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  • Bankruptcy

    What is bankruptcy and what are the benefits to the debtor?

    Bankruptcy is a legal process, regulated by the Act, by which you may be discharged from most of your debts. The purpose of the Act is to permit an honest, but unfortunate, debtor to obtain a discharge from his or her debts, subject to reasonable conditions.

    I am in financial trouble and want to know if bankruptcy is a solution for me. Where do I begin?

    There are a number of reputable non-profit organizations that offer credit counseling to consumers (often for free), and may be able to help you put together an informal agreement with your creditors. If a more formal remedy is needed, a licensed bankruptcy trustee can help you understand the various options available to deal with debts, including proposals and bankruptcy. Your first meeting with a trustee is called an assessment interview. The trustee will review your financial situation and explain what options are available and the consequences of each. In most cases, trustees do not charge for the initial interview. If you decide to file for a bankruptcy, the trustee will help you prepare the necessary documents, and will file them with the Official Receiver. Sometimes this can de done on the same day; in other cases it may take a few days to gather all the information needed, especially if your financial situation is complex.

    Can I declare bankruptcy myself without a trustee?

    No. You must meet with a trustee for assessment purposes. The trustee will advise you and suggest alternatives other than bankruptcy to solve your financial problems. For all intents and purposes the trustee then files formal documents with the Official Receiver.

    Because of my financial situation, I am unable to pay the trustee. Can I declare bankruptcy without paying anything?

    If you are overburdened by debt and cannot obtain the services of a trustee, the Office of the Superintendent of Bankruptcy in your area will help you find one through its Bankruptcy Assistance Program. You will be eligible if:

    • you have tried to obtain the services of a trustee after contacting at least two participating trustees;
    • you are not involved in commercial activities; and
    • you are not in jail.

    One of the participating trustees will be designated as your trustee. You will still have to pay certain amounts regularly; but those amounts will be smaller to ensure that you can maintain a reasonable standard of living.

    How can I declare bankruptcy?

    Only an insolvent person may declare bankruptcy. You are considered to be an insolvent person when:

    • you are not bankrupt already (not currently undischarged bankrupt)
    • you owe at least a $1000.00; and
    • you are unable to meet your regular payments as they become due; or
    • you would not be able to pay all of your debts if all of your assets were sold;

    I do not want to include all my creditors in the bankruptcy, especially the family members and friends who helped me. Can I continue to pay them back and include the other creditors in the bankruptcy?

    No. All your debts must be included in the bankruptcy. All of your creditors must be treated equally. If you make a payment to one of your creditors (ex: a family member) without paying the others, the trustee is entitled to demand the reimbursement of such payment. Be aware that such action may constitute an offence according to the Bankruptcy and Insolvency Act. However, nothing prevents you from repaying your family, friends or any other creditors once you are discharged from the bankruptcy.

    What happens at the first meeting of creditors?

    If a meeting is called, the trustee will give a report about your assets and liabilities and the creditors may ask you questions related to your financial file. The creditors will then vote to either confirm the trustee's appointment, or substitute a trustee of their choice. The creditors will then have an opportunity to vote for the appointment of inspectors. They may also give directions to the trustee related to the administration of the estate.

    What does the examination with the Official Receiver involve?

    The Official Receiver may send you a notice instructing you to appear before him or her for an examination under oath. The Official Receiver will then ask you a number of questions about the causes of your bankruptcy, your conduct, the disposition of your assets and the nature of your debts.

    When is a bankrupt discharged?

    If you are a first-time bankrupt, you will be automatically discharged 9 months after the date of bankruptcy if you have no surplus income. You will be automatically discharged after 21 months after the date of bankruptcy if you are required to make surplus income payments to the estate. For a second bankruptcy, you will automatically be discharged after 24 months after the date of bankruptcy if you have no surplus income and 36 months after the date of bankruptcy if you are required to make surplus income payments to the estate.

    How does bankruptcy affect employment?

    For the most part, bankruptcy should not affect your employment. However, there are some special cases. For example, you may have difficulty being bonded. Your trustee will be able to give you more information on other possible restrictions or prohibitions.

    What is the effect of a bankruptcy discharge?

    The bankrupt is released of most debts. Some debts are not released, however, such as an award for damages in respect of an assault; a claim for alimony, spousal or child support; any court fine; a debt arising out of fraud or misleading representation; or debts or obligations for student loans if the bankruptcy occurs while the debtor was still a student or within seven years after the bankrupt ceased to be a student.

    I have not been discharged from my first bankruptcy. How do I obtain my discharge?

    You should contact the trustee who handled your bankruptcy. The trustee will inform you of the reasons why you did not obtain your discharge. You may have to fulfill certain conditions in order to obtain this discharge. If you do not remember the trustee's name, contact the Office of the Superintendent of Bankruptcy in your area for assistance.

    I want to obtain a copy of my certificate of discharge. My trustee tells me that my file was destroyed and that a copy is available at my local Office of the Superintendent of Bankruptcy.

