How to File Bankruptcy: A Step-by-Step Guide To Filing For Bankruptcy
There are many reasons why people find themselves at the point where they feel bankruptcy is their only option. In some cases, they simply cannot pay their bills and are using what little, if any, credit they have to pay for basic means. Perhaps they’ve lost their job and either didn’t have or have already gone through their savings. Or, unexpected large medical bills could be part of the culprit.
But regardless of why someone may be filing for bankruptcy, the end result and goal is always the same: to clear away debt they are unable to pay off otherwise. Learn how to file for bankruptcy with our step-by-step guide. However, before we examine the procedure for filing for bankruptcy in Canada, we explore some crucial advantages of the bankruptcy process below.
Benefits of the Bankruptcy Process
If you’re considering filing for bankruptcy, you may be wondering what the benefits of doing so are. It’s important to understand what happens after a discharge is obtained. Successfully filing for bankruptcy means that:
- Most unsecured debt will be eliminated.
- Upon successful completion of bankruptcy you’ll be free of most unsecured debts, with a few exceptions. For instance, certain types of debts will still remain; these include child support, penalties, court fines, and student loans issued in the last 7 years.
- Interest accumulation and payments will stop too.
- So you don’t have to worry about interest being added to your debt month after month or about having to pay this interest.
- Collections will cease.
- It’s not uncommon for debtors to feel immensely stressed or lose sleep as collectors queue up at their door, make calls, and send mail threatening legal action as they make attempts to obtain payment. Thankfully, after successful filing for bankruptcy, there will be an automatic stay of proceedings accorded by the Bankruptcy & Insolvency Act. It’s no doubt one of the biggest benefits of filing for bankruptcy, as collectors have to abide by the automatic stay, meaning they are unable to make any more attempts to seek payment. So you can say good-bye to harassing calls and letters from creditors as well as lawsuits or any other type of legal claims for payment.
- Wages will not be garnished any longer.
- Bankruptcy puts a stop to all wage garnishments too unless they’re issued by the Family Responsibility Office. A case in point is once again child support. For all other types of wage garnishments, after bankruptcy filing, the Trustee sends a notice to the creditor, employer, and the court that wage garnishments will have to be stopped.
- You will embark on a fresh start, free from the financial burden of debt.
- Not only can bankruptcy filing give you peace of mind in the knowledge that your debt woes are over, but it will also be reflected on your credit score report after a while. After a set target date (which is typically after a minimum of 6 years) you will be able to enjoy a clean credit score. Above all, bankruptcy offers suffering debtors the golden opportunity to truly begin from scratch and make good financial decisions in the future, all of which can help them in rebuilding their credit.
- It can be a cost-effective solution
- In comparison to other alternatives like a debt consolidation loan or a debt consolidation program.
Steps to Filing for Bankruptcy in Canada
You can file for bankruptcy in Canada in just 6 basic steps. While they are fairly simple, you should understand that bankruptcy can be a time-consuming and in-depth process. Knowing what to expect is the first step, as having a basic understanding can help ease some of the stress and fear many people experience. Read on to learn how to declare bankruptcy in Canada.
1. Understand Your Debt Situation
First, you must recognize that you are having financial problems, and you don’t believe you can work them out on your own.
Every individual situation is different, but the following signs are typical of money problems that warn you to take action:
- You have failed to make one or more payments on a mortgage or loan.
- Your credit cards are constantly at their limit.
- You are paying bills by taking credit card cash advances.
- Your creditors have passed your account to collection agencies, who are now calling
- You have received notice of legal action against you to collect the money you owe.
- Both personal bankruptcy and consumer proposals can provide immediate protection from debt collectors.
- 90,092 Canadians became insolvent in 2021.
If you are feeling the pressure from debt, your first step is to make a commitment to explore your debt relief options.
2. Select a Licensed Insolvency Trustee to Help You Understand Canada's Debt Regulations
Licensed Insolvency Trustees are the only people licensed by the Canadian Superintendent of Bankruptcy to administer consumer proposals and bankruptcies.
In order to declare bankruptcy or file a consumer proposal vou must work with a Licensed Insolvency Trustee.
Your trustee will provide information about consumer proposals, the process for filing bankruptcy, and about other debt relief options. Also, during the bankruptcy or proposal process your trustee will ensure your rights are respected.
When selecting your trustee, you should keep the following in mind:
- Your trustee should be local or at least easy to access.
- You should feel comfortable with your trustee. Ask them questions about your situation and make sure you understand their answers.
- Confirm they are licensed by the Superintendent of Bankruptcy (all trustees listed at Bankruptcy-Canada.ca are fully licensed).
