How Bankruptcies Work in Canada

_{By Bromwich+Smith Staff | 720 words | Reading Time: 3 minutes, 26 Seconds | Date: 2022/01/28}

Before recommending filing bankruptcy, all other options, such as a Consumer Proposal, are examined in detail. However, in some cases, declaring bankruptcy can be the best option to eliminate debt and allow you to start over with a clean slate. The bankruptcy process lasts about 6 to 9 months overall.  

Bankruptcy is a legal procedure in which you assign (or surrender) your property to a Licensed Insolvency Trustee as part of a process that relieves your debts. Based on Canadian regulations you are permitted to keep certain assets, and exemptions are dependent on where you live in Canada. Declaring bankruptcy can be the right option for many in order to eliminate debt and to start over.

Declaring Bankruptcy

In Canada, only a Licensed Insolvency Trustee can file the paperwork for bankruptcy. When you declare bankruptcy, you meet with a Trustee to discuss your situation. If bankruptcy seems the most beneficial course, the Trustee will prepare the paperwork to file for bankruptcy. 

Once the paperwork is signed, your Licensed Insolvency Trustee will electronically transmit your bankruptcy information to the Office of the Superintendent of Bankruptcy in Ottawa (a division of the federal government). The Superintendent of Bankruptcy will inform the credit bureaus of your bankruptcy.

Within five days of the bankruptcy starting, your Trustee will send a copy of your bankruptcy paperwork to each of your creditors, so that they can file a claim with the Trustee.

Once You File For Bankruptcy

1. You will receive an automatic stay of proceedings, which is a legal order that creditors need to abide by. This order gives you immediate creditor protection and it is a unique feature only available through a Licensed Insolvency Trustee.  Creditors will no longer be able to contact you for collection of debt or take any legal action against you. 
    
2. Bankruptcy stops wage garnishments. When you claim bankruptcy, your Trustee will notify your employer, the court, and the creditor to stop the wage garnishment. An exception is that bankruptcy cannot stop the garnishment of your wages by the Family Responsibility Office.

3. Filing for bankruptcy will give you a target date for a clean credit report. To find out what a clean credit report means, visit this video.
    
4. Once your bankruptcy is filed, you will know when you will be discharged. This will help you plan how to start rebuilding your credit rating. 

Your Licensed Insolvency Trustee (LIT) will also file your outstanding tax returns up to the date of bankruptcy. Any money you owe the Canada Revenue Agency will be included in the bankruptcy, so you will no longer owe this money after you complete the bankruptcy. However, any tax refunds or GST credits that arrive while you are bankrupt will go to the Trustee for your creditors.

During your bankruptcy, you must fulfill certain duties, such as: 

• Attend a meeting of your creditors, if such a meeting is requested (only happens in unusual circumstances). 
• Send your Licensed Insolvency Trustee proof of your income each month. 
• Make monthly payments to your Licensed Insolvency Trustee, if you have surplus income (your Trustee will explain this) for disbursement to creditors.  
• Attend two credit counseling sessions to learn budgeting and money management skills.

If you have never before been bankrupt, and if you have no surplus income, you will be eligible for discharge from bankruptcy in nine months. Otherwise, the bankruptcy will be longer. It is your discharge from bankruptcy that officially cancels your debts (with minor exceptions).

What Happens After You File for Bankruptcy? 

Your bankruptcy is complete when you receive your Notice of Discharge from your Trustee. At that point, you will be free of the unsecured debts that were included in your bankruptcy. You will be free to start to rebuild your credit.

A notation about your bankruptcy will remain on your credit bureau report after the date of discharge. This is usually removed automatically after six years. 

Even while the bankruptcy is still noted on your report, you may be able to get credit from certain lenders. You can initiate this by taking active steps to rebuild your credit and listening to advice from your Licensed Insolvency Trustee.

Remember, we’re here to help you find the solution that best fits your needs. At Bromwich+Smith, we do this by offering an initial free, no obligation, confidential consultation by phone 1-855-884-9243 or video. You can also request a call back at our contact us page. We’re working with you to rebuild your worth.