How To Declare Personal Bankruptcy in Canada
If you are dealing with debt and aren’t able to pay your bills as they become due, you may consider claiming bankruptcy in Canada. While this option isn’t the right choice for everyone, it can be the best option for certain people in certain situations. Licensed Insolvency Trustees can help you figure out if it is a good idea to apply for bankruptcy.
Declaring Personal Bankruptcy in Canada
Licensed Insolvency Trustees are professionals who are licensed by the federal Office of the Superintendent of Bankruptcy to provide information and administer insolvency proceedings under the federal Bankruptcy and Insolvency Act (BIA). This means they can answer bankruptcy questions and administer consumer proposal and personal bankruptcy processes.
Licensed Insolvency Trustees are required to complete specific training in order to be licensed. They must hold a Canadian university degree (or equivalent) or have at least five years of work experience in insolvency. People who are members of recognized professional organizations may also be considered. Individuals must complete specific training courses to become a trustee and must demonstrate that they have a solid base of experience and knowledge.
Trustees must follow the Bankruptcy and Insolvency Act and adhere to the Code of Ethics for Trustees. This code includes the fact that trustees must provide information on all available options, not just the ones they administer. This means the trustee will give you more than just information on declaring personal bankruptcy in Canada. They will provide details on all options so that you can make an informed decision.
If you decide that claiming bankruptcy in Canada is the right option for you, the trustee will administer the process.
What is the Process of Bankruptcy Canada?
Most people have heard of “declaring bankruptcy” or the personal bankruptcy process, but not everyone knows exactly what happens with personal bankruptcies Canada. If you are dealing with debt and are unable to make your payments when they are due, personal bankruptcy may be an option to consider.
The process must be administered by a Licensed Insolvency Trustee (LIT). Licensed Insolvency Trustees are the only professionals who can administer bankruptcy Canada (a bankruptcy lawyer or bankruptcy agency does not handle personal bankruptcies Canada). If you decide to proceed with claiming bankruptcy in Canada, the Trustee will review your situation and work with you to complete and submit the paperwork that is required to apply for bankruptcy.
The trustee will also be responsible for all communication with your unsecured creditors. Only unsecured debt can be included when declaring bankruptcy. Unsecured debts are debts that are not backed by assets (such as credit card debt, lines of credit, personal loans, tax debt, etc.). Debts such as mortgages and automobile loans are not eliminated by declaring bankruptcy in Canada. You must continue to make these payments if you want to keep these assets.
Process of Bankruptcy
As part of the process of going bankrupt, you receive legal protection from your unsecured creditors. This means they cannot take any legal action against you and any actions that have already started must stop. It also means they are unable to take steps to collect the debts, such as sending a collection agency after you.
Depending on where you live and what you owe, you may lose some of your assets when claiming bankruptcy in Canada. However, each province and territory exempts certain assets from the bankruptcy process. The types of assets and the value of assets that are considered exempt varies across the country, but in general you are able to keep the assets that are necessary to earn an income and live a basic lifestyle.
Claiming Bankruptcy in Canada
The goal of the personal bankruptcy process is not to leave you with nothing. This would not be productive. However, some of your assets may be sold and the money raised by this sale will be distributed to your creditors as a part of claiming bankruptcy in Canada. The trustee will inform you of this prior to filing.
Depending on your income, you may be required to make monthly payments as one of your duties of declaring bankruptcy. These payments will be made to the trustee who will distribute them to your creditors. The trustee will let you know if these payments are required.
What is the length of the personal bankruptcy process?
The length of the personal bankruptcy process will depend on several factors. If it is your first time claiming bankruptcy in Canada and you were not required to make surplus income payments, you can be automatically discharged from bankruptcy in nine months.
As a part of the bankruptcy process, you will be required to take two financial counselling sessions. The goal of these sessions is to help you understand finances, budgeting, debt, and money management. The sessions are designed to reduce the likelihood of bankruptcy and insolvency coming up in your future. Once you learn how to properly manage money and debt, you will be a lot less likely to get into money trouble and require personal bankruptcy in the future. Licensed Insolvency Trustees teach these sessions.
Another duty of being bankrupt is that you will need to make sure that the trustee has your correct contact information. If you move, change jobs, or change your phone number, you will need to give the updated information to the trustee.
What is a Bankruptcy Trustee?
Many people have heard of the term “bankruptcy trustee.” Prior to December 2015, this was the term used by those who provided bankruptcy advice and details on bankruptcy and insolvency processes.
The term bankruptcy trustee has since been retired and the Office of the Superintendent of Bankruptcy issued a directive that these professionals use the term “Licensed Insolvency Trustees” instead. The reason for the change is that Licensed Insolvency Trustees provide more than just bankruptcy advice.
These professionals can review your financial situation and help you understand all the available options. However, while the term is different, the services provided by a bankruptcy trustee and Licensed Insolvency Trustees have not changed.
Licensed Insolvency Trustees are the only professionals who can administer bankruptcy processes in Canada. While, in some countries, a bankruptcy lawyer, bankruptcy agency, or bankruptcy consultant may be responsible for the process of declaring bankruptcy or assisting in a personal bankruptcy, both corporate and personal bankruptcies in Canada are administered by Licensed Insolvency Trustees.
