A guide to bankruptcy in Canada

Firstly, you need to recognize that you are having financial problems. If you are having trouble making ends meet at the end of each month or find yourself using credit cards or loans just to stay afloat, then you might need help with bankruptcy proceedings.

To file for bankruptcy, you need to speak to a Licensed Insolvency Trustee. By Canadian law, they are the only people who can file for bankruptcy on your behalf. Not only can they help you to file for bankruptcy, but they can also recommend any other possible alternatives for you.

Your Trustee will ask you to provide details of your current financial situation and, if bankruptcy is the best option for you, they will start bankruptcy proceedings. It’s important to know that filing for bankruptcy isn’t free – there are fees involved – but your Trustee will go through all of this before moving forward. 

What will happen to your debts?

Usually, the first question that everyone asks when applying for bankruptcy is, ‘Will I lose everything?’ The simple answer to this is NO.

The type of debts that bankruptcy nullifies include credit cards, payday loans, unsecured bank loans, lines of credit, utility bill payments, and even tax debts. If you have been out of school for seven years, then your student loan can also be included in your bankruptcy.

However, bankruptcy is not a catch-all solution. There are some debts that are not forgiven. These include spousal and child support payments, debts due to fraud, and court fines. Bankruptcy will also not clear any secured debts.  

If your Trustee decides that, after looking at your monthly expenditure, you do have some surplus income and you can afford to pay some money to your creditors, they will set this up. You will only have to make one monthly payment and the Trustee will divide it up amongst your creditors accordingly.

What happens next?

Once your filing for bankruptcy has begun, an immediate ‘stay of proceedings’ comes into play. This means that your creditors can no longer contact you to reclaim the monies that you owe them.

You have certain obligations that you have to meet once you have been declared bankrupt:

– You must surrender any assets – this means savings, vehicles, properties etc. They will be used to pay back your creditors. 

– Relinquish your credit cards to your Trustee.

– Attend credit counselling sessions; one within 90 days of being declared bankrupt, and one further one before you are discharged.

– You need to provide your Trustee with a breakdown of your monthly income

– If you have agreed to make some form of payment to your creditors, these payments MUST be made. 

If you break these terms, the bankruptcy could be nullified and you may be liable once again for all the debt that you are trying to get written off. You are usually discharged from bankruptcy after 9 months, but this can last up to 36 months if you have been bankrupt more than once in the past. 

Once this time has elapsed, you can start rebuilding your credit score, but the bankruptcy will stay on your credit record for 6 years, so this may be a slow process. However, you will be debt-free and you can start to rebuild your creditor score. Initially, you’ll find that the interest rates you get offered are higher than what you’ve been used to in the past, but as you rebuild your credit score then the better deals will come accordingly. If you are applying for credit over $1,000 then you must declare that you’re an active bankrupt.