What is bankruptcy? Bankruptcy is a legal way to be free of most of your debts. Bankruptcy is designed to allow an honest person who has fallen on unfortunate circumstances the chance to start over, subject to reasonable conditions. return to top What you should know Assets and Property You must assign all assets to your trustee, with the exception of exempt property. Bankruptcy and Insolvency Act (The Act) This is the federal law that regulates business and consumer proposals and bankruptcies in Canada. It falls under the responsibility of the Office of the Superintendent of Bankruptcy at Industry Canada. Bankruptcy Court This is a court in which a judge or registrar will decide on the bankrupt's application for discharge and other insolvency matters. Co-signers Your bankruptcy does not cancel the responsibility of anyone who has guaranteed or co-signed a loan on your behalf. Creditor A creditor is a person, institution or business to which money is owed. Secured creditors are creditors who have taken some measure to protect themselves and hold a mortgage, pledge, lien or similar instrument on, or against, the property of the debtor. If they are not paid, they can enforce their claims by recovering the assets on which they hold security. Unsecured creditors are creditors who do not have any security for the debt owing to them. Credit rating Your bankruptcy is a matter of public record and is available to any interested party (such as a credit reporting agency). To obtain credit after your discharge you may have to demonstrate to the potential lender that you have sufficient income and the ability to handle a reasonable level of debt. Debtor A debtor is a person who receives a loan or an advance of goods and services in exchange for a promise to pay at a later date. Harassment One of the objectives of the Act is to relieve you of pressure from your creditors. If you receive phone calls or letters from creditors, tell them that you are bankrupt, or have made a proposal, and refer them to your trustee or administrator. Income tax returns Two income tax returns must be completed for the calendar year in which you become bankrupt. The pre-bankruptcy return covers the period from the beginning of the year to the date of your bankruptcy. You will be required to provide details and documentation to support this return to your trustee. The post-bankruptcy return covers the period from the date of bankruptcy to the end of the calendar year. You may be asked to give any possible refund from these income tax returns to the trustee for distribution to your creditors. The trustee or a creditor may apply for a court order in this respect. Inspector Inspectors are appointed by creditors to represent them before the trustee during the administration of proposals and bankruptcies. They are expected to assist the trustee by virtue of their experience and are required to supervise certain aspects of the trustee's administration. Insolvent person A person who is unable to meet financial obligations as they become due is insolvent. Legal action Although legal actions or most garnishments against you stop on the date you declare bankruptcy or file a proposal, criminal actions and some civil matters, such as actions in matrimonial matters, are not affected by the bankruptcy or proposal. Give the trustee or administrator copies of all legal documents that you have received before and after the date you became bankrupt or filed a proposal. In a proposal, no creditor can, without permission of the court, start or continue any legal action until the proposal is either withdrawn, refused, annulled or until the administrator has been discharged. In the case of a bankruptcy, no creditor may, without permission of the court, start or continue any legal action until the trustee has been discharged. Mediation In the course of the bankruptcy, the parties involved in a disagreement can agree to work with an impartial and independent person called a “mediator”, who will help them settle their dispute instead of going to court. Generally, the mediator is an employee from one of the Superintendent of Bankruptcy’s Division Offices. Mediation is more flexible, speedier and less costly than a formal court decision. It allows people affected by the bankruptcy to be directly involved in deciding how their disagreement will be settled. Official Receiver The Official Receiver is a federal government employee in the Office of the Superintendent of Bankruptcy and officer of the court with specific duties under the Bankruptcy and Insolvency Act. The Official Receiver, among other things, accepts the documents that are filed in proposals and bankruptcies, examines bankrupts under oath and chairs meetings of creditors. Payments and Surplus Income Immediately after becoming bankrupt, you should no longer be required to make payments to your creditors. However, while you are an undischarged bankrupt, you are expected to deposit a portion of your income with your trustee for distribution to your creditors. These payments are made according to guidelines issued by the Superintendent of Bankruptcy. If you fail to make these payments voluntarily, the court may order you to do so, or your discharge may be affected. Superintendent of Bankruptcy The Superintendent of Bankruptcy is a federally appointed official who oversees the