What to know about filing for Bankruptcy with no assets

^{By Michelle Statz, Bromwich+Smith staff | Reading time: 7 minutes | 1493 words | Date: 2023/07/27}

Bankruptcy can be an intimidating word, summoning up thoughts of anxiety, and the image of financial set backs.  However, for individuals who find themselves in a situation where they have no assets and are overwhelmed by debt, filing for bankruptcy can provide the opposite. It can provide an end to the stress and worry, new found relief and a new beginning.  

Understanding Bankruptcy  

Bankruptcy is a legal process that allows individuals or businesses relief from overwhelming debt. It is intended to provide a fresh financial start by discharging the obligation to pay certain debts. Many individuals will associate bankruptcy with the need to liquidate assets, but what happens when you have no assets? 

Benefits of Filing for Bankruptcy  

Filing for bankruptcy can offer several benefits: 

1. Debts Discharged: Bankruptcy allows for the discharge of most ordinary unsecured debts, such as credit card debt, medical bills, and personal loans. This discharge means you are released from the legal obligation to repay those debts. 

2. Relief from Creditors: As soon as you file for bankruptcy, you must stop making payments on to your unsecured creditors (with the exception of household utilities and bills for ongoing services).  An automatic legal stay of proceedings is put in place, preventing creditors from pursuing collection efforts, such as wage garnishment or lawsuits, against you. Interest stops accruing on those eligible debts, and they will no longer be able to send you letters, emails or phone you demanding payment.  

3. New Start: Bankruptcy provides an opportunity to rebuild your financial life without the stress of overwhelming debt. It allows you to focus on managing your finances, and rebuild your credit.  

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The Bankruptcy Process  

Filing for bankruptcy involves several steps: 

1. Gathering Documentation: Your Trustee will collect all necessary financial documents, including income statements, tax returns, bank statements, and a list of debts and assets. Your Licensed insolvency trustee will be able to provide you a full list of what is required, and will be able to help you follow up to obtain copies of all documents required.  There are exemptions for assets in each province in Canada that allow an individual to maintain or keep certain assets.  For examples most pensions and RRSP’s are exempt from seizure.  If any assets are unprotected or non exempt, the Trustee will need to liquidate for the benefit of creditors.  Depending on the value and what is practical, the individual will have the option of paying for the asset in order to keep it.  Most individuals going through a bankruptcy do not have anything to lose but it will depend on the province of residence. 

2. Filing the assignment in bankruptcy: Your Trustee will prepare documents with your assistance and have the individual sign.  Those documents are submitted to the federal government (Office of the Superintendent of Bankruptcy) for registration and the process begins immediately.  If required, there may be a Meeting of the Creditors scheduled, but that can be very rare in a standard personal consumer bankruptcy. In most cases, creditors do not participate although they have the right to do so, and the trustee is responsible for the administration of your bankruptcy. 

3. Debt Counselling: Before During the bankruptcy process, you must complete two sessions with an accredited debt counsellor. This requirement is meant to assist you with basic financial literacy concepts including budgeting and credit rebuilding.  The purpose of the bankruptcy process in general is rehabilitation.  

4. Also during the process the individual is required to report the household family income to the trustee as their payments to the bankruptcy will be determined by the level of income.  If a certain threshold of income is exceeded (dependent on the number in the family unit), the individual will be required to pay a percentage to the Trustee for the benefit of creditors.  This is called surplus income and the calculation is governed by the federal legislation.  The Trustee will go through this calculation and payment with the individual prior to them filing in order that they understand what they are required to pay to the Trustee during the bankruptcy. 

5. Debt Discharge: If your bankruptcy case proceeds smoothly, your eligible debts will be permanently discharged at the end of the process, giving you a fresh financial start. 

Filing for personal bankruptcy is an option, whether you have assets or not.  It is important to know it is not the only option.  It typically comes down to an individual’s income and their ability to pursue other options as opposed to filing a bankruptcy.  In any event bankruptcy can provide a way to eliminate or restructure your debts and start again. By understanding the bankruptcy process and its potential benefits, you can make an informed decision about pursuing this legal remedy. Remember in Canada only a Licensed Insolvency Trustee is able to help you navigate through Bankruptcy filings.  Remember that reaching out for information and an analysis of your situation by a Licensed Insolvency Trustee does not commit you to the process but helps you decide what the appropriate course of action is for you. 