    When the trustee cannot provide you with a document concerning your bankruptcy, you can obtain the document from the OSB and in some cases also the bankruptcy court. That court may not keep any records. You can then apply to the Office of the Superintendent of Bankruptcy located in the place where you lived at the time of the bankruptcy to obtain a copy of the document you want.

    The information in my record at the credit bureau is incorrect. What can I do?

    Credit bureaus are independent agencies that have no business relationship with the OSB. You must contact them directly.

    When can I get credit again?

    Immediately after filing, anyone can apply for credit during your bankruptcy; however, you must disclose your bankruptcy to the creditor.

    I have declared bankruptcy and been discharged. The Canada Revenue Agency has not been informed of this, and my tax refunds are being sent to the trustee. I am told that I must send a copy of my certificate of discharge to the Agency to straighten out the situation. Is this true?

    When you are discharged from the bankruptcy, the trustee will give you a certificate of discharge. The trustee is not obliged to send a copy of that certificate to the Canada Revenue Agency. You will have to provide a copy of the certificate when someone requests it. You should also consider sending a copy to the OSB.

    My former spouse has declared bankruptcy and creditors are claiming amounts from me for the debts we incurred jointly. Do I have to pay my former spouse's share? What action can I take?

    If you and your former spouse have contracted a joint debt, the creditor might be able to seek payment from either one of you. You may therefore become liable for a part or the entire debt owed to that creditor. However, if you pay the part of the debt that was owed by your former spouse, you then become a creditor in his/her bankruptcy. As a creditor, you can file a proof of claim with the trustee.

    I have declared bankruptcy and been discharged. One of my creditors has asked me to reimburse my debt which was previously declared in my bankruptcy file. Do I have to repay this debt?

    No, you are not obliged to pay this creditor since an order of discharge generally releases you from your debts. However, a discharge from bankruptcy does not release you from certain debts such as:

    • alimony payments;
    • fines or penalties imposed by a Court;
    • debt or liability arising out of fraud or embezzlement; and
    • debts for student loans when the bankruptcy occurs before the date on which you ceased to be a full- or part-time student or within seven years after that date.

    What is a consumer proposal?

    A consumer proposal is an offer made by a debtor to his or her creditors to modify his or her obligations to them. For example, you may propose to your creditors that you will pay a lower amount each month, but over a longer period of time. Or you may propose that your creditors accept being paid a percentage of what you owe.

    How does a consumer proposal benefit you?

    Your unsecured creditors will not be able to take legal steps to recover their debts from you (such as seizing assets or garnisheeing wages). However, creditors may continue to pursue recovery of debts that would not be released by an order of discharge in a bankruptcy (except if the proposal explicitly provides for the compromise of such claims and the creditor votes in favour of the proposal).

    Who can make a consumer proposal?

    Any natural person who is insolvent, including a bankrupt, whose debts do not exceed $250 000, excluding a mortgage for the person's principal residence, can make a consumer proposal. When a bankrupt wishes to make a proposal, the proposal must first be approved by the inspectors and the bankrupt must have obtained the assistance of a trustee who will be the administrator of the consumer proposal. If the person's debts exceed $250 000, the proposal will be made under Division I of Part III of the Act.

    What happens after a proposal is filed with the Official Receiver?

    Within 10 days after filing your proposal with the Official Receiver, the administrator is required to send the Official Receiver a report. The report contains the administrator's opinion about whether the proposal is fair and reasonable, and whether he or she believes you will be able to perform it. It also contains a list of your creditors. At the same time, the trustee must send to each of your creditors a copy of your proposal, of your statement of affairs (which contains the list of your assets and liabilities; list of your creditors; information related to your personal affairs; and budget information) and of the trustee’s report on your proposal.

    How does a proposal get accepted?

    Your creditors will have up to 45 days to consider whether to accept or reject your proposal. A creditor may send a notice to the administrator accepting or rejecting the proposal. If creditors do not respond, they will be considered to have accepted the proposal. If a sufficient number of creditors accept the proposal, then it will become binding on you and your creditors, and you will have to meet its terms.

    What happens if the proposal is rejected?

    If the proposal is rejected, you will no longer be protected by the Act. The administrator will, within 5 days, notify you, all your creditors and the Official Receiver of the rejection. Your creditors will now be able to take legal steps to recover their debts from you. If you were bankrupt when you made this proposal, the administration of your bankruptcy will continue.

    What if I stop making the payments and default on the performance of the proposal?

    If you fail to keep the terms of your proposal, it may be annulled or deemed annulled. If you were insolvent prior to making the proposal, you return to the same situation and your creditors would have a claim against you for the amount owed to them before the proposal, minus any amount you paid them during the proposal. If you were bankrupt when the proposal was made and then your proposal is subsequently annulled or deemed annulled, you will be considered bankrupt on the date of the annulment.

    References:
    http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br02048.html
    http://www.cra-arc.gc.ca/tx/bsnss/tpcs/lf-vnts/bnkrptcy/bnkrptcy-eng.html