administration of the Bankruptcy and Insolvency Act in Canada. Trustee in bankruptcy A trustee in bankruptcy is a person licensed by the Superintendent of Bankruptcy to administer proposals and bankruptcies. The trustee represents your creditors and is an officer of the court. However, the trustee can give you information and advice about both the proposal and bankruptcy processes and make sure that your rights, as well as those of the creditors, are respected. Windfalls You must give all windfalls, such as lottery winnings and inheritances, occurring during the period of your bankruptcy, to the trustee for distribution to your creditors. Other Considerations You cannot be the director of a company while you are in bankruptcy. If you obtain credit or borrow money while in bankruptcy you must disclose that you are an un-discharged bankrupt. return to top What happens Each bankruptcy or proposal is different. This is why it is important to discuss your individual situation with us before taking action. A bankruptcy must be filled through a Trustee in Bankruptcy Some steps include: > You provide a statement of your assets and liabilities to the Trustee, who files it with the government authorities and the Court. > Control of your non-except assets is given to the Trustee. > The Trustee notifies your creditors of the bankruptcy. > A meeting with your creditors may be held. > The Trustee realizes on the assets under his control and distributes funds to the creditors. First time bankrupts will be in bankruptcy for nine months, at which time they may be eligible to receive an automatic discharge if they have fully complied with all requirements and if no creditor objects. return to top Exemptions Non-Exempt Assets – Those given to the trustee All non-exempt assets are turned over to the Trustee for the benefit of the creditors. Examples of non-exempt assets are: > Income tax refunds for the years prior to bankruptcy (if not already received) and for the year of bankruptcy. > Non-exempt vehicles, motorcycles and trailers, boats and campers. > Registered Retirement Savings Plans (RRSP’s), contributed in the last 12 months. > Stocks, bonds and shares. > Lottery winnings or inheritances received while in bankruptcy, up to the total amount of your liabilities. Exempt Assets – Those you can keep Some of the assets that you may be entitled to keep are listed below: > Clothing…up to a value of $4,000 (resale value). > Furniture…up to a value of $4,000 (resale value). > Vehicle…one motor vehicle up to a value of $5,000. > House… equity in residence up to $40,000 or your mobile home up to $40,000. > Tools of the trade… up to a value of $10,000 if used in your work. > Homestead… 160 acres – farmers only. > Food… 12-month supply. > Farming… personal property necessary for farming operation for the next year, with the requirement that farming be your primary source of income. > RRSP’s contributed more than 12 months ago. Exempt items that are secured to a creditor must be paid for or given to the secured creditor. return to top Payments during bankruptcy You will not make payments to your unsecured creditors while you are in bankruptcy. However, you may be required to make monthly payments to the Trustee for the benefit of your creditors, depending on your circumstances. The Trustee will review this with you during your first interview. Co-signers Your bankruptcy does not cancel the debt of anyone who has co-signed or guaranteed a loan for you. return to top Discharge from bankruptcy A first-time bankrupt is automatically released, or granted a discharge from Bankruptcy, between nine and twenty one months after filing bankruptcy unless a creditor, the Trustee, or the Superintendent of Bankruptcy objects. There is no court hearing if you are granted an automatic discharge. The Trustee will send you a copy of the discharge. If this is not your first bankruptcy, or if your automatic discharge is opposed, the Trustee applies to the Court for your discharge. You will be advised by the Trustee to appear in Court for the hearing. The Trustee informs the Court of the circumstances surrounding your bankruptcy at the hearing. The creditors can also address the Court. The Court will set conditions you must meet before you are discharged from bankruptcy. Some things may delay your discharge from bankruptcy. These include: > Failure to make required payments from income to the Trustee. > Failure to submit monthly income and expense statements. > Failure to provide the Trustee with information to complete income tax returns. > Failure to attend first meetings of creditors and required counseling sessions. > Objection to your discharge by a creditor or Superintendent of Bankruptcy. A discharge from bankruptcy does not release you from the following debts: > Alimony, maintenance and child support. > Court fines and penalties. > Debts obtained through fraud. > Other special circumstances. The Trustee is discharged once he has completed his work in the bankruptcy and distributed funds to the creditors. return to top How the trustee is paid The Trustee’s fee is paid from funds received in the bankruptcy estate. A deposit or retainer is normally expected before filing for bankruptcy. The amount of the deposit and the monthly payments will be determined by the Trustee during your first consultation. return to top