What Does Personal Bankruptcy Consist Of?
What is it?
Bankruptcy is the solution that enables you to free yourself from the majority of your debts, by handing over certain assets. In just a few months, you will be able to put an end to your over-indebtedness in this way. One of two types of bankruptcies can be deposited: a summary bankruptcy for individuals (also called “personal bankruptcy”) or an ordinary bankruptcy for businesses (also called “commercial bankruptcy”).
During the bankruptcy process, you will have to make reasonable monthly payments. These amounts will then be paid to the licensed insolvency trustee. In addition, depending on your situation, Poupart Trustee Inc. will be able to establish with you the amounts to be paid and will also be able to advise you on how your belongings and assets may be handled.
Once bankruptcy is deposited, unsecured creditors, such as credit card companies and personal loans institutions, will no longer be able to make seizures against you or your belongings and assets. In the event that you continue to receive threats of seizure, you will have to contact us so that we can help you assert your rights.
What are the consequences of a bankruptcy?
After receiving an absolute discharge, you will no longer be liable for the debts you have freed yourself from. However, a notice will be placed on your credit report indicating that you have gone bankrupt. This notice will remain on your report for a period of 6 years, following your discharge. If this is not your first bankruptcy, this notice will remain on your report for up to 14 years. However, take note that it is possible to improve your credit rating faster following bankruptcy. Poupart Trustee Inc. will be able to explain the various options available to you if you want to rebuild your credit.
In what situations is a personal bankruptcy a good solution?
Declaring a bankruptcy is the option to choose when you are unable to repay the amounts owing to your creditors, however small such amounts may be. In addition, if you are unable to make reasonable payments over a period of time, you may be forced to declare bankruptcy.
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Frequently Asked Questions (FAQ)
Bankruptcy is the process by which a person or entity can be released from their debts through the liquidation or delivery of assets. It is an option when an individual or business no longer has the ability to pay their creditors or meet financial commitments. Because bankruptcy has consequences, a person will want to make an effort to solve their debt problems before taking this step. There are many considerations related to bankruptcy, and we will explore them by answering the following frequently asked questions.
Any person residing or owning property in Canada is eligible to declare personal bankruptcy. This is a primary requirement, but it is not the only one. Here is an overview of Canada’s bankruptcy criteria:
- You must be a Canadian resident or own property in the country.
- You must be unable to pay your creditors and have at least $1,000 in debt.
- The total value of your assets and worth must be less than the amount you owe to your creditors. In other words, the total amount of debt must be more than both your income and the value of your assets.
- You must be able to prove that you cannot make payments as scheduled.
- You do not have to be bankrupt to begin the process.
- However, you can only go through one bankruptcy proceeding at a time. If you have already filed for bankruptcy, you cannot do so again until the first process gets completed.
Certain people who filed for bankruptcy in the past may not be eligible to do so again. If you are not sure about your eligibility, contact us. We have experienced legal advisors who can guide you through the process or offer alternatives.
To declare bankruptcy in Quebec, you must enlist the services of a licensed insolvency trustee. If you feel like you are on the verge of overwhelming debt and cannot find a solution, the best option is to contact an insolvency trustee to discuss the different debt-relief options. Bankruptcy is typically the “last resort,” but it can be the best choice depending on your specific situation. A knowledgeable legal advisor can help you find alternative solutions or guide you through bankruptcy, which can free you from a majority of your debt obligations.
According to the Government of Quebec’s definition, a trustee is a judicial officer whose role is to manage and liquidate a debtor’s assets and distribute the proceeds to their creditors as repayment. The trustee oversees and facilitates the process, and they ensure that creditors get a fair portion of the assets. In other words, a licensed insolvency trustee is an intermediary between you and your creditors. Again, you must work with a licensed trustee when you file bankruptcy in Quebec.
Since they have an intimate understanding of the Bankruptcy and Insolvency Act, trustees can guide you through the entire process. Whether you choose to file a consumer proposal, which is a legally-binding alternative, or request bankruptcy, a trustee will help you file the necessary paperwork and evidence. This expert will collect information from you and supply it to the other parties involved in the process. The trustee will also forward everything to the Office of the Superintendent of Bankruptcy (OSB) and notify your creditors about the case. Only Licensed Insolvency Trustees (LITs) accredited by the OSB can assist you when requesting bankruptcy or filing a consumer proposal.
According to the Civil Code of Quebec, some assets are exempt from seizure. These assets are protected by law and will not get liquidated during bankruptcy. You can retain all property that meets Quebec’s legal definition.
There are several classes of assets that you can keep during bankruptcy. Basically, you can retain everything that is necessary to work or run your business. Property needed for daily living is also exempt from liquidation. However, there are some details you need to understand:
- You can keep furniture, clothing, kitchen equipment, medical supplies, and other necessities of life as long as their value does not exceed $7,000.
- You can retain all the tools of your trade and any property necessary for work. These items can include a computer, construction tools, a work vehicle, and other types of equipment.
