Frequently asked Bankruptcy Questions

You should always discuss your situation with your Trustee. They are the professionals that can identify the facts effecting your unique circumstances and they are in the best position to advise you.

Can personal income tax arrears be included in a bankruptcy?
Yes - income taxes are an unsecured debt and can be discharged in a bankruptcy process. But... since the Canadian Revenue Agency is an involuntary creditor your discharge may be conditional on a payment of a portion of your tax debts. Discuss with your trustee how any tax debt will affect your discharge.

If I file a bankruptcy or a consumer proposal will they go after the co-signor of my loans?
For unsecured debt the answer is "yes". The filing of a bankruptcy or proposal does not protect a co-signor. The co-signor will have to pay the loan or file a bankruptcy or proposal themselves.
For secured debt - say your car loan - the answer is probably "no". Secured creditors are not normally affected by any bankruptcy process. If you want to keep the car you must continue the payments. As long as you make the payments on time your co-signor will be protected.

I have an outstanding traffic fine and have not paid it. They have suspended my license. Will bankruptcy help?
No. Fines and penalties imposed by a court are not discharged by bankruptcy. However, if you contact the Ministry of Transportation and explain your situation to them they will often work with you to set up a repayment plan. If you are able to arrange repayment they may give you your license back. Just make sure make your payments, if you miss one it is unlikely you will get a second chance. My Dad told me many years ago; always remember "driving is a privilege not a right".

I went bankrupt about 10 years ago, I lost touch with the Trustee and don't even remember who they were. Some of my old creditors are chasing me again. What should I do?
When you file a bankruptcy all of your debts are frozen. If you complete all of your obligations under the Bankruptcy Act all of your debt with a few exceptions will be discharged or eliminated.
Until you complete all of your requirements your debt will not be eliminated, it still exists.
If your Trustee cannot find you or you cease meeting your obligations the Trustee will eventually close the estate. At this time the freeze on your debt is removed and your creditors are free to restart collection efforts for their debt plus interest from the date of your bankruptcy.
Find a Trustee or go to your local OSB office if one is in your area. Take a few pieces of identification. Tell them your story and ask if they can do an insolvency search for you. This will tell you the name of your Trustee and the status of your estate.
Contact your Trustee and complete your obligations.
Your Trustee may require you to pay additional costs beyond those which you had originally agreed and your attendance in Court may be required.

I am in a consumer proposal – I have a little extra cash every month - what should I do?
Quick answer.
1.      First, make sure that your proposal is prepaid a few months and stays that way.
2.      Build up a cash reserve for “emergencies only” and try hard never to use it.
3.      Then, with your extra cash slowly and I do mean slowly, rebuild your credit.
4.      Last, consider paying off your proposal early.

I am a student; I went bankrupt a few months ago. I owed about $14,000.00 on credit cards and had nothing but a part time job to cover my rent. I figured I could never repay my debt so I went bankrupt. I live alone and didn’t tell my parents. They found out and were not happy, they said I should have told them. Can anything be done now?
Quick Answer.
Absolutely – a bankrupt is allowed to file what is called an in-bankruptcy proposal. It is similar to a consumer proposal and if it is accepted, the bankruptcy is annulled and the proposal takes over.
Your trustee will be able to assist you.

Follow-up – Why can’t my parents just pay off my debts and eliminate the bankruptcy?
Bankruptcy is a legal process; it can only be annulled, or eliminated by the Court. You were right, there was no way you could easily repay your debt. You were eligible to file bankruptcy and you signed and swore the necessary bankruptcy documents. When the Trustee filed your bankruptcy documents they started a legal process not easily, or cheaply stopped.

What should I look for when meeting a bankruptcy trustee?
Almost all trustees offer a free initial consultation and since dealing with this problem will take considerable time and money it is a good idea to see a few trustees. After all, they are the people who will be guiding you through a very challenging period in your life.
All trustees are licensed professionals, but all people inter-relate differently. Make sure you are comfortable with your trustee. Are they helpful and compassionate during the first meeting? Do they offer you different alternatives in dealing with your problems?

