What Protection can Bankruptcy Offer You?
rebuild your worth, book a free consultation todayBook Now
Taz Rajan, Bromwich+Smith Staff | 1480 words | Reading Time: 7 minutes | Date: 2023/05/18
Insurance is often talked about as, a way to protect your assets and your loved ones. It makes sense and we can wrap our heads around that, but Bankruptcy as a protection? That seems a bit odd, doesn’t it? Bankruptcy is the last resort, as it should be but there are many bankruptcy myths too. One myth is that people lose all their assets when they file into bankruptcy and that is simply not true.
Bankruptcies fall under the Federal Legislation by way of the Bankruptcy Insolvency Act (BIA) and the Office of the Superintendent of Bankruptcy (OSB) is responsible for upholding the act. The act provides several protections or exemptions for Canadians which we will look at now.
Bankruptcy Exemptions: What assets can you keep?
The idea of a bankruptcy is that it is the legal channel for the honest but unfortunate debtor to dig themselves out of their overwhelming debt. The act is meant to instill faith in the system and rehabilitate the individual. Unlike the game of Monopoly where if you go bankrupt the game is over, real-life bankruptcy is meant to help individuals rebuild their lives. To this end, each provincial government sets out certain limitations of items and values that are exempt from your creditors. These items cannot be taken away from you, thus, allowing you to keep some financial foundation to rebuild upon once you are discharged from bankruptcy. For complete exemptions for all provinces and more details click here
Do all my debts go away after filing bankruptcy?
Not exactly. Contrary to popular belief, not all debt goes away in a bankruptcy scenario -certain debts will survive. These include:
- Fines or restitution orders from a Court.
- Certain awards for damages from a Court
- Debts for alimony or child support.
- Debts arising from fraud, theft, and other illegal matters
- Obtaining property by false pretenses.
- Student loans*
- The dividend that a creditor would be entitled to receive had they been aware of the bankruptcy.
Stay of Proceedings -The Legal Protection
One thing that is very unique to the Bankruptcy and Insolvency Act is the legal stay of proceedings. Only a formal restructuring program, administered by a Licensed Insolvency Trustee, offers a legally binding stay of proceedings. Once someone a stay of proceedings all creditor actions, including phone calls, demand letters, judgments and threats must stop -legally. This is the highest and most important form of protection that a bankruptcy offers and is only available through a bankruptcy or consumer proposal in Canada. The Stay of Proceedings is one of the biggest advantages of filing into a bankruptcy in Canada and how bankruptcy is the form of protection for the honest but unfortunate debtor from their creditors.
There is a great deal of protection that is offered to Canadians under the Insolvency Act and through a bankruptcy. In Alberta all registered investments like RRSPs, RESPs LIRA’s are protected from creditors, insurance policies with a beneficiary that is a parent, child or sibling are protected and many assets or portions of assets like your primary residence, car, and tools of the trade are all protected from your creditors. Our LIT can help explain the exemptions available in your province. Only a formal restructuring through a Licensed Insolvency Trustee in the form of a Consumer Proposal or Bankruptcy, provides Canadians with a legally binding protection from creditors called the Stay of Proceedings. It’s like creating a fortris around the debtor to protect them against demand letters, phone calls, judgments and wage or bank account garnishments.
To see what protection you qualify for, contact us. Licensed Insolvency Trustees, Bromwich+Smith have debt relief specialists available to offer debt advice and debt restructuring entirely from the comfort of your own home. Now offering video appointments with clients, Bromwich+Smith’s Debt Relief Specialists are available for initial free and confidential consultation by phone at 1-855-884-9243 or request a call back at contact us page.
FAQ Related to Bankruptcy Protection:
1. Can I keep any assets if I file for bankruptcy?
There are bankruptcy laws in Canada that provide exemptions allowing individuals to keep certain assets. These exemptions vary by province and include items such as your principal residence, primary vehicle, household goods, clothing, personal effects, tools of the trade, RRSPs/RESPs/RIFs, and pensions. The specific values and limitations of these exemptions depend on the provincial legislation.