- You can keep money allocated for specific purposes, such as alimony payments, contributions to a Registered Retirement Saving Plan (RRSP) made more than one year before bankruptcy, the cash value equivalent of your life insurance policy, and money received through inheritance.
The short answer is “yes.” Bankruptcy will certainly affect your credit rating. That said, there are ways that you can boost your credit score after bankruptcy. Our advisors can help begin this effort immediately. Actually, it is built into the bankruptcy process. There are two mandatory credit counseling sessions that you must attend with the trustee. Normally, the first consultation takes place within one month of the initial bankruptcy filing, and the second comes near the end of the process. The goal of these sessions is to help you create a budget, manage your remaining assets, and set a plan to improve your credit rating. Ideally, the counseling will also help you gain a better understanding of the mistakes that caused your financial hardships.
In general, bankruptcy will not affect your job. Though rare, some companies request that employees disclose such financial situations. The data in your credit history file is confidential, and your employer cannot access it without your consent. The only way that they could become aware of your circumstance is if a trustee files a request to stop seizure of your income.
If you do not have any debt in common, and if you are not a co-signer on any of their loans, your spouse’s credit score will not get damaged by your bankruptcy. However, if you are both liable for a debt, your partner will be responsible for repayment and will need to pay what is owed while you go through the bankruptcy process.
The length of bankruptcy (from initial filing until final discharge) can vary depending on whether you have “excess income.” Typically, the process takes nine months for those declaring normal personal bankruptcy for the first time. If there is excess income, the case can last for 21 months. A second bankruptcy takes approximately two years if there is no excess income and three years if there is. Creditors have the right to object to the discharge of your debt based on your income. Though it is within their powers to do so, it is rare.
Regardless of the timeframe, after you have fulfilled all your payment obligations, you can obtain statutory release.
Excess income is the amount you have to pay your trustee in addition to regular bankruptcy costs if your income exceeds what is deemed necessary for a “reasonable standard of living” as defined by the OSB.
The BSF has established the criteria for calculating excess income for an individual, household, or family. To determine excess earnings, the OSB takes different variables into account. These can include the number of dependents, childcare costs, and medical expenses.
After accounting for these expenses, the BSF creates a Schedule A document that defines the amount that you have to pay each month. If your income is above this figure, it is deemed excessive and your bankruptcy gets extended by one year.
If you want more information about excess income calculations, you can consult Directive 11R2 of the Bankruptcy and Insolvency Act.
This directive offers concrete examples that illustrate how to calculate income during bankruptcy. As you can see, excess income can delay the process. If you are worried about having excess income, the best thing to do is to contact our licensed insolvency trustee to determine the amount. Exempt income can add complexities to your calculations, so you may think you have more or less than you really do. A professional can help you sort out the details. They will be able to provide an exact amount and help you predict the timeframe for the process.
The two major credit bureaus in Canada, TransUnion and Equifax, keep bankruptcy on your credit report for 6 years or 14 years for second bankruptcy’s. However, the debts that led to your bankruptcy get cleared from your report. There are a few exceptions, listed in section 178 of the Bankruptcy and Insolvency Act, which remain on your record.
The debts that remain on your record include the following: obligations for support payments, student loans, debts arising from a bond in criminal matters, and fraud penalties. You cannot clear these debts via bankruptcy. Instead, you need to make an agreement with creditors to repay this money.
You need to meet certain benchmarks when you go through the bankruptcy process. You must attend two mandatory credit counseling sessions with your trustee, make debt payments as agreed each month, provide proof of income, and work in cooperation with the trustee to make sure the entire process runs well.
Unfortunately, some people, intentionally or because of unforeseen circumstances, do not make monthly payments on time. If this happens, the trustee or your creditors can go to court to oppose the discharge of your debts. The court would then have to decide on new conditions to put on your case.
If you are uncooperative, a bankruptcy trustee may opt to drop your case. This would leave you “in bankruptcy” and unprotected from your creditors. They are then free to sue you for reimbursement. This is a worst-case scenario. Our role as your trustee is to guide you through the process so that you avoid such pitfalls and get released from your debts properly.
Once you file for bankruptcy, you are protected by the law. Your creditors will no longer be able to contact you to ask for payment. However, they can file a “proof of claim” with the trustee. This document allows them to participate in the bankruptcy process and lay claim to a share of your liquidated assets, if applicable.
If you co-sign a loan and then enter insolvency, the other signatory on the loan is liable for the full repayment. Since you are not able to repay, the job will fall entirely to them.
Once you file for bankruptcy, you will need to make monthly payments to the trustee until you have paid the agreed-upon amount. The amount of these payments will depend on your ability to repay and your income. The fees related to the bankruptcy get included in these monthly installments.
The law requires the accredited trustee to notify your creditors about your bankruptcy proceedings. The Canadian revenue departments, CSA and Revenue Quebec, will also receive notification. Credit agencies TransUnion and Equifax will know about the bankruptcy and will keep it on record for 6 or 14 years for a second bankruptcy. The filing will be in the public domain and will be viewable for anyone who sees your credit report.
