Personal bankruptcy should never be entered into lightly and should only be considered after consulting with a licensed insolvency trustee. We’ve helped thousands of clients weigh the pros and cons of declaring personal bankruptcy and when needed, navigate this process.
When you are declaring personal bankruptcy in Ontario, you are declaring to the courts and your creditors that you are unable to pay your debts as they come due and have insufficient assets to cover those debts.
Can I Declare Personal Bankruptcy In Canada?
In order to be eligible for personal bankruptcy, you must be, 18 years of age or older and you need to be insolvent. This means you owe a minimum of $1,000 and cannot afford to make payments when they are due.
What Can I Keep If I File For Personal Bankruptcy?
Everyone’s situation is different, depending on your financial situation, some assets may be exempt, including:
- If you have less than $10,783 of equity in your home, it will be exempt
- Household items, furniture, clothing, equipment up to $14,180 in value
- One automobile up to $7,117 in equity
- Tools used to earn your living up to $14,405 in value
- RRSPs (Except for contributions made 12 months before declaring bankruptcy)
What Debts Cannot Be Eliminated By Personal Bankruptcy?
Some debts cannot be eliminated through personal bankruptcies. These include child support, alimony, student loans (within 7 years of completing studies) court-imposed fines and fraudulent debt.
What Debts Will Be Eliminated By Personal Bankruptcy?
Personal bankruptcy eliminates most, if not all, of your unsecured debts. Including any credit cards, lines of credit, personal loans, payday loans, and income tax debt.
What is Surplus Income?
Each year the Superintendent of Bankruptcy outlines what they feel is a basic income for different family sizes. When declaring personal bankruptcy your income and size of your family impact the amount you will need to pay and for how long. Surplus income is any income earned above the standards set by the Superintendent of Bankruptcy. You are required to pay half of any surplus income you earn above that amount.
Does Declaring Personal Bankruptcy In Canada Affect My Spouse?
If you declare personal bankruptcy, it will not affect your spouse. The only exception to this rule is if your spouse has co-signed or guaranteed your debt, or If you both have a credit card on the same account. It’s also possible that assets with equity held jointly with your spouse may be affected.
Personal Bankruptcy Vs Consumer Proposal
When you declare personal bankruptcy, you are permitted to keep certain assets that are exempted by the Ontario Execution Act but are required to submit all other assets for settlement.
Most people we speak to understandably do not want to declare personal bankruptcy or lose the majority of the assets they have worked so hard for. The alternative to personal bankruptcy for individuals is a Consumer Proposal.
A Consumer Proposal will allow you to keep your assets including your home and cars. However, you must continue to make payments on those assets. In other words, your mortgage and car payments won’t be affected by a Consumer Proposal. The unsecured debts reduced by a Consumer Proposal are credit card debt, personal loans, lines of credit, payday loans, and similar types of debt.
A Consumer Proposal is a smart decision for debtors with significant assets, who have a stable income, or simply just want to avoid bankruptcy and not have it appear on their credit report.
How Do I Declare Personal Bankruptcy in Canada?
Step 1: FIND YOUR TRUSTEE
Find and meet with a Licensed Insolvency Trustee to review your current financial situation and discuss your debt repayment options. At the end of this initial meeting, your Trustee should be able to advise you if declaring bankruptcy is the preferred course for you or if additional information is required. Both you and your Trustee need to agree this is the preferred path before proceeding
Step 2: FILING FOR BANKRUPTCY
The Trustee will help you to fill in the necessary forms, and then submit your file to the OSB.
Step 3: ONCE YOU ARE OFFICIALLY IN BANKRUPTCY
- You will no longer deal directly with your unsecured creditors (your Trustee will advise you on how to proceed with your secured creditors)
- You will stop paying your unsecured creditors
- You will make payments to your trustee for fees, assets or surplus income
- as appropriate
- Your creditors will stop all lawsuits and collections actions against you.
Step 4 SALE OF ASSETS
The Trustee will sell or otherwise realize the equity in your non-exempt assets and hold the proceeds for disbursement to your proven creditors. In many cases, Real Estate Property and RRSPs may be yours to keep.
Depending on your situation, some assets may be exempt from seizure for sale by the Trustee. In Ontario, in accordance with the Ontario Execution Act, some of these asset exemptions may include:
- Clothing: All necessary clothing for you and your dependants
- Household Furnishings and appliances: Up to a value of $14,180
- Tools of Trade: Tools used to directly earn a living to a value of $14,405
- Motor Vehicle: Equity in one motor vehicle up to a value of $7,117
- House Equity: To a maximum of $10,783. If over $10,783, no exemption
Step 5 NOTIFICATION OF CREDITORS
All your creditors will be notified of your status by the Trustee.
Step 6: CREDITORS’ MEETING
If your creditors or the OSB requests a creditors’ meeting, you must attend. During the meeting, details of your bankruptcy, confirmation of the Trustee, directions to the Trustee from your creditors, and other matters may be discussed and voted upon.
Step 7: EXAMINATION
If the OSB requests an examination of you by an officer of the OSB, you must attend. This will be an examination (under oath) and will deal with such issues as your financial conduct, the causes of your bankruptcy, and how your property will be administered.
Step 8: DEBT & CREDIT COUNSELLING
You will be required to attend two financial counseling sessions where you will discuss the circumstances that led to your insolvency, ways to avoid them in the future, and how to manage your finances in the future.
Step 9: TRUSTEE’S REPORT
The Trustee will send a detailed report to the OSB and to your creditors on your performance of the bankruptcy requirements, your current financial situation, and recommendations as to whether or not you should be legally released from your debts.
If you or one of your creditors does not agree with the Trustee’s report in regard to payments/surplus issues, a formal mediation process is available. If a creditor disagrees with anything else, they may send a notice of opposition.
If the Trustee, any creditor, or the OSB opposes the discharge, matters will then be dealt with in court.
Step 10: DISCHARGE HEARING
If there are no objections or irregularities, qualifying first-time bankruptcies can be given an automatic, absolute discharge 9 months after the initial filing for bankruptcy without the need for a hearing.
If a creditor, the Trustee, or the OSB requests a hearing, or if you fail to qualify for an automatic discharge, a court hearing for the discharge will be held. Your presence will be mandatory.
If there is a hearing, the court will determine what type of discharge you will receive:
Absolute discharge: Releases you from the requirement to pay those debts covered in your bankruptcy.
Conditional discharge: The court requires you to perform other actions and or make further payments to your estate before an absolute discharge is issued.
Suspended discharge: The court sets the date of your absolute discharge to a future date.
Discharge refused: The court can refuse you a discharge.
Step 11: LEGAL DISCHARGE
If you have received an Automatic Discharge, An Order of Absolute Discharge, or you have completed the terms of either an Order of Suspended Discharge or an Order of Conditional Discharge, you will be released from paying the debts covered in your bankruptcy.