Bankruptcy has a bad reputation, but it can actually be an effective solution to get out of debt. And filing for bankruptcy doesn’t have to be a complicated process.
In Canada, bankruptcy is a legal process that’s regulated by the Bankruptcy and Insolvency Act. The Act allows debtors to assign their non-exempt assets for the benefit of their creditors in order to be discharged from most of their debts.
Only Licensed Insolvency Trustees can legally file bankruptcies in Canada. Their role is to supervise the bankruptcy process, ensuring that both the debtor and the creditors are treated fairly and evenly throughout the process.
Reasons To File For
- Get rid of unsecured debt
- Stops collection actions
- Stops wage garnishments
- Provides credit counseling for financial recovery
- Can lead to a debt-free life
How to File For Bankruptcy In Canada
There are 6 basic steps to filing for bankruptcy in Canada:
You will have to complete some of these steps by yourself, some with the help of a Licensed Insolvency Trustee, while others will be completed by the Licensed Insolvency Trustee on your behalf.
1. Contact A Licensed Insolvency Trustee
This is the easiest step of the entire bankruptcy process. The first thing you should do when considering bankruptcy is contacting a Licensed Insolvency Trustee.
You can contact a Remolino & Associates Licensed Insolvency Trustee and get a free consultation today.
2. Get A Debt Assessment
Our Licensed Insolvency Trustee will assess your financial situation for free and recommend the best debt relief options available to you, including filing for a customer proposal or for bankruptcy.
If you still want to file for bankruptcy, the trustee will ask you to complete several bankruptcy forms.
The trustee may also recommend filing for a joint bankruptcy if you’re in a close financial relationship with another debtor who has the same debts as you, because a joint bankruptcy can see your files dealt with as one.
3. Fill In The Paperwork And Declare Bankruptcy
Your Licensed Insolvency Trustee will ask you to sign at least two forms in order to declare bankruptcy.
The first form is an “Assignment” stating that you will hand over all your property to the trustee for the benefit of your creditors.
The second form is a “Statement of Affairs”, which is a list of your assets, liabilities, income, and expenses. You will answer several questions regarding your family, employment, and disposition of assets.
Your Licensed Insolvency Trustee will guide you through the process, making sure that you understand the legal documents necessary to file for bankruptcy. However, these are your statements and you are solely responsible for their accuracy.
4. Filing The Bankruptcy Documents With The Official Receiver
This step is completed by the Licensed Insolvency Trustee on your behalf. The trustee will file the documents with the Official Receiver at the Office of the Superintendent of Bankruptcy, which essentially starts the legal bankruptcy process. Once this process is started, it cannot be reversed without a court order.
The trustee will send you notices and other documents. You should make copies of these documents and keep them until the bankruptcy process is complete.
5. Stay Of Proceedings And Bankruptcy Duties
Your stay of proceedings starts right after the trustee filed your bankruptcy with the government. This means that your trustee can inform your employer to stop wage garnishments if necessary, and it also means that all collection calls must stop.
Once your documents are filed, you can also stop paying your unsecured creditors and start making your bankruptcy payments instead.
You will also have to perform the bankruptcy duties listed in Appendix A, of Directive 26 of the Office of the Superintendent of Bankruptcy Canada. Your trustee will explain these duties to you, which in most cases can be summed up by:
- Making your bankruptcy payments
- Attending two credit counselling sessions
- Providing information about your monthly budget
- Notifying the trustee of any changes in your financial situation
Examination With The Official Receiver
You may also be asked to visit the Official Receiver’s office and answer several questions regarding your financial status under oath. This examination occurs rarely, in about 1 out of every 300 bankruptcies.
If you are called for an examination with the Official Receiver, your Remolino & Associates Licensed Insolvency Trustee will help you prepare for the examination by reviewing the questions you’re most likely to be asked.
Meeting of Creditors
In rare cases (about 1 in every 1,000 personal summary bankruptcies), your creditors or the Official Receiver may request a meeting of creditors that you have to attend.
If a meeting of creditors is called, your Licensed Insolvency Trustee will present the creditors a report about your assets and liabilities and the creditors might also ask you some debt-related questions. Based on the meeting’s outcome, your creditors will vote whether to confirm the trustee’s appointment or to substitute them with a trustee of their choice.
The creditors can then vote for the appointment of inspectors and give directions to the trustee regarding the administration of the bankruptcy estate.
6. Obtaining The Certificate Of Discharge
Those who declare bankruptcy for the first time can get an automatic bankruptcy discharge nine months after filing the bankruptcy papers, unless the discharge is opposed by a creditor, trustee, or the Superintendent of Bankruptcy. The Licensed Insolvency Trustee can also recommend a discharge with conditions instead of an automatic discharge.
In addition, having a surplus income of more than $101 per month can extend your bankruptcy period to 21 months for your first bankruptcy.
Filing Chapter 7 and Chapter 13 Bankruptcy in Canada
When US residents file for personal bankruptcy, they do it under Chapter 7, Title 11 of the United States Code. Since this is common practice for personal bankruptcy filings, it has come to be known as Chapter 7 bankruptcy.
Chapter 7 bankruptcy does not exist in Canada. The Bankruptcy and Insolvency Act covers personal bankruptcy, but the process is called “filing for personal bankruptcy”, not filing for Chapter 7 bankruptcy.
Chapter 13 is a bankruptcy law in the US that allows people to reorganize or settle their debts. The Canadian equivalent of Chapter 13 is called a Consumer Proposal. Consumer proposals allow debtors to reorganize their debt and come up with a settlement plan that would enable them to repay a portion (or all) of their debt over a period of up to 5 years.
Consumer proposals are designed to help people repay their debt instead of filing for bankruptcy.