What should I gather from an initial meeting with a bankruptcy trustee?
After a first meeting, you should have a good understanding of what you need to do to regain your financial security and peace of mind.   You should also have a complete picture of your financial position, including the amount of your debts, the value of your assets, your monthly income and expenses, the options available to you, and what may happen to your various assets under different options.

What is a consumer Proposal and how can it help me?
A Proposal is an arrangement between you and your creditor that lets you pay only a portion of your debts and/or extends the time you have to pay off your debts. When you file a Proposal, interest generally stops on most debts while your creditors review your Proposal and decide if they should accept it. After a Proposal is accepted and you make the agreed-upon payments, your debts are considered to be settled in full. Plus, through a Proposal you get to retain all your assets and reduce your debt load.

What are the benefits of a consumer Proposal?
With a consumer Proposal, you get to tailor your monthly payments to suit your situation, keep your assets and accumulate more without risk of seizure, stop making interest payments, and stop most lawsuits and garnishments. Plus, your creditors may be willing to accept less than full payment, and your credit rating is affected less than in a bankruptcy.   However, preparing a Proposal can be quite complex, which is why it makes sense to rely on a qualified trustee. That way, you get the best possible advice and can deal with your creditors as a group.                            

I can't afford to pay my student loan. What can I do?
If you go bankrupt or file a consumer proposal within seven years of leaving school, current legislation says you still have to repay your student loan, with ongoing interest charges. Nevertheless, you will get a certain level of protection by filing a Proposal or a bankruptcy. These filings create a period of time during which student loan authorities are prevented from taking legal action against you. They also let you settle your non-student loan debts in a more structured and manageable way, which should provide you with a stronger future cash flow to deal with your student loan obligations at a future time.

How will I know which option is best for me?
Whether you file a consumer Proposal or declare bankruptcy, each option has advantages and disadvantages, depending on your personal circumstances. To understand which option is best for you, it makes sense to consult a professional trustee who can help you structure a tailored plan of action.

How will a consumer Proposal or bankruptcy affect my credit rating?
If your debt payments are significantly in arrears, the credit bureau has probably already been notified. However, when a bankruptcy or Proposal is filed, the credit bureau is notified again. A first-time bankruptcy stays on your record for 7-8 years, and a second bankruptcy for 14 years. A Proposal stays on record for three years after you've paid off your proposal. This means you'll have to prove your ability to pay before you can get credit again.

What is a "discharge" from bankruptcy?
This discharge is the legal process within a bankruptcy that releases you from, or eliminates your debts. Exceptions are fines imposed by a court, money owing for things stolen, things obtained by misrepresentation, alimony or maintenance payments, damages awarded by a court for sexual assault or intentionally inflicting bodily harm, and student loans within 7 years after the completion of studies.  Usually, a first-time bankrupt will receive their discharge after nine or twenty one months.   If you've been bankrupt more than once, you will be automatically discharged in 24 or 36 months.   In either case, the trustee or a creditor can oppose your discharge. If it's opposed, you have to attend a court hearing, at which point the court may grant your discharge, suspend it, attach conditions, or refuse a discharge if the Court believes you are not the honest and unfortunate debtor the laws are meant to protect.    
Will Canada Customs and Revenue Agency agree to a Proposal for tax owed?
Canada Customs and Revenue Agency (CCRA) is treated like any other creditor, and can accept or reject your Proposal like other creditors. CCRA can however be a little more difficult and expensive to settle.

What happens to assets that I've borrowed against?
Secured creditors, like banks, credit unions, and finance companies can collect against the asset you've borrowed against even if you declare bankruptcy. If there's no value in the asset, the trustee will release its interest. If you want to keep the asset, you may be able to make arrangements with the secured creditor.

