Bankruptcy

How does bankruptcy work?

Bankruptcy is a legal process in which an insolvent person (someone who owes more than they own and cannot repay their debts as they come due) assigns their non-exempt assets to a Trustee. They are thereby released from their obligation to pay back the eligible debts. All legal actions are stopped in a bankruptcy under consumer protection law (the Bankruptcy and Insolvency Act). You must be discharged from bankruptcy after a set period of time.

How long does bankruptcy last?

Depending on a few things, a bankruptcy can be between 9 and 36 months. A normal, basic bankruptcy is 9 months. If certain basic duties are not performed, a court can extend the length of a bankruptcy to any length and impose conditions on your discharge.

Is there an alternative to bankruptcy?

The bankruptcy law sets out a key alternative to bankruptcy: a consumer proposal.

How will bankruptcy affect my spouse/family?

Your bankruptcy is an individual action – it will not affect the credit rating of your spouse or your family.

What about my house/car/other assets?

An individual is allowed certain personal exemptions on their property in a bankruptcy. This means you can keep your car if it is under a certain value. And you can keep your house if it has no equity value. You are also allowed to keep all personal effects such as furniture and jewelry, provided you have nothing that is of significant value (e.g., art collection, expensive hobby car etc.).

What does bankruptcy cost?

It depends on a number of factors, such as your income, what you own (excluding personal exemptions) and if you have been bankrupt before. It can cost as little as $1,800 ($200 for 9 months) in a basic bankruptcy.

What debts can be included?

All unsecured debts:

• Credit card balances
• Lines of credit
• Personal loans
• Retail cards (Future Shop, the Bay etc.)
• Bank account overdrafts
• Payday loans
• Utility balances
• Personal income tax owing
• Student loan balances (must be out of school more than 7 years)
• Shortfalls on secured loans

What if I have joint debts or co-signers?

Your responsibility for your debts is released in a bankruptcy, but not that of anyone who has co-signed or guaranteed a debt of yours. They are then responsible for the entire debt balance.

Will I need to go to court?

Generally, you are not required to attend at court. However, under certain circumstances it may be required. If your duties are not fulfilled, for example, you may have to attend a discharge hearing. In the vast majority of cases bankrupts are given an automatic discharge.

What if I win the lottery?

You are legally obligated to tell the Trustee about any lottery winnings. You would only lose whatever amount was required to cover your bankruptcy obligations. The rest you would keep.