in the bankruptcy. You will not be liable for any further payments or penalties.
First-time bankrupts with no surplus income are eligible for an automatic discharge after nine months. First-time bankrupts who have surplus income are eligible for an automatic discharge after contributing part of their surplus for 21 months to the trustee for distribution to the creditors.
Second-time bankrupts with no surplus income are eligible for an automatic discharge after 24 months. Second-time bankrupts with surplus income are eligible for an automatic discharge after contributing part of their surplus for 36 months.
Surplus income is determined in a Directive issued by the Superintendent of Bankruptcy and depends your net income and family situation. The trustee will review this with you during your initial meeting.
By law, all collections proceedings must stop once the bankruptcy documents are filed. Your creditors and the collection agencies will now have to deal with the trustee. Stressful telephone calls and mail demanding payment will stop.
Income tax law requires two tax returns for the year of bankruptcy. The pre-bankruptcy return covers the period from January 1 to the date of bankruptcy. The post-bankruptcy return covers the period from the date of bankruptcy to December 31. The trustee will prepare these returns on your behalf, as well as any outstanding returns for prior years. Any refunds from these returns will be retained by the trustee for distribution to your creditors. If there is a balance owing on the pre-bankruptcy return or prior year returns, the tax debt will be included in the bankruptcy. You will be responsible to pay the balance owing, if any, on the post-bankruptcy return.
The trustee will advise your creditors and the Canada Revenue Agency of your bankruptcy. Normally, no advertisement will appear in the newspaper.
No, you are required by law to give all of your credit cards to the trustee for cancellation.
Bankruptcy eliminates most debts, but some are not discharged. These include:
| student loans, if less than seven years from the end of your studies |
| fines and penalties imposed by a court |
| alimony and child support |
| credit obtained under false representation |
Bankruptcy only releases the person who filed for bankruptcy from their debts. A co-signer or guarantor is not released from the debt and will be required to repay it in full.
Bankruptcy will not affect your spouse, unless you have joint debts. If there are significant joint debts, you and your spouse can file a joint bankruptcy.
Filing for bankruptcy will have a negative effect on your credit rating. In most cases, it will be R9 (the lowest rating) for six years following the bankruptcy discharge. For more information on credit ratings, refer to www.equifax.ca or www.transunion.ca. Credit ratings are set and maintained by independent credit bureau organizations.
The cost will depend on your net monthly family income, the size of your family and your assets. You will likely be required to make monthly payments to the trustee while in bankruptcy. The trustee will review this with you during your initial meeting. The trustee's fees are set by law.
Copyright © 2009 Chantal Sylvestre Trustee in Bankruptcy