Here on Bankruptcy-Canada you can find and connect with one of the top Licensed Insolvency Trustees that is local to you. We list only Trustees who have shown a long standing ability to help people find debt relief.
3. Meet with Your Trustee to Review Your Options
Now that you’ve selected your trustee you should contact them and schedule a free initial consultation. You will be asked to bring some specific details of your financial situation, including your income and expenses, assets and debts.
At your first meeting, your trustee will review your financial details, and outline the alternatives to bankruptcy that could be chosen in your case, ranging from debt consolidation through consumer proposals and including the bankruptcy process. Your trustee will provide you with information and advice on each which is best for you but the decision will remain in your hands and you will have as much time as you need.
- If you have enough income, debt consolidation or credit counseling are good debt relief options.
- Consumer proposals allow you to keep your house and other assets, subject to the rights of secured creditors.
4. Filing For Bankruptcy
In the event you and your trustee choose to proceed with filing bankruptcy, your trustee will provide you with an information form to complete. In order to file the bankruptcy paperwork your trustee will need:
- Your personal information (name, address, birth date).
- A list of your creditors.
- A list of your assets.
After your trustee has your information, they will prepare the initial paperwork and review the bankruptcy process with you again. When you are ready, you sign the papers and your bankruptcy starts.
5. What Happens Once You File for Bankruptcy
Once your bankruptcy is filed, there is an immediate “stay of proceedings”. This means that unsecured creditors cannot begin or continue lawsuits, wage garnishees, or even contact you to request payment.
Within five days of the bankruptcy starting the trustee will send a copy of the bankruptcy paperwork to creditors, so they can file a claim.
The trustee will file outstanding tax returns up to the date of bankruptcy. Any outstanding taxes or penalties owed CRA will be included.
You will have certain obligations that you will have to fulfill including a monthly income statement and attending credit counselling sessions.
- Filing bankruptcy immediately halts most creditors from taking your wages.
- Your Trustee will deal with your unsecured creditors on your behalf.
6. What Are My Obligations During Bankruptcy?
One of the common questions regarding how to claim bankruptcy in Canada involves the duties of the person filing the case. Yes, the goal is to discharge the debts that cannot realistically be managed, but during the case, the debtor is expected to:
- Surrender assets – If you have assets, such as a home or vehicle, that are worth more than what you owe on them, you may need to surrender them to the trustee. This is just one reason why people wondering how to claim bankruptcy is Canada should review their financial situations with a licensed insolvency trustee before opening a case.
- Surrender you credit cards – Those who want to know how to declare bankruptcy in Canada need to understand that while working to discharge existing debts, they are not going to be provided opportunity to incur more debts during the case. When a case is filed, the debtor must turn over all personal credit cards to the trustee.
- Attend credit counselling sessions – Within 90 days of filing your bankruptcy case, the debtor must attend one credit counselling session, and he or she must complete a second session prior to their discharge. The purpose of these credit counselling sessions is to help debtors avoid making similar choices that led to this situation in the first place.
- Provide monthly income statements – An important step in understanding how to claim bankruptcy is in Canada involves the debtor’s requirement that you provide the trustee with monthly statements that show income and basic bills with that, but the debtor needs to provide all of information necessary to complete those returns.
- Make your payments – In most cases, the debtor will be required to make some sort of monthly payment to the bankruptcy estate to cover the costs. The fees of the trustee are set by the government.
7. What Happens After Bankruptcy?
Once your bankruptcy is discharged your debts will be cancelled (with minor exceptions). A note about your bankruptcy will remain on your credit report for a minimum of six years after the date of discharge. In most circumstances, your bankruptcy will be discharged in 9 months.
This means that for most people their debts are cancelled 9 months after filing for bankruptcy and they can start going through the process of rebuilding their credit. Your trustee can help you here as well by providing effective strategies for getting your credit back on track and helping you manage your money.
8. Are You Considering Filing for Bankruptcy? We Can Help!
Being unable to meet your expenses or facing lawsuits for unfulfilled financial obligations is a tough situation to be in and one that you think you can’t get out of. Bankruptcy Canada understands your predicament and is committed to helping you resolve your debt issues.
If you’re looking for an effective debt relief solution that is best for your financial situation, Bankruptcy Canada can help. Our knowledgeable and highly experienced Licensed Insolvency Trustees will thoroughly evaluate your financial condition and recommend a solution that will best meet your needs. Meanwhile, also feel free to go through our extensive database of relevant articles to find the answers you’re looking for.
To consider your options and take the next step towards debt relief, contact us by submitting a short form and one of our Licensed Insolvency Trustees will get in touch with you within 24 hours.