If you’re wondering how to file bankruptcy yourself, the reality is that you are unable to. A trustee must administer the bankruptcy process.
How LIT professionals can help with bankruptcy process?
Most Licensed Insolvency Trustees offer a free consultation. When you meet with a trustee, they will review your financial situation and provide you with details on the options that are available to you. One of these options may be declaring bankruptcy, but there may be other options as well. The fact that Licensed Insolvency Trustees will provide you with details on all the available options (not just the ones they administer, such as personal bankruptcy) is a big reason for the change from using the term “bankruptcy trustee.” An LIT is required to provide information on all available options.
If you are struggling with debt and are unable to pay your bills as they are due, understanding your financial options is important. Many people feel lost, hopeless, and overwhelmed by debt. However, there are certainly options out there for everyone. That said, each person’s financial situation is unique. There is no “one size fits all” option that is right for everyone. Speaking with a trustee can help you understand which choice is the best for your financial future.
A Licensed Insolvency Trustee will never pressure you to choose a particular option, such as declaring bankruptcy.
How you wish to proceed is always your decision. The trustee will, however, provide you with information on all options, answer your bankruptcy questions, and give you the details you need to make the right choice for yourself.
When to File Bankruptcy?
People often struggle with the idea of going bankrupt. There are many reasons for this. A major reason is that there are many myths about personal bankruptcies Canada that exist, and these can scare people.
One myth is that you will lose everything you own when you file and be left with nothing. This is not true.
The bankruptcy and insolvency process is designed to help people eliminate their debts and start their financial lives over. If a person who filed for personal bankruptcy had all of their assets taken away, it would be nearly impossible to start their financial life again.
As mentioned above, while you may lose some assets (depending on how much you own), each province exempts certain assets. Licensed Insolvency Trustees (which you may know as a “bankruptcy consultant”) will let you know what will happen to your assets prior to filing.
Another common concern is that your credit rating will be ruined forever. This is also untrue.
The reality is that your credit rating will be affected, but not permanently. If it is your first time claiming bankruptcy in Canada, the record of your bankruptcy will remain on your credit report for six years after you have been discharged. While this could sound like a serious issue, the reality is that many people who are considering personal bankruptcy already have issues with their credit score.
Your credit can be damaged by missing payments, using too much of your allotted credit, applying for too much credit, and other reasons. If you are struggling with debt and considering bankruptcy, there is a good chance that you fit into at least one of these scenarios and that your credit has already been damaged. Declaring bankruptcy will give you the opportunity to start fresh and rebuild your credit.
Even while the bankruptcy is noted on your credit report, it is a good idea to follow responsible credit processes as this can help you rebuild your score. Building up credit takes time. You may even still be able to get credit even while the bankruptcy is noted. This will depend on your situation and on the lender in question.
Many people also worry that going bankrupt will hurt their spouse’s credit score. In reality, each person has their own credit score even if they are married. Your credit score is only affected by your own actions. You do not affect your spouse’s credit if you apply for bankruptcy. However, if you hold joint debts with your spouse and they do not file, they will be completely liable for those debts.
This means they will be responsible for making 100% of the payments. The same is true if anyone as co-signed your loans. If you file for personal bankruptcy, the co-signer will be responsible for the loan.
Who will found out if I declare Bankruptcy
Another common concern is that everyone will find out about your declaring bankruptcy. In most cases, the Trustee, your creditors, and the Office of the Superintendent of Bankruptcy Canada will be the only ones who are told of your bankruptcy. While bankruptcies are a matter of public record, people need to pay to access these records and they must specifically search for individual records. This is not something that most people do.
The reality is that your friends, relatives, neighbours, and coworkers will not be told about your bankruptcy and insolvency and they will most likely never find out. The same is true for your employer. Unless there is a wage garnishment in place (and, if this is the case, your employer will already know about your financial issues), your employer will not be informed that you are declaring personal bankruptcy in Canada.
It’s important to note that the question of when to file bankruptcy will be different for each person. This is because each financial situation is unique. Licensed Insolvency Trustees can help you determine if bankruptcy is the right option for you. If you’re wondering how to file bankruptcy yourself and wish that you didn’t have to go through a trustee, know that the knowledge that trustees have is a big reason why they are the only people authorized to administer insolvency processes (and why a bankruptcy agency or bankruptcy lawyer is not able to do so in Canada).
A Licensed Insolvency Trustee can guide you through the bankruptcy process
When you meet with a trustee, they will help you understand all aspects of the process which can help you decide if it’s the right one for you.
Going bankrupt is often a last resort, but that doesn’t mean it’s one that you should write off completely. For many people who struggle with debt, bankruptcy is the right option. Speaking with a trustee about the process and having your bankruptcy questions answered can help you make the right choice for you.
A trustee will never try to pressure you into choosing a certain option. The decision is always yours and yours alone.
There are other options available as well (such as completing a consumer proposal). Licensed Insolvency Trustees can discuss all of the options with you and then it will be your decision as to how you wish to proceed. When you have the right information, you can make an informed and responsible choice.
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