Personal Bankruptcy

Is Personal Bankruptcy a Fit?

Your Situation

If you find yourself struggling to your minimum payments or you find that you are often choosing payments to your creditors instead of family needs or living expenses, a bankruptcy might be the solution for you.

Our Business

We are Licensed Insolvency Trustees. We have the legal authority to help people file bankruptcy. We can meet by video, which allows us to meet with people living all across Ontario.

Is Bankruptcy a Fit?

Bankruptcy is a good option for someone who is unable to pay their debt in full and unable to commit to a long-term payment plan. Generally, bankruptcy is a shorter period and the least expensive option.

Common Debts

• Credit cards and lines of credit
• Payday loans
• CRA/Government tax debts
• Overdue utilities
• Back-rent to your landlord
• Cell phone bills
• High interest finance loans

Length of Bankruptcy

When you file bankruptcy, the goal is to get what is called a discharge. From the time that you file your bankruptcy until you receive your discharge, you remain an "undischarged bankrupt", or "in the bankruptcy process".

When you receive your discharge, you are released from any obligations to your unsecured creditors. Some exceptions may apply.

The length of bankruptcy can be generalized as follows:

• Someone filing bankruptcy for the first time, is eligible for an Automatic Discharge either after 9 months or 21 months, depending on household income.
• Someone filing bankruptcy for the second time, is eligible for an Automatic Discharge either after 24 months or 36 months, depending on household income.
• A third bankruptcy (or more) requires attendance at Bankruptcy Court for a discharge hearing.

Your discharge can be impacted if you don't complete your duties or if your conduct (prior to bankruptcy) is under question.

Protected Assets

When you file bankruptcy, the law requires a Licensed Insolvency Trustee to dispose of your assets for the benefit of your creditors.

Exempt Assets

Certain assets are exempt from seizure. This means that you keep these assets, assuming that you own the asset outright (not making payments to a creditor). The assets that are exempt, include (there may be other exceptions to this list):

• One vehicle, if the value is less than $7,117
• House equity, only if your share of the equity is less than $10,783
• Tools of the Trade. If you are self-employed and have tools that you use for your business, these tools will be exempt. The limit is $31,379 for farmers and $14,405 for other businesses
• Household furnishings, up to $14,180
• Necessary clothing
• RRSPs (except for contributions made in the past 12 months), RIFs or LIFs
• Pensions and Life Insurance Policies (depending on the beneficiary)

The value of the assets is not valued at their replacement value but the value in their current condition and on the open market.

Secured Assets

If you have a loan payment for an asset, the asset is considered secured. Often this will include loans for a home, vehicle, trailer or other recreational asset.

In a bankruptcy you have the choice of either keeping the asset or surrendering it. If you want to keep the asset, you will need to continue paying the loan. If you want to surrender the asset, we can arrange to have the asset picked and you no longer need to make the payments. This is a great option if, for example, you have a vehicle where the loan payment is too much, and you can't afford the payments.

If you own your home, you can keep your home, but you have to continue paying the mortgage. If there is equity in your home (value of the house minus mortgage), a consumer proposal might be a better option. We can review this in our initial consultation.

Redeeming Assets

Some assets won't be exempt from seizure and some assets will be secured but worth more than what is owing on their respective loan. What then?

First thing we need to do is find the current value of the asset or the equity in the asset. Equity is the difference between the value of the asset and what is still owing on the loan. For example, if your vehicle is worth $20,000 and the loan is $15,000, the equity is roughly $5,000 ($20,000 - $15,000).

If the value of the asset is nominal, you can "redeem" the asset. Redeeming the asset is to offer your bankruptcy the value of the asset to keep it. That way your creditors still get the value of the asset, and you get to keep the asset.

If you don't wish to redeem a particular asset, the Licensed Insolvency Trustee will sell it for the benefit of your creditors. For example, if you had a second vehicle worth $3,000, you could pay $3,000 towards your bankruptcy and keep the vehicle. The payments could be made on a payment plan. If you had no use for the second vehicle, you could surrender it to your Licensed Insolvency Trustee to sell.

The proceeds of redeeming or selling an asset can sometimes cover the cost of your bankruptcy. The option to redeem or surrender is yours to make.

Assets that are not exempt include:

• RESPs
• GICs, mutual funds, other investments
• Recreational assets
• Shares in a corporation
• Inheritances

Duties to be fulfilled

There will be some duties to complete during the course of your bankruptcy. Here is a list of the regular duties. The list is not exhaustive.

• Report household income on a monthly basis.
• Attend 2 credit counselling sessions.
• Attend a first meeting of creditors, only if one has been requested.
• Provide income tax documents and, when available, assist us in becoming an Authorized Representative with the CRA.
• Make required payments.

Cost of Bankruptcy

The cost of bankruptcy will depend on a few factors. These include:

• Whether this is your first bankruptcy.
• What the household income is.
• Value of assets that have equity and not exempt from seizure.

In a bankruptcy, you will lose your income tax refund for the year of bankruptcy and any years before the bankruptcy (should CRA still owe you a refund). You will also lose some of your Canada Carbon Rebates. You will be able to keep your GST and Trillium payments.

We can review these factors with you and give you an idea of what the cost will be. There may be other options available that we can discuss.

All our consultations are free of charge. We will never ask you to pay money upfront. You only pay if you decide to move forward with bankruptcy and only pay once you have signed documents.

The cost of your bankruptcy will be spread out over the course of the bankruptcy so that you can have an affordable monthly payment plan.