You’re in debt and can’t make ends meet? You think personal bankruptcy is the best solution? Here are the main steps and requirements for going bankrupt.
Bankruptcy is a process that lets you be released from most of your debts by handing over some of your property. In other words, bankruptcy lets you erase your debts and put an end to your indebtedness in a few months. But to do this, you must pay certain amounts of money and give up some of your property to repay your creditors. You must also follow every step of the bankruptcy process.
When you make the decision to go bankrupt, it’s voluntary bankruptcy. When your creditors force you to, it is forced bankruptcy. Forced bankruptcy does not happen often.
Requirements for Personal Bankruptcy
To go bankrupt, a person must be insolvent. This means that the person is in this situation:
- has $1,000 or more of debts
- lives or owns property in Canada
- not already bankrupt
- is in one of these situations:
- be unable, for one reason or another, to pay his debts as they become due OR
- have stopped paying debts or monthly bills (hydro bills, telecommunication bills, credit card balance, etc.) OR
- value of all his property (his “assets”) is less than the value of all his debts (“liabilities”)
If you’re in this situation, you can make an appointment to see a trustee in bankruptcy (“trustee”) to find out whether bankruptcy is the right solution for you.
The Trustee’s Role
The trustee manages your bankruptcy. As part of her duties, the trustee takes these steps:
- meets with you, analyzes your financial situation and makes recommendations to you
- directs you to other solutions if they are more appropriate for you, such as a consumer proposal or voluntary deposit
- determines with you what property you must hand over to pay your debts and what you may keep
If you have problems with your trustee, you can contact the Office of the Superintendent of Bankruptcy Canada. This is the organization that gives licences to trustees and has the power to oversee and supervise trustees.
Debts Included or Not Included in the Bankruptcy
Most debts can be included in a bankruptcy. They might include these debts:
- unpaid credit card balances
- line of credit debt
- personal loans
- taxes owed
- debts owed to collection agencies
- student loans, in some cases
However, some debts cannot be included in the bankruptcy. This means that the creditors could claim this money even though you are going bankrupt. This is the case for these amounts:
- support payments to a former spouse or for children
- fines, penalties, restitution orders or other similar orders imposed by a court
- debts flowing from a civil court decision t ordering payment of money for sexual assault or assault causing physical injury or death
- debts arising from fraud, misrepresentations or illegal acts
- money that a creditor could not get back because you did not tell the trustee that you owed the money
- student loans, if the bankruptcy happened within seven years of the date you stopped being a full or part-time student. In certain rare cases, a judge can reduce that period to five years if she is satisfied that you made an effort to pay and that you will be unable to pay the debt in the future.
Main Steps of Bankruptcy
To become more familiar with the personal bankruptcy process, here is an explanation of the main steps.
There are two counselling sessions, which you must attend. They are provided by the trustee or a qualified counsellor.
- At the first session, you are given advice about money management, warning signs of insolvency (see above) and using credit.
- At the second session, you are given help identifying the causes of your debt problems and recommendations about possible solutions.
You must attend these two sessions to be entitled to an automatic discharge at the end of the bankruptcy process. (For more about discharge, see below.)
With the trustee’s help, you must make a list of your debts and your property. You must also fill in a form to transfer your property to the trustee to begin the bankruptcy. The trustee then takes care of filing the necessary documents with the official receiver.
This step corresponds to the date of your bankruptcy (“day one”: the opening of your bankruptcy).
From this time onwards, your creditors can’t usually sue you to make you repay your debts.
Delivery and Sale of Property
The trustee uses the list of your property to determine with you which property will be sold to pay your creditors. However, some of your property is protected by law, which means that it cannot be taken by your creditors or sold.
For example, you can keep these items:
- your RRIFs and RRSPs, other than the amounts you paid into them less than 12 months before the bankruptcy (some exceptions apply)
- up to $7,000 worth of items used for your basic needs and those of your family and are in your main residence. If these items are worth less than $7,000, other personal items can be included until the value amounts to $7,000. You can’t keep any items that have a hypothec on them.
- the food, fuel, towels, sheets and clothing necessary for you and your family
- the any work equipment you need for your professional activities or occupation, such as a toolbox, computer or even a car, unless there is a hypothec on them.
- a portion of your salary determined by law
Sale of Your Property
The trustee then sells the property that are not protected. The money from the sale will be distributed to your creditors in the order provided by law.
It is also possible that part of your salary will be seized to pay your creditors.
Meeting of Creditors
The trustee contacts your creditors. In some situations, the trustee will set up a meeting of creditors.
At the meeting, the creditors can, among other things, decide how the money from the sale of your property will be managed.
The last step of the bankruptcy process is discharge from your debts. To be discharged means that the debts included in your bankruptcy are erased since all the steps have been followed and completed. The discharge is either automatic or done by a court.
Automatic discharge from debts usually takes place nine months or 21 months after the date of your bankruptcy.
To be entitled to it, the following requirements must be met:
- it must be your first bankruptcy;
- the creditors, the trustee and the superintendent must not oppose your discharge; and
- you must have participated in the counselling sessions as required by law.
Automatic discharge is also possible if it is your second bankruptcy, but you have to wait 24 months or 36 months after the date of your bankruptcy.
When you are not entitled to an automatic discharge, you will have to apply to a court for your discharge. After evaluating your conduct, the court can decide on one of these options:
- to discharge you immediately from all your debts, other than those that cannot be included in the bankruptcy
- to discharge you, but after a period of time the court choses
- to discharge you, but only if you meet conditions the court imposes
- not to discharge you in some rare situations
A note that you went bankrupt will be put in your credit report and will stay there for six to seven years after the date of your discharge.
In the case of a second bankruptcy, that period could be extended up to 14 years.
This article explains in a general way the law that applies in Quebec. This article is not a legal opinion or legal advice. To find out the specific rules for your situation, consult a lawyer or notary.