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What is the True Cost of Bankruptcy?

One of the most frequent questions we are asked is “what are your fees?”. The Trustee’s fees are just a small part of what bankruptcy could cost.

What is the cost of bankruptcy?

The cost varies for each individual that files bankruptcy as it’s based on the income of the family, the size of the family, certain expenses, and realizable assets. It’s hard to provide an exact cost without knowing your specific situation.  When you have your initial consultation with our office, the costs will be discussed with you.

The costs generally are made up of the following:

  1. Minimum monthly contribution to the estate, generally $200 per month

  2. Surplus income payments that are set out by the Office of the Superintendent of Bankruptcy

  3. Assets that you repurchase from the Trustee or are redeemed by the Trustee

Minimum monthly contribution

In the case of a first-time bankrupt who has no surplus income, the cost of administering your bankruptcy is $1,800 and is generally paid by way of minimum monthly payments of $200 for 9 months.  These payments cover the costs of administration, including income tax preparation, counselling, and the fees paid to the Government.  Payments are made by way of preauthorized payment and can be set up on the date of your choosing, either monthly or bi-weekly.

Surplus income

The federal government has set out monthly income thresholds based on family size.  If you earn over the threshold for your family size, you will have to pay a portion of your earnings into the bankruptcy and this payment is called surplus income.  For example, if you are a single person earning a net income of $3,000 per month, the surplus income calculation would be as follows:

Net income:                                                $3,000

Less Superintendent’s standards:          $2,248

Subtotal:                                                      $752

Payable (50% of $752):                            $376

In this example, the person has a surplus income of more than $100 per month and therefore, their bankruptcy would be extended to 21 months, in the case of a first-time bankruptcy, and they would have to pay surplus income for that period of time.

There are certain expenses that can reduce your surplus income payments, such as child support or non-recoverable medical expenses.

Assets may be impacted in a bankruptcy

Each Province in Canada legislates what assets you can keep when you file bankruptcy and what assets are subject to redemption or seizure. In British Columbia, the exemptions are as follows:

  1. Household goods valued up to $4,000 (liquidation value not replacement)

  2. Equity in a vehicle valued up to $5,000*

  3. Home equity valued up to $12,000 in Greater Vancouver and Victoria and a value of up to $9,000 elsewhere in BC

  4. RRSPs except for contributions made in the 12 months prior to the bankruptcy filing

  5. Clothing and medical aids

  6. Tools used to earn a living valued up to $10,000

*amount is reduced to $2,000 if you are in arrears on child support

Assets that you are subject to losing in a bankruptcy are as follows:

  1. Value of assets in excess of the exemption limits noted above

  2. Contribution value in your Children’s RESP

  3. Tax-Free Savings Accounts or other cash assets

  4. Tax refund in the year of bankruptcy and previous years if not previously filed

Your Trustee is required to realize on these assets either by selling them or by accepting an offer from you to pay cash to the bankruptcy estate to keep the asset.

If you are concerned about the amount of assets you have, or the amount of surplus income you may have to pay, the Trustee can explain other options to you that allow you to keep your assets, such as a consumer proposal.

Trustee Fees

The fees of the Licensed Insolvency Trustee are regulated by the federal government and are included as part of your bankruptcy or consumer proposal payments.  The fees for both a summary administration bankruptcy and consumer proposal are set out as a tariff in the

Bankruptcy and Insolvency Act.

  1. 100% of the first $975.

  2. 35% up to the next $2,000.

  3. 50% of receipts over $2,000.

  4. Reimbursement for credit counselling fees, filing fees, and administrative disbursement.

The trustee receives their fee out of the monthly contributions you are making or from the assets that are redeemed or sold.

The costs of claiming bankruptcy are specific to everyone’s circumstances.

Please contact our office today for a free, no-obligation consultation to find out the exact cost for you.

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