As a Licensed Insolvency Trustee, DEVLETIAN & ASSOCIATES INC. is available to guide you through these difficult financial times. Personal bankruptcy is sometimes a necessary solution, when all other options are not feasible. Following are some key questions and answers regarding personal bankruptcy. Please contact us for your free personal consultation.
What is bankruptcy?
Personal bankruptcy is a legal process to relieve an honest individual from the burden of his /her debts and allow him/her to get a fresh start and become financially active again.
Personal bankruptcy will protect you against any garnishment of your wages and will suspend any legal actions against you. Personal bankruptcy will permit orderly distribution of your non-exempt assets to the creditors.
Can I go bankrupt?
Certain conditions must be met in order to file an assignment in bankruptcy:
- Owe at least $1,000, and
- Be unable to meet regular payments as they fall due, or
- Own insufficient property to pay all of your debts.
A Licensed Insolvency Trustee can evaluate your financial situation and whether or not bankruptcy is a viable option for you.
How do I enter into personal bankruptcy?
There are two ways a debtor can become bankrupt:
A voluntary bankruptcy is initiated by the insolvent debtor. The formal documentation necessary to start the bankruptcy process is prepared by the Licensed Insolvency Trustee and is based upon the information contained in the worksheet and other information obtained by the Licensed Insolvency Trustee during the initial assessment session. A voluntary bankruptcy is referred to as Filing an Assignment in Bankruptcy.
A creditor(s) asks the Court to make a court order stating that a debtor is bankrupt and to appoint a Licensed Insolvency Trustee. This court order is called a Receiving Order.
What does an Assignment in bankruptcy do?
The Assignment in bankruptcy serves to transfer title to all assets and the rights to any kind of asset to a Licensed Insolvency Trustee. The bankrupt person no longer has any right to deal with these assets.
The assignment in bankruptcy also causes a Stay of Proceedings to be effective, which prohibits all creditors from or continuing taking legal action against the bankrupt, with the exception of spousal or child support actions and certain other proceedings.
Most credit collection procedures are terminated and creditors cannot continue with garnishments or lawsuits. Creditors must make their inquiries through the Licensed Insolvency Trustee.
Duties imposed upon the bankrupt:
As an individual filing for bankruptcy, you must fulfill all of the following duties:
- Deliver to the Trustee for cancellation, all credit cards issued to you and in your control;
- Reveal and turn over to the Trustee, as required, all assets in your possession or control;
- Make available to the Trustee all books and records relating to your assets or affairs;
- Provide to the Trustee a complete statement of assets and liabilities including creditors’ names, addresses, account numbers, invoices and amounts. Where additional bills or legal documents are received by you, they should be forwarded to the Trustee. If assets were accidentally omitted, the Trustee must be told promptly;
- Inform the Trustee of the details of all assets disposed of during the twelve months and five years prior to the bankruptcy;
- Meet with the Official Receiver, to be examined under oath as to the facts relating to the bankruptcy; if and when requested;
- Attend the first meeting of creditors and any other meetings if called upon by the Trustee;
- Inform the Trustee of any material change in your financial situation;
- Keep the Trustee advised of your place of residence until discharged.
Tax obligations following a bankruptcy
If you declare bankruptcy, you must report your income and claim the tax credits and amounts to which you are entitled as described below.
You are required to complete two income tax returns for the year of the bankruptcy
- The first for the period before the bankruptcy (“pre-bankruptcy” : from January 1 to the day preceding the date of the bankruptcy); and
- The second for the period after the bankruptcy (“post-bankruptcy”: from the date of the bankruptcy to December 31)
Each return must be filed using the personal income tax return.
Both returns must be filed by April 30 (or June 15, if you or your spouse carried on a business) of the calendar year following the year of the bankruptcy.
If I go bankrupt, will I lose everything?