What about income tax and GST refunds?
When you declare bankruptcy, your trustee must file a tax return from January 1st to the date of your bankruptcy, and last year's tax return (if it hasn't already been filed). You will be required to provide your trustee with details and documentation to support this return. The trustee may also file a tax return from the date of the bankruptcy to December 31st. If any of these returns generate tax refunds, that money will be used to pay off your debts. If it's found that you owe tax, you will be require to pay the amount owing for the after bankruptcy portion.
In addition, if you are entitled to a GST quarterly rebate, the rebate will go directly to the trustee.   In some cases, the GST can be returned to you, or continue to be sent directly to you. If this affects you discuss it with your trustee.

Can I keep my bank account?
Yes. However, any cash balance in your account on the date of your bankruptcy must be turned over to the trustee. You may want to set up a new bank account with a bank you do not owe, before declqring bankruptcy.

Can I rebuild my credit after bankruptcy or consumer proposal?
During a bankruptcy or proposal, you must attend two counselling sessions, the second discusses ways to help you rebuild your credit. To improve your credit, it helps to have a stable employment history, and evidence of a stable or growing income, the ability to save or accumulate assets, and the knowledge of how to manage money effectively. Having a co-signor also helps, as does adhering to all your credit contracts, such as paying your car loan or lease, making mortgage payments, etc.

What are the warning signs of financial difficulty?
Are you using credit to meet monthly necessities?
Are you fully drawn on your credit facilities and unable to meet monthly payments, or pay down principal?
Are you out of cash to meet your monthly payments?
Do you frequently rely on automatic overdraft protection on your chequing account?
Are you making only minimum monthly payments on credit card accounts?
Are you taking out new loans to pay off old ones?
Are you behind in rent, mortgage, or utility payments?
Are you being harassed or sued by any of your creditors?
Do you constantly receive past-due notices on charges or bills?
Are your wages being garnished?
Are money troubles causing problems in your family?
Do you frequently worry about money and money problems?

How long does it take to complete a bankruptcy?
How long it takes to complete a bankruptcy depends on your income and whether or not you have been bankrupt before.
First bankruptcy with no surplus income takes a minimum* of 9** months;
First bankruptcy with surplus income takes a minimum*of 21 months;
Second bankruptcy with no surplus income takes a minimum* of 24 months;
Second bankruptcy with surplus income takes a minimum* of 36 months;
Third time bankrupts will be required to attend a discharge hearing and the Court will determine the conditions of your discharge.
* - You must complete all of your duties within this time period or your Trustee will be required to object to your discharge. If you have an objection to your discharge by your Trustee or any creditor, the terms and time of your discharge will be determined by the Court.
It is possible to apply for an earlier discharge but that will require the services of an insolvency lawyer and an Order of the Court. All costs related to applying for a early discharge are your responsibility.

Will a bankruptcy or proposal stop a pay garnishment?
Yes - when you file bankruptcy or make a proposal all creditors are required to stop any further collection efforts. This is called a Stay of Proceedings.
A Stay of proceedings does not stop any garnishments related to spousal or child support.

You do not necessarily lose your home when filing bankruptcy, however the creditors are entitled to receive a fair amount in relation to any equity you have in your property that is in excess of your province’s exemption.
If you have a significant amount of equity a consumer proposal should be considered.
The laws related to your home and bankruptcy are complex so discuss your options with a trustee or call us for help assessing your situation.

Where do I start?
It is a good idea to have a complete listing of all of your debts, property and details on your income and expenses before talking to a Trustee. BUT START BY PICKING UP A PHONE AND CALLING US - Toll free 1-855-752-5359

What about my spouse?
A spouse is not automatically responsible for your debts unless they are a co-applicant, co-signor or they have guaranteed your debts to the creditor.
If your spouse is also responsible for some or all of your debts you may be able to file a joint bankruptcy or joint consumer proposal.

What about my home?