Bankruptcy 101: What can I expect?
If you’re struggling to meet debt obligations, the decision to file for personal bankruptcy can weigh heavily.
While bankruptcy can provide relief from the stress of struggling to appease creditors, what will it mean for day-to-day living? How will it affect your financial future? What about your loved ones?
In weighing your options, a trustee – a professional licensed by the Office of the Superintendent of Bankruptcy (OSB) to administer the bankruptcy process – can help you explore your options, including whether bankruptcy is appropriate, or an alternative such as a consumer proposal is more appropriate for you.
Bankruptcy and Insolvency Act
In filing for bankruptcy, the Bankruptcy and Insolvency Act requires you to provide your trustee with details of all property, including joint assets, assets sold or given away in recent years and all financial documents. You will submit credit cards for cancellation, attend financial counselling, assist the trustee, and if requested, attend a creditor meeting.
Moving forward, your trustee will deal with creditors directly. Salary garnishments stop, as do your payments to unsecured creditors, and any lawsuits by them are stayed (stopped). Your trustee will dispose of your assets (may sell them back to you), other than those exempted by government regulation, and distribute the proceeds to creditors. In addition to these payments and trustee’s fees, you may also have to make surplus income payments, based on the amount you earn above what’s needed to maintain a reasonable standard of living for the size of your family, set by the OSB. Should your surplus income be more than $200 per month, you would be require to contribute only half of this surplus, the rest you may save or do what you want with.
Bankruptcies generally don’t affect secured creditors with a valid security against your property, such as a car or house, but your trustee can help you work with these creditors if you can afford the payments.
It’s important to note that while your debts belong to you, creditors can still pursue anyone who has co-signed your debts. Similarly, loan co-signers must continue making loan payments after you go bankrupt. Your spouse is not responsible for your debt as long as they have not co-signed the debt.
Discharge of Bankruptcy
A Discharge of Bankruptcy ends your legal obligation to repay debts, except for those excluded by law, such as alimony and child support payments, some student loans, court-ordered fines or penalties, and debts arising from fraud. The discharge date can vary, depending on factors such as whether it’s your first bankruptcy and whether you’re making surplus income payments, but first bankruptcies can range from nine months to 21 months.
A Consumer Proposal is another alternative for individuals whose total debts are $250,000 or less (excluding a mortgage on their principal residence). Still working with a trustee, you’ll develop a proposal (settlement offer) to pay creditors a percentage of what is owed, extend the time to pay your debts, or both. Should more than 50% by dollar value of your creditors accept the Consumer Proposal and the court ratify said Consumer Proposal, you’ll be able retain your assets (if you wish), provided you continue your payments to secured creditors. Once you complete the terms of the Consumer Proposal and attend two financial counseling sessions you will receive a Court Order (Certificate of Full Performance of Proposal) releasing you from the debt covered by the terms of the Consumer Proposal.