If you file for bankruptcy, the trustee will ensure that your tax records are up to date. You will need to create documents for any previous years that you missed and also for the current year (between January 1 and the bankruptcy filing date). If you get a refund from the CRA, the trustee will retain it. However, since refunds from Revenue Quebec are not seizable, you will get to keep this money. If you owe taxes, it will get included in your bankruptcy. You will not have to continue to pay the balance separately.
Your credit cards get turned over to the trustee when you file for bankruptcy. They will cancel the cards for you and notify the issuing bank about your status. You will no longer be able to use these cards. You will be able to re-apply for credit after you receive your discharge. You can start with a prepaid card or a secured credit card to rebuild your credit score.
These credit cards can be useful for creating a positive credit history. Our advisors can help you choose the best way to rebuild your score after bankruptcy.
A prepaid, or guaranteed, credit card requires a deposit before you can use it. The spending limit depends on your initial deposit. As long as you don’t exceed your limit, you virtually guarantee repayment because the money is already in the account. This type of card does not impact your credit score and does not charge interest. It can help keep you on a budget because you don’t spend what you don’t have. You can use it to make purchases just like a regular debit or credit card, and most major banks and credit card companies offer this type of product.
You can start rebuilding your credit score after you get released from your debts at the end of the bankruptcy proceedings. This process can be tedious, but there are some straightforward tips to help you get started.
For example, making small purchases with a credit card that you immediately repay can help you build a positive credit history.
To rebuild your credit score and regain the confidence of lenders, you need to show that you can manage money wisely. To get a loan or credit card, you need to prove that you can make payments on time. You should never miss a payment and avoid writing checks without sufficient funds in your bank. On-time payments will help you qualify for a standard credit card, and you can build on this step by making small purchases and repaying them immediately. These efforts will help you build a trail of positive credit use. Our advisors can offer additional advice to help you get back on track with your credit score after your bankruptcy.
You can borrow money after a bankruptcy to make necessary purchases (for things like furniture, for example). However, you need to find someone willing to co-sign on a loan or credit card. This person will guarantee the loan, which will make the creditor more confident when lending to you.
You can often take out a loan using an alternative method, such as second chance credit. Most car dealerships offer this type of loan to buyers who can’t borrow from a traditional bank. However, these non-traditional loans usually come with a high interest rate. You must carefully assess the advantages and disadvantages before obtaining such financing. One strategy is to buy a cheaper car with a small loan or cash and then wait until you rebuild your credit score before getting a newer vehicle.
You can certainly apply for a mortgage after bankruptcy. However, creditors will see you as high risk because of your financial history, and they will likely offer you a loan with a high interest rate. However, if you wait until you rebuild your credit, you will likely qualify for a loan with better terms. Depending on your situation, some lenders may require that you get a co-signer to guarantee the loan.
The cost of bankruptcy is included in the monthly payments that you make to the trustee. These fees vary depending on your ability to pay based on the guidelines in 11R2 of the Bankruptcy and Insolvency Act. Because of these rules, the cost varies from person to person. You can discuss these fees in detail during your meeting with the Poupart Syndic representative.
Bankruptcy is a last-resort solution to financial problems. You should only consider it after exhausting other options, including debt consolidation and consumer proposals. If you are overwhelmed by debt, cannot make loan payments, and are struggling to make ends meet, bankruptcy may be your only option. To find out if this is the best choice, contact Poupart Syndic to speak with an expert.
The first step when filing for bankruptcy is to make an appointment with a bankruptcy trustee. Our firm offers a free initial consultation. The Bankruptcy and Insolvency Act is in place to help honest debtors and give them a second chance, so there is no reason not to make this first call.
Here is a review of the steps in the bankruptcy process.
- Making an appointment with a licensed insolvency trustee: The first step is to contact a licensed insolvency trustee. You can contact us by phone, email, or through our online form. You can schedule an initial free consultation with a counselor, who will assess your situation and advise you on the next step.
- Évaluating your options: During this first appointment, the advisor will provide you with different options for addressing your financial issues. These solutions will vary depending on your specific situation.
- Filing the application: If we decide that bankruptcy is the best solution, our trustee will help you compile the necessary documents to start the process. Once we file these forms with OSB, you are legally considered “bankrupt.”
- Notifying your creditors: We will communicate with your creditors to make them aware of the situation. After this, we will define the monthly payment requirements. You will need to make these payments on time. At this stage, we will also handle the liquidation of your assets, if applicable. Once this is over, your unsecured creditors can no longer try to collect payment from you or start legal proceedings against you. They won’t be able to foreclose on your property or garnish your wages. Your trustee will collect information about income and expenses from you during this stage, as well.
- Achieving bankruptcy discharge: If your creditors are satisfied and do not object, you will be discharged from your bankruptcy after completing the terms. You need not take any additional action. The trustee will distribute your assets, proceeds, and payments to your creditors.
Obtaining a discharge certificate: Finally, you will get a discharge certificate signed by the trustee. It will release you from your debts, except for those ineligible for bankruptcy protections. Once you get this document, you can confidently make a fresh start knowing that you followed the letter of the law and are now completely free from your debts.