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Until recently, it was impossible to file for bankruptcy online in Canada. Everyone who wanted to declare bankruptcy was required to meet in person with a Licensed Insolvency Trustee (LIT).
However, the Office of the Superintendent of Bankruptcy (OSB) updated its guidelines regarding the bankruptcy process in order to accommodate the social distancing rules imposed during the COVID-19 pandemic.
The new guidelines allow trustees to use online video conferencing tools, phone calls, and electronic signatures to administer a bankruptcy or consumer customer proposal, so you can now start the bankruptcy process online.
If you’re struggling with debt and want to find out how filing bankruptcy works, whether it’s online or offline, then you’re in the right place. By the end of this article, you’ll learn about the documents you need and what the online filing bankruptcy process looks like. Read on to learn more.
Why its possible to file bankruptcy in Canada Online
One of the Bankruptcy and Insolvency Act’s directives, 6R3, states that Licensed Insolvency Trustees can use other methods of assessments than in-person meetings in extraordinary circumstances.
On March 13, 2020, the OSB recognized the COVID-19 pandemic as an extraordinary circumstance and encouraged LITs to conduct assessments, provide counselling, and hold creditors meetings using video conferencing tools, emails, and telephone discussions to help people in filing bankruptcy.
LITs were also encouraged to provide documents that require electronic signatures, with the mention that they should also obtain the original signed copies and add them to their records.
As a result, LITs were able to help Canadians complete all the steps involved in the bankruptcy process online.
How To File for Bankruptcy Online in Canada
Filing for bankruptcy online follows the same procedure as filing in person. Let’s break down the process:
Filing for bankruptcy online in 4 steps
Step 1 – Contact a Licensed Insolvency Trustee
The first step is to consult a Licensed Insolvency Trustee. LITs are the only certified professionals authorized to administer bankruptcies in Canada, so they guide you through the process.
During your first meetings with your Trustee, they will assess your financial situation. Once they have a complete understanding of your situation, they can recommend debt relief solutions that may help you overcome debt while protecting your assets.
Even though you may believe that your financial situation can only be improved by filing for bankruptcy, the truth is that, in some cases, other debt relief solutions, such as filing a consumer proposal, may be better suited.
The Trustee will present all the debt relief options available to you and their potential outcome, so you can make an informed decision going forward, whether it’s to file bankruptcy in Canada or take a bankruptcy alternative.
Step 2 – Filling out the documents
If you and your LIT decide that you should file bankruptcy, you will receive a copy of all the required documents via email.
After filling out the bankruptcy documents and sending them back to the Trustee, they will go over each document to make sure that you completed the information correctly and ask for your electronic signature.
Step 3 – Submitting the paperwork
Once you sign the documents and the bankruptcy forms, the online bankruptcy application is complete. Your Trustee will contact your creditors, stop all the debt collection efforts and wage garnishments, and ask for the release of your frozen bank accounts. This happens immediately.
Step 4 – Attend counselling sessions
You will have to complete two credit counselling sessions with your Trustee. These are mandatory, but you can complete them via video conference or phone calls as part of the online bankruptcy filing procedure.
What documents do you need in order to file bankruptcy online?
Your LIT will inform you of the documents you need to complete in order to file bankruptcy. These documents will include two distinct bankruptcy forms.
Why you should file for bankruptcy online
Protect yourself and your loved ones
Even though things are opening up, the threat of the COVID-19 pandemic is still real. Filing for bankruptcy online enables you to avoid crowded environments.
When you file bankruptcy online, you don’t have to lose time traveling to and from your Trustee’s office.
When you file for bankruptcy online, you receive, complete, and send all the required paperwork via email.
You can file for a Canadian bankruptcy from the comfort of your own home, even if you’re living outside of Canada.
Canadian citizens filing for bankruptcy from the United States
You can still file bankruptcy in Canada if you’re living in the United States, as long as you meet the following conditions:
- Most of your assets are in Canada
- You’ve been a resident of Canada within the last year
- You’ve conducted business in Canada in the last year
However, these conditions have a broad interpretation. For example, you may have assets in storage in Canada, which would qualify for the first condition, or you may be employed by a Canadian company while living over the border, which would qualify you for the third condition to file bankruptcy.
Realistically speaking, you may file for bankruptcy in Canada when living abroad if you:
- Can provide a Canadian address
- Meet with a LIT for your initial bankruptcy assessment, which you can now do online
- Attend your mandatory counselling sessions, which you can now do online
- Attend creditor meetings or discharge hearings. These may be conducted online. However, you may be required to return to Canada to complete your bankruptcy duties
- Declare your assets, including those in foreign countries to your LIT. The LIT may be required to sell your assets for the benefit of your Canadian creditors.
- Declare all your debts to your LIT, including those outside of Canada. If you’re struggling with debt in the US as well as in Canada, you may have to file a separate bankruptcy to deal with them. However, you can coordinate the filing in both countries.
- Maintain a Canadian bank account to make your payments.
Types of bankruptcy you can file for completely online
This is the most common type of bankruptcy in Canada . If you’re struggling with debt as a result of loss of income, unexpected costs due to divorce, accidents, medical bills, or you’re experiencing difficulties in meeting your financial obligations despite making payments, this is the type of bankruptcy you’re most likely to file.
Small and medium businesses bankruptcy
If your business is not incorporated, its debts and assets are considered yours. As a result, as the owner of a small or medium business, you go through the same process as you would with a personal bankruptcy in Canada.
Corporate and large businesses bankruptcy
Incorporating your business offers the benefit of liability protection for you, the owner. This means that your personal assets would most likely be protected from the company’s debts and creditors in case of a bankruptcy.
Corporate bankruptcy in Canada is more complicated than personal ones and require a Trustee who specializes in corporate bankruptcy.
Assessing your financial situation and how you can safely avoid bankruptcy
When you’re overwhelmed with debt, you may believe that bankruptcy is the only way to regain your financial freedom. However, the following alternatives can also help you get out of debt
1. Liquidate personal assets – You may be able to repay your debt if you liquidate some of your personal assets and avoid bankruptcy altogether.
2. Personal budgeting & self money management – Sometimes, budgeting and learning how to better manage your money can help you get out of debt.
3. Debt restructuring – this alternative is more common for incorporated businesses and usually involves a debt-for-equity swap, meaning that the creditors agree to cancel part of the debt in exchange for equity in the business.
4. Debt consolidation – a debt consolidation loan could enable you to bring multiple debts together under a single payment. This alternative doesn’t lower the amount of debt you owe, but it may make it more manageable. Debt consolidation is often used if you have multiple smaller debts.
5. Debt management plans – this alternative may be useful if you owe money to multiple creditors. A debt management plan does not lower the amount you owe, but it may make your debt more manageable.
6. Informal Debt Settlement – In some cases, you may be able to negotiate a payout with your creditors and pay less than what you owe as a lump sum. Keep in mind that this is not a legally binding process.
7. Consumer Proposal – A consumer proposal is often more favourable than a bankruptcy. Consumer proposals can reduce the amount of debt owing and enable you to repay your creditors with a single, affordable monthly payment.
Are you struggling with debt? We can help!
Book your free, confidential, no-obligation virtual consultation and one of our Licensed Insolvency Trustees will help you identify the best solution for your financial situation.