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A Brief Overview of Bankruptcy
What happens when you file for bankruptcy?
1. Filing an Assignment in Bankruptcy changes your legal relationship to your creditors. You obtain immediate protection from collection efforts by unsecured creditors and you are committing to complete a legal process which will eliminate your debts.
2. To file an assignment in bankruptcy you must work with a Licensed Insolvency Trustee such as Bromwich+Smith. The Trustee is responsible for actually filing the legal documents, notifying all creditors of your bankruptcy and ensuring your creditors stop all collection efforts. The Trustee is also responsible to all creditors to ensure they get fair and equal treatment under the Bankruptcy and Insolvency Act.
3. If you file an assignment in bankruptcy, you retain exempt assets and turn over control of your non-exempt assets to the Trustee. The non-exempt assets are disposed of by the Trustee for the benefit of your creditors.
4. Usually a meeting of creditors is not required. If it is required it will normally be held within 21 days after you make an assignment into bankruptcy and you will be required to be there.
Often, creditors choose not to attend this meeting.
5. There are two required counselling sessions that will cover such things as Money Management, Obtaining & Using Credit, Consumption Habits, Debt Warning Signs, & Rebuilding Credit.
6. Occasionally, representatives of the federal government will want to question you. If so, you will receive a Notice of Examination from the Official Receiver in the mail, setting up a date and time for this examination. Attendance is mandatory.
7. You will be required to track your income and expenses monthly with appropriate verification of income.
8. Depending on the amount of your income and size of your family a portion of your income may have to be paid to the Trustee. This is called surplus income and is explained in further detail here.
If no portion of your income is payable to the Trustee your bankruptcy will last for 9 months (or 24 months where there has been a previous bankruptcy). If a portion of your income is payable to the Trustee this reporting and the payments are required for 21 months (or 36 months where there has been a previous bankruptcy).
9. The Trustee will need to ensure that the tax returns for the year of bankruptcy and for the year prior to bankruptcy if not already done, are filled. You are required to give whatever assistance is necessary in ensuring that the returns are filed. If there is a refund, the funds will belong to the estate.
10. If you have complied with all of your normal duties (as listed above) in a timely manner, you are eligible for an automatic discharge. This means the process is complete and your debts are formally forgiven.The Trustee issues the Certificate of Discharge and no Court hearing is required.
11. The Trustee cannot issue a Certificate of Discharge and mediation or a Court hearing is required in the following circumstances.
a) If an objection to discharge is filed by the trustee, a creditor or the Office of the Superintendent of Bankruptcy;
b) If there have been more than two previous bankruptcies;
c) If the bankrupt has failed to complete all duties imposed in a timely basis;
d) If you had $200,000 or more of personal income tax debt and where your personal income tax debt represents 75% or more of the total unsecured debt.
12. The Court may make one of the following decisions:
(a) Order of Absolute Discharge - meaning the debtor is no longer responsible for his or her debts (except for those listed under Debts or Obligations not Forgiven).
(b) Order of Conditional Discharge - meaning the bankrupt may be required to pay a certain further sum of money prior to obtaining his or her Absolute Discharge.
(c) Order of Suspended Discharge - essentially the same as Absolute Discharge except that the Court orders a delay before the discharge is effective.
(d) Order the Discharge Refused. The Court rarely exercises this power, and only for extremely serious abuse or neglect reasons.
(e) Order Adjourned Indefinite. The Court may adjourn the hearing without setting a future date and may also order the Trustee to be discharged with the rights of creditors to be reinstated. This leaves the debtor as an undischarged bankrupt without protection from creditors. Typically this occurs when a bankrupt has not been cooperative or has failed to perform the duties imposed. This order typically results in both significant additional costs to the bankrupt to make a future court application and considerable delays in obtaining a discharge.
13. After you are discharged the Trustee will pay out whatever funds are available to the creditors and then proceed to discharge as your Trustee.
14. Your credit rating will be affected whether you declare bankruptcy for 6 years after discharge for your first time filing or 14 years if you have previously filed for bankruptcy. A Consumer Proposal will stay on your credit report for 3 years once it has been paid in full OR 6 years from the date of file whichever comes first.
Role of Trustee
The Trustee will act like a referee at a hockey game. Often people think of a trustee as a mediator or middleman between you and your creditors. The trustee is responsible for administering the process and to see fair play by both you and your creditors. All information given by you will be considered as on the public record.