How Bankruptcy Works in Canada

 In Bankruptcy

Wondering how bankruptcy works in Canada? Many people think you need a lawyer to help you go bankrupt but that is not true. In Canada, you need the help of a Licensed Insolvency Trustee like Vine and Williams (an LIT). A bankruptcy in the US is handled by a bankruptcy lawyer. There are lawyers in Canada who specialize in insolvency, but most people who go bankrupt don’t need an insolvency lawyer.

Simple steps to bankruptcy:
1. Review your situation with a Licensed Insolvency Trustee
2. Sign bankruptcy documents
3. Report your income monthly and make payments based on your income
4. Complete two financial counselling sessions
5. Your debts are gone

What is a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee is someone who has passed rigorous exams and has been licensed by the federal government to act as a Trustee for bankruptcy and consumer proposals. We are trained professionals that you can trust. We are required by law to review your situation with you and help you make a decision about the right solution for you to deal with your debts. That may mean filing for bankruptcy, or it may mean filing a consumer proposal to avoid bankruptcy. It may also mean you don’t need an LIT and can manage the situation yourself through more effective budgeting, refinancing, credit counselling or some other solution. Whether you need us or not, consultations are free and all options will be reviewed with you, so you have nothing to lose by talking with a Licensed Insolvency Trustee at Vine and Williams.

What happens when I call a Trustee for bankruptcy?

We will listen and learn about your situation. We will gather some documentation to make sure we have a complete understanding, and we will talk with you about your options for dealing with your debts. It’s a conversation not a lecture. It’s an opportunity for you to learn the pros and cons of each option so you can make a decision that you are comfortable with. Ask as many questions as you want. Many people call to talk with a Trustee for bankruptcy, and discover that they can easily avoid bankruptcy, keep their assets, keep their business, and stay in control of their finances by filing a proposal to their creditors.

I still need to know how bankruptcy works in Canada? Where do I start?

Your Licensed Insolvency Trustee will gather your information and prepare documents for you to sign. You will sign what is called an “Assignment in Bankruptcy”. You are signing over ownership of your assets and in exchange, your debts are taken away. They aren’t gone for good until you complete the bankruptcy process and receive a discharge, but all collection action must stop immediately including wage garnishments, court action, collection calls and letters, and even collection by Canada Revenue Agency.

What? I have to sign over ownership of my assets?

No worries, most assets for most people are either exempt from seizure or you can continue making payments to a secured lender to keep them. The Trustee for bankruptcy is not going to come to your house and start loading up your personal belongings. You are entitled to claim an exemption to keep clothing, personal and household effects, a vehicle, tools or things you need for work, and even your house up to a value set out by provincial law. The value is determined based on if you sold your things (think garage sale or Kijiji value) not what it would cost to replace everything new.
RRSP’s are protected except for contributions in the 12 months prior to your bankruptcy. If you have a house with a mortgage or a car that is financed or leased, the Trustee is only interested in them if there is equity in them. So if the house or car were sold, would there be any money left over after the bank or car loan company was paid and you claimed your exemption? If so, the Trustee will talk with you about your options for keeping these assets.

The Trustee is not going to walk you in to bankruptcy and then surprise you with a demand that you sell your house, car or other assets. We will work with you on a plan before you choose to file bankruptcy.

Is bankruptcy free?

No, that is not how bankruptcy works in Canada. The Trustee for your bankruptcy is licensed by the federal government, but is not paid by the government. You will have to pay something to your bankruptcy estate so the Trustee can get paid for administering your bankruptcy. The amount you have to pay depends on whether this is your first time filing bankruptcy and what your income is. The minimum payment required by most Trustees is $200 per month for 9 months on a first time bankruptcy.

If your household income is above a standard set by the Superintendent of Bankruptcy, you may have what is called Surplus Income. In that case the amount you must pay is a calculation based on your income and you would be in bankruptcy a minimum of 21 months instead of 9. Everything you pay goes in to a trust account for your bankruptcy estate. The Trustee gets paid out of your bankruptcy estate and you will not get a bill like you would with a lawyer. The Bankruptcy and Insolvency Act sets out how much the Trustee can be paid out of your bankruptcy estate, and the payments to the Trustee for bankruptcy are reviewed by the Office of the Superintendent of Bankruptcy.

What happens while I am in bankruptcy?

You will report your income to the Trustee for bankruptcy each month, pay the amount that is required based on your income, attend two financial counselling sessions, and otherwise help the Trustee if there are questions or more information needed. You have to stay in touch if you move, change your email address or phone number. As long as you complete your duties and none of your creditors object, you will be eligible for an automatic discharge in either a first or second time bankruptcy, and the Trustee can sign your discharge. It is very rare for a creditor to oppose your discharge.

What is a discharge from bankruptcy?

A discharge from bankruptcy means your debts are gone for good. Your creditors can’t opt out of your bankruptcy or chase you to pay after you are done.  There are a few special debts (like child support) that survive a discharge.  We will tell you if any of your debts are collectible after you are discharged.

Bankruptcy works in Canada to eliminate all of your unsecured debts including credit cards, loans, lines of credit, government debts and overpayments and student loans so you can truly be debt free in as little as 9 months. Call before you sell or refinance your house, or cash in your RRSP’s. A Licensed Insolvency Trustee like Vine and Williams can help you.

Contact Us or call Vine and Williams today at 1-833-808-8463 or to arrange your free no obligation consultation to find out how we can help you get out of debt.

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