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At Bromwich+Smith, we have a thoughtful, knowledgeable, and helpful team that is here to support and create a fresh start for you. Before recommending bankruptcy, all other debt relief options will be explored (including debt consolidation, debt forgiveness, consumer proposals, and debt counseling). In some debt situations, personal bankruptcy is the best solution. The good news is that working with our compassionate and knowledgeable Debt Relief Specialists will enable you to be debt-free in as little as 9 months. 

For that reason, it is important to seek help as soon as possible from a credible source. We offer 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. Our team of Debt Relief Specialists are here to assist you with unbiased and nonjudgmental support, ensuring you find the right solution that will help you conquer your debt and rebuild your worth today. 

FAQs for Bankruptcy:

1: What is bankruptcy, and how does it work?

Bankruptcy is a legal process that offers relief from overwhelming debt for individuals or businesses. It allows the discharge of most unsecured debts like credit card debt and medical bills, providing a fresh financial start.

2: What are the benefits of filing for bankruptcy?

Filing for bankruptcy offers several benefits, including the discharge of certain debts, relief from creditors' collection efforts, and an opportunity to rebuild your financial life without overwhelming debt.

3: What are the steps involved in the bankruptcy process?

The bankruptcy process involves gathering necessary financial documents, filing the assignment in bankruptcy with the federal government, attending debt counseling sessions, and finally, obtaining debt discharge at the end of the process.

4: Can I file for bankruptcy even if I have no assets?

Yes, you can file for bankruptcy irrespective of whether you have assets or not. Bankruptcy is an option to eliminate or restructure your debts and start afresh, and it depends on your income and ability to pursue other options.

5: Why should I seek help from a Licensed Insolvency Trustee for bankruptcy?

Seeking help from a Licensed Insolvency Trustee is crucial because they are the only professionals authorized to navigate you through the bankruptcy filing process. They can provide you with information, analyze your situation, and help you decide on the appropriate course of action for your financial situation.

6: What debts can be discharged through bankruptcy?

Bankruptcy allows for the discharge of most ordinary unsecured debts, such as credit card debt, medical bills, personal loans, and certain other debts. However, certain obligations like child support, alimony, and some tax debts cannot be discharged.

7: How does the automatic legal stay of proceedings benefit me when I file for bankruptcy?

When you file for bankruptcy, an automatic legal stay is put in place, which prevents creditors from pursuing collection efforts against you. This means they cannot garnish your wages, file lawsuits, or contact you demanding payment. It gives you a breathing space to resolve your financial situation without added pressure.

8: How long does the bankruptcy process typically last?

The duration of the bankruptcy process can vary depending on the complexity of the case and the type of bankruptcy filed. For most individuals, a standard personal consumer bankruptcy can take around 9 months to complete, resulting in debt discharge.

9: Will bankruptcy ruin my credit permanently?

While bankruptcy will have an initial negative impact on your credit score, it does not ruin it permanently. Over time, with responsible financial management and rebuilding credit, you can improve your credit score and regain financial stability.

10: Are there alternatives to bankruptcy that I should consider?

Yes, there are alternatives to bankruptcy that you can explore before making a decision. Debt relief options like debt consolidation, debt forgiveness, consumer proposals, and debt counseling may be viable options depending on your specific financial situation. Consulting a Licensed Insolvency Trustee can help you assess the best course of action for your circumstances.

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By Michelle Statz, Licensed Insolvency Trustee at Bromwich+Smith
Michelle has been in the insolvency industry since 2001, as an Administrator initially, subsequently receiving her Chartered Insolvency and Restructuring Professional (CIRP) designation in 2013 and becoming a Licensed Insolvency Trustee (LIT) in 2015.  Michelle consults with individuals regarding their personal and/or business financial situations, providing information as to options available in that regard.  Michelle is passionate about assisting individuals and the destigmatization of discussions about debt.  She believes in the insolvency system in Canada that allows individuals to obtain a fresh start when there are no other solutions.  Michelle enjoys presenting on financial literacy topics including budgeting and legislated options, as well as speaking with the media on these issues.