‘Erica’ a Case History: Personal Bankruptcy in Mississauga
Since leaving university in 1993, ‘Erica’ (not her real name) had worked as a civil engineer. She had progressed through two Mississauga companies, and finally decided to set up her own consulting company in 2000.
At first, her company (a sole proprietorship) had done very well. However, by 2002 her business had dropped off to the point it was no longer profitable.
Too embarrassed to ask for help, and convinced she could turn it around, Erica poured her savings into the company. When her savings ran out, she began to use credit. After several months, her credit cards were maxed out. She then got a consolidation loan from her bank and paid off the cards, but she continued to use the cards to fund the business.
By 2004, Erika finally accepted the fact that her business was not going to succeed. Realizing that she was too far in debt to ever be able to pay it off – she decided to contact David Sklar & Associates (DSAI).
During her initial meeting at DSAI, Erica reviewed her financial situation with Rhoda Lewis, Certified Insolvency Counsellor and Estate Administrator. During the meeting, it was disclosed that Erica’s financial situation was as follows:
|2 Credit Cards||$28,500|
|Unsecured Bank Consolidation Loan||$34,000|
|Canada Revenue Agency (Personal Taxes and GST)||$22,900|
|2 Other Unsecured Loans||$750|
|Total Unsecured Debts:||$86,150|
After careful consideration, Erica decided to file for personal bankruptcy.
After closing her company, Erica was unable to find a job. Her family was supporting her during this time and took care of her living expenses. Although Erica was able to find employment during her bankruptcy, it was only part-time and did not result in her earning surplus income.
Because she had no surplus income, and this was her first bankruptcy, Erica’s bankruptcy ran for 9 months, during which time she paid the costs of administration only.
In 2008, the Bankruptcy and Insolvency Act was changed to exempt RRSP’s from Bankruptcy in most cases. While contributions made in the 12 months prior to the bankruptcy can be clawed back for the creditors – the rest of the RRSP may be exempt from Bankruptcy. However, Erica’s bankruptcy was filled in 2004 and her RRSP was designated for disbursal to her creditors. The company holding the RRSP was experiencing legal issues at the time of Erica’s bankruptcy and her RRSP was not available for disbursal.
At the end of 9 months, Erica was discharged from her debts. Several months after completing her bankruptcy, Erica found a full-time job and began to rebuild her life.
In 2009, the legal issues around Erica’s RRSP were resolved and the funds from her RRSP were distributed to her creditors by DSAI.
To protect our client’s privacy, aspects of this case study have been altered.