All assets, except for those governed by provincial exemptions legislation and property held by an individual in trust for another person; vest in the Trustee for distribution among your creditors. The Trustee will take and sell your personal items that are valued above a certain dollar value unless they are held for someone else. The Trustee also has to consider if any of your personal assets are “secured” or have been pledged as security against loans. A secured party has rights to the assets held by an individual debtor above that of a Trustee if the security is valid. If you declare bankruptcy, the Trustee will look over any security documents to ensure that they are proper.
In Quebec, the amount of personal property that is exempt from seizure (items that the Trustee cannot take away from you) in the case of a bankruptcy is the following:
- Household goods $6,000;
What about my RRSP’s and other investments?
RRSPs are exempt, however, the contributions made in the one-year period before the date of bankruptcy will have to be paid to the Trustee for the benefit of creditors
Will my spouse be affected?
No. You are considered on an individual basis. However, if your spouse has co-signed any of the debts, (such as having companion credit cards), your spouse could be left responsible for the entire debt if you file bankruptcy. This is true for anyone who has co-signed on your debts.
Your income is reviewed on the seventh month and compared to a guideline amount and your spouse’s income is considered as part of this “family income”.
Will my creditors stop harassing me?
Yes. By law, all action against you, including garnishments, are halted. Certain debts such as some court fines, court ordered restitution, alimony and child maintenance are not released by bankruptcy.
How much will I have to pay?
How much you have to pay to any Trustee will depend on your monthly income, assets that you own which are not exempt and wish to keep.
If you own items above the exempt amounts, the amount of equity in the assets (amount above a secured claim) will either have to be paid to the Trustee in order for you to keep the assets, or you will have to turn it over to us so we can sell it for the benefit of your creditors.
An undischarged bankrupt, you have to submit income and expense statements to the Trustee, showing the family budget. This amount is compared to a federally set income guideline. Any amount above the guideline is considered to be excess income. 50% of this excess is payable to the Trustee and you can keep the remaining 50%.
The amount of money the Trustee can charge for performing bankruptcy work is mandated under the Bankruptcy and Insolvency Act.
Should a lawyer represent me?
Generally, it is not necessary for a debtor to retain his or her own council. However, it is important to realize that the Trustee is not a lawyer nor does the Trustee represent the bankrupt. Rather, the Trustee is an officer of The Court and has a duty to debtors and creditors to fairly administer the Bankruptcy and Insolvency Act.
When is my bankruptcy over?
For a first time bankrupt, an automatic discharge will be issued after nine (9) months from the date of your bankruptcy in the following circumstances:
- You have completed two counseling sessions;
- Your creditors, the Superintendent of Bankruptcy, and the Trustee are not opposing your discharge;
- You have not had surplus income based on the Superintendent’s Standards during your bankruptcy.
If you have surplus income payments based on the Superintendent’s Standards you will receive an automatic discharge after twenty-one (21) months and complied with your duties as a bankrupt
What types of discharges from bankruptcy are available?
If your discharge is opposed or you have previously been bankrupt, we will arrange for your application for discharge to be heard by the Bankruptcy Court. After hearing our report on your conduct throughout the bankruptcy, your present economic situation, and the opposing creditor’s argument (if any), the Court may issue any of the following orders:
- Absolute: It applies immediately and means that you are no longer responsible for your debts, except for those that cannot be discharged (see debts not included);
- Adjourned: This will postpone the hearing to a later date;
- Conditional: This type is discharge is one where you will be discharged when you satisfy some imposed condition/s such as the performance of a duty or the payment of additional funds to the estate;
- Suspended: You will receive an absolute discharge after a suspended period of time;
- Refused: The Court has the right to refuse to discharge you at all, but this is rarely exercised.
What is mediation?
- Only available if the outstanding duty of the bankrupt to pay the balance of unpaid Surplus Income – Avoid Court Hearing
- Trustee office will discuss outstanding amount due and payment terms with the bankrupt.
- Trustee, bankrupt and Official Receiver will hold mediation meeting (can be by telephone) – date set by Official Receiver.
- If an agreement is made for the balance and terms, Trustee can sign certificate of discharge once conditions are fulfilled.
If no agreement or the terms of mediation are not met, the Trustee will apply to Court for a hearing.