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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 filing for bankruptcy and when needed, navigate this process.
When you file for 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.
Everyone’s situation is different, depending on your financial situation, some assets may be exempt, including:
Each year the Superintendent of Bankruptcy outlines what they feel is a basic income for different family sizes. When filing a bankruptcy your income and size of your family impacts 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.
Most people we speak to understandably do not want to file for bankruptcy or lose the majority of the assets they have worked so hard for. The alternative to Bankruptcy for individual’s 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, pay day loans, and similar types of debt.
A Consumer Proposal is a smart decision for debtors with significant assets, who have stable income, or simply just want to avoid bankruptcy and not have it appear on their credit report.
If you file for 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.
When you file a 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.
In a Consumer Proposal, the person filing is able to keep all their assets (as long as they continue to make any required payments i.e. mortgage payment, car loans etc).
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.
The Trustee will help you to fill in the necessary forms, and then submit your file to the OSB.
The Trustee will sell or otherwise realise 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:
All your creditors will be notified of your status by the Trustee.
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.
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.
You will be required to attend two financial counselling 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.
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.
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:
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.
Unless your assets are protected, you will either have to pay to keep your assets or turn them over to the Trustee to be sold for the benefit of your creditors. Your protected assets will typically include all or a portion of:
Bankruptcies are often a ‘last resort’ option reserved for when all other options have been considered. Even then, there are situations where an individual may choose a Consumer Proposal:
The Professionals at David Sklar & Associates will help you to make the decision that best fits your needs.
Not necessarily. Depending on the amount of equity in your home, you may be able to pay the value of the equity to your Trustee for distribution to your creditors. As long as you are current with your mortgage payments, you are normally able to maintain the payment to the secured lender and keep your home. You should discuss this further with your mortgage lender and your Trustee.
If you do not receive a discharge, once the Trustee has completed the administration of your estate and the Trustee has been discharged, you will remain responsible for your debts, plus interest, and your creditors may once again commence collection action against you.
Personal bankruptcies only cover unsecured debts. However, certain unsecured debts are not covered by bankruptcies such as child support, alimony, fines and penalties imposed by the Court, and debts that are found to be fraudulent. Student loans may be covered if the individual ceased to be a student for more than 7 years before filing and meets other requirements. Secured debts such as mortgages and car loans are also not covered in bankruptcies unless you relinquish ownership of these assets. It is always advisable to speak with your Trustee for details on your specific situation.
At David Sklar & Associates, our team is here to help you every step of the way. We not only explain every option available to you, we also give you the tools to help rebuild your wealth. Speak to one of our licensed debt professionals today. Let us show you there is hope and a way to financial freedom! The calls will stop, the stress will disappear, and you can start focusing on your future!
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