THE BANKRUPTCY PROCESS
In certain situations, personal bankruptcy is the best solution to get a fresh start.
There are two types of personal bankruptcies:
Summary administrations are where your assets realized for creditors are less than $15,000. The majority of personal bankruptcies are summary administrations. No advertising in the newspaper is required in summary administrations.
Ordinary administrations are where assets are expected to exceed $15,000 and/or the administration is expected to be complex, complicated and/or time-consuming. Newspaper notices are mandatory.
Once you file for bankruptcy, all your debts are frozen and your creditors cannot continue to call you and try to get you to pay them. As long as you continue to do your duties as a bankrupt (see below), your debts are frozen. The debts are all written off when you get out of bankruptcy and receive your Absolute Discharge from all those debts.
Bankruptcy can be as short as 9 months for a first-time bankrupt in certain situations and usually are either 9 months or 21 months in duration if you do all of your duties.
The major steps in making an assignment in bankruptcy:
The bankrupt's primary duties
- Meet for an initial consultation session.
- File an assignment in bankruptcy.
- Attend two counselling sessions.
- Complete monthly income and expense reports and pay excess income to the Trustee, if necessary.
Your wages during the bankruptcy
- Disclose all of your assets and liabilities to the Trustee.
- Advise the Trustee of any property disposed of in the past year.
- Surrender all your credit cards to the Trustee.
- Attend an examination before the Official Receiver, if required.
- Attend the first meeting of creditors, if required.
- Attend two counselling sessions.
- Advise the Trustee in writing of any address changes.
- Complete monthly income and expense reports and pay excess income, if any.
- Provide the Trustee with income tax information for the current year and the prior year to bankruptcy to ensure those income tax returns are filed.
- Generally assist the Trustee in administering the estate and realization of the assets, if any.
Assets assigned to the Trustee
- Wage assignments and garnishments are stopped once bankruptcy is declared.
- The Trustee reviews the amount of your wages and your living expenses.
- You must report your income monthly to the Trustee and your income is then compared to the guidelines set out annually by the Superintendent of Bankruptcy.
- These guidelines take into account the amount of household income and the number of dependents.
- The Trustee will provide you with a copy of the guidelines and a supply of monthly income and expense forms for you to complete each month.
- If your monthly income exceeds the guidelines, a portion must be paid to your Trustee for the benefit of your creditors (the Excess Income payment). If you do not pay in the excess income as required, you will not get discharged from bankruptcy.
Property exempt from seizure from each individual bankrupt includes the following:
- The only assets not assigned to the Trustee for distribution to your creditors are those exempted by law (see below).
- All of your assets declared under oath to the Trustee must be fully disclosed and properly valued.
- Your assets include all existing assets as well as those that may be acquired prior to your discharge.
- Once you have filed an assignment you cannot dispose of any assets assigned to the Trustee.
- Unencumbered personal goods, furniture and appliances and chattels to a maximum value of $4,000.
- Equity in an automobile up to $5,000 unless you owe money for child support or alimony, in which case the value is $2,000.
- Certain insurance investments, where the designated beneficiary is a spouse, child, grandchild or parent of the person whose life is insured.
- Tools of the trade to a value of $10,000.
- Principal residence equity in greater Victoria or Vancouver to a value of $12,000 or $9,000 elsewhere in BC.
- All RRSP's except any contributions made in the 12 months prior to filing for bankruptcy.
- Any awards for pain and suffering.
- The rights of secured creditors are normally not affected by bankruptcies and consumer proposals.
- If a creditor has valid security registered against your property (ie., car or house), consult the Trustee about keeping or surrendering the asset.
- If you can afford monthly payments, financial arrangements may be made with the secured creditor to keep the secured assets.
Discharge from bankruptcy
- You must supply the Trustee with documents to complete two income tax returns during the year in which a bankruptcy occurs and the year prior to bankruptcy.
- A pre-bankruptcy income tax return must be filed by the Trustee for the period from January 1 to the date of bankruptcy.
- A post-bankruptcy income tax return must be filed by the Trustee for the period from the date of bankruptcy to December 31.
- Income tax refunds from prior years are assets of the bankruptcy estate and must be sent to the Trustee if sent to the bankrupt by mistake.
- The Bankruptcy and Insolvency Act states that refunds from the post-bankruptcy return are assets of the bankruptcy estate.
- Income taxes owing prior to the bankruptcy are discharged.
- Any amount owing on the post-bankruptcy income tax return must be paid by the bankrupt.
Debts not discharged by bankruptcy
- A first-time bankrupt with no excess income is automatically granted a discharge nine months after filing for bankruptcy unless a creditor, the Trustee or the Superintendent of Bankruptcy objects to your discharge. If a first-time bankrupt has excess income, the automatic discharge is extended to 21 months as there is some ability to pay something to your creditors according to the Superintendent of Bankruptcy. If you are granted an automatic discharge, there is no court hearing and the Trustee sends you a copy of your discharge. If there is an objection to your discharge, you must attend a court hearing to obtain your discharge from bankruptcy.
Debts that are not discharged by bankruptcy are outlined in Section 178 of the Bankruptcy and Insolvency Act. These include:
Who the licensed insolvency trustee is
- Fines, penalties or restitution orders imposed by the Court
- Damages ordered to be paid by Court re: bodily harm or sexual assault or wrongful death resulting therefrom
- Liability for support or maintenance of a spouse or ex-spouse or child under an agreement or Court Order
- Debts arising from fraud, embezzlement, misappropriation, or loss of trust funds
- Debts obtained by false pretenses or fraudulent misrepresentation
- Liability for dividend to undisclosed creditors
- Student loans are not discharged unless you have been out of school 7 years
- Any interest relating to any of the above
- A Trustee is an individual or corporation licensed by the Superintendent of Bankruptcy to conduct the bankruptcy process. The Trustee must meet every individual who goes bankrupt.
- A Trustee is not a lawyer. You can ask advice about certain bankruptcy matters but you are not a client of the Trustee. The Trustee is an officer of the court.