2. Will all my debts be eliminated if I file for bankruptcy?
While bankruptcy can provide significant debt relief, not all debts qualify. Certain debts are considered non-dischargeable and will survive the bankruptcy process. Examples of such debts include fines or restitution orders from a court, certain awards for damages, debts for alimony or child support, debts arising from fraud or illegal activities, obtaining property by false pretenses, student loans under 7 years old, and the dividend that a creditor would be entitled to receive had they been aware of the bankruptcy.
3. What is the stay of proceedings in bankruptcy?
The stay of proceedings is a unique legal protection offered by the Bankruptcy and Insolvency Act. It is applicable only in formal restructuring programs such as bankruptcy or consumer proposals which are administered by a Licensed Insolvency Trustee. The stay of proceedings legally binds creditors, forcing them to halt all actions against the debtor, including phone calls, demand letters, judgments, and threats. This protection provides individuals with relief from creditor harassment and creates a favorable environment for debt resolution.
4. How does bankruptcy compare to other debt-relief options?
Bankruptcy differs from other debt relief options such as credit counseling or debt management plans in terms of the legal protections it offers. While creditors have the choice to accept or reject settlements in other options, bankruptcy provides a legally binding stay of proceedings, ensuring the enforcement of a settlement. This unique aspect of bankruptcy can offer a higher level of protection for individuals facing overwhelming debt.
5. What protection does bankruptcy offer?
Bankruptcy offers several forms of protection for individuals facing overwhelming debt. Here are the key protections provided:
Exemptions for assets: Bankruptcy laws include exemptions that allow individuals to keep certain assets, such as their principal residence, vehicle, household goods, clothing, and tools of the trade. These exemptions provide a financial foundation for rebuilding after bankruptcy.
Stay of proceedings: The most important form of protection in bankruptcy is the legal stay of proceedings. Once someone files for bankruptcy, all creditor actions, including phone calls, demand letters, judgments, and threats, must legally cease. This protection gives debtors relief from creditor harassment and creates a path for financial recovery.
Discharge of debts: Bankruptcy provides the opportunity for the discharge of eligible debts. While not all debts are discharged, bankruptcy can eliminate a significant portion of unsecured debts, giving individuals a fresh start.
6. Will I lose all my assets in bankruptcy?
No, you will not necessarily lose all of your assets in bankruptcy. Bankruptcy laws include exemptions that protect certain assets from being taken away by creditors. The exemptions vary by province and may cover assets such as your principal residence, vehicle, household goods, clothing, tools of the trade, registered investments, and insurance policies. Bankruptcy exemptions vary by province and protect specific assets up to certain values.
Exemptions are designed to provide individuals with a financial foundation for rebuilding their lives after bankruptcy.
7. What debts are not discharged in bankruptcy?
While bankruptcy can discharge many debts, certain obligations are not eliminated. Here are the debts that typically survive bankruptcy:
- Fines or restitution orders from a court.
- Court-awarded damages.
- Debts for alimony or child support.
- Debts arising from fraud, theft, and illegal activities.
- Debts related to obtaining property through false pretenses.
- Student loans (loans under 7 years).
- Dividends that creditors would be entitled to receive if aware of the bankruptcy.
8. How long does bankruptcy protection last?
The duration of bankruptcy protection depends on the specific circumstances and the type of bankruptcy filed. Here are the general timelines for bankruptcy protection:
Automatic stay of proceedings: Once you file for bankruptcy, an automatic stay of proceedings takes effect immediately. This means that creditor actions must legally cease, providing immediate relief from harassment. Discharge of debts: The discharge of debts typically occurs after a certain period, depending on the bankruptcy type. In a first-time bankruptcy, the discharge is usually granted after nine months. However, Depending on your income, the discharge may not occur until the end of 21 months.
By Taz Rajan Community Engagement Partner at Bromwich+Smith
Taz has been in the finance industry for nearly 2 decades and has always been passionate about education and empowerment.
Having declared bankruptcy herself, she intimately understands the shame, stigma surrounding matters of debt as well as the joy and relief that comes from restructuring. Taz actively works to normalize the conversation of debt through blogs, media interviews, webinars, lunch & learns and through building relationship.