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Bankruptcy is a formal procedure under the Bankruptcy and Insolvency Act (BIA) that provides financial relief to those who are unable to pay their unsecured debt. It is intended to give a person experiencing financial difficulty an opportunity to have a fresh start.
What should I expect?
If you choose this option, your Licensed Insolvency Trustee (LIT) will file the bankruptcy on your behalf and notify your creditors. Your LIT will collect and sell your non-exempt assets, or in some cases, make an arrangement for you to retain the assets, including any acquired during your bankruptcy and before your discharge. When completed, a Final Statement of Receipts and Disbursements will be prepared, and the appropriate funds, called a dividend, will be distributed to your creditors.
You will need to report your income to the LIT monthly and may be required to make “surplus income” payments for distribution to your creditors. You are also required to attend two financial counselling sessions.
How long does bankrupcty last?
You are generally discharged from your bankruptcy within 9 to 36 months. A discharge after 9 months is common if it is your first time filing for bankruptcy and you have no surplus income to pay. If you have surplus income, the bankruptcy period is at least 21 months. If it is your second bankruptcy, it can be between 24 and 36 months.
There are many warning signs of an impending personal bankruptcy situation. Some of these signs are tremendous financial and emotional stress resulting from:
Difficulty paying bills
Selling your assets to meet payments to your creditors
Borrowing on your credit card(s) & obtaining new ones
Paying only the minimum amount due
Using one credit source to pay for another
Relying on payday loans
Credit refusal and legal problems
Legal actions and creditors garnishing your pay
Income tax arrears
If you owe at least $1,000 and you are unable to pay your debts, and your assets would not cover the debts you owe (i.e., you are insolvent), you will qualify for personal bankruptcy. However, the option of bankruptcy may not be the best choice for you, especially if you have a steady or surplus income. Bankruptcy is an option to be considered only after a thorough examination of your options with a trustee. Instead, you may consider filing a consumer proposal to reduce the amount of time it takes to repair your credit rating.
Each month, you will be required to pay an amount determined by the BIA to your bankruptcy trustee. You may be required to make “surplus income” payments, which is the amount of your earnings above the amount deemed as necessary to maintain a reasonable standard of living.
The types of debt you are released from in your bankruptcy are those which existed at the date of filing. Debts which are not discharged and for which you will be responsible for after the discharge are generally:
Child and spousal support owed
Student loans (if you file less than 7 years after being a student)
A fine or penalty imposed by the court
Debts arising from fraud, embezzlement or misappropriation
Debts arising from obtaining property or services through fraud
Court imposed fines
Bail bonds or orders
Damages from wrongful death or sexual assault
There are several advantages to filing for bankruptcy, including:
Legal action from creditors will immediately halt
Calls from collectors/creditors will stop
Your wages will not be garnished any longer
Certain assets are protected (e.g., your home, RSPs); and
You can resolve your debt problems and have a fresh start without the stress of your existing financial situation.
At D. & A. MacLeod Company Ltd., we are Licensed Insolvency Trustees that Ottawa trusts. One of our professionals in Ottawa or across Eastern Ontario can meet with you to answer the questions you may have about personal bankruptcy and debt management. Let us help you on the road to a new beginning™.