How Does Bankruptcy Work?

Both you and your trustee have several duties and responsibilities.

What happens during a bankruptcy?

  1. Once the paperwork is signed, the trustee will electronically transmit your bankruptcy information to the Office of the Superintendent of Bankruptcy in Ottawa (a division of the federal government). The next monthly report from the Superintendent of Bankruptcy to the credit bureaus will inform them of your bankruptcy.
  2. 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.
  3. Once bankruptcy is filed, there is an immediate “stay of proceedings”. This means that unsecured creditors cannot begin or continue lawsuits, wage garnishees, or even contacts with you to request payment. (Secured creditors, such as mortgage companies, can still seize assets that you have given as security, if you do not keep up your payments.)
  4. Your trustee will file your outstanding tax returns up to the date of bankruptcy. Any money you owe to Canada Revenue Agency will be included.  Any tax refund or GST credits received during the this will go to the trustee for your creditors.
  5. During your bankruptcy, you must fulfill all your duties as a bankrupt. Some of the more important duties are:
    • Attend a meeting of your creditors, if such a meeting is requested (only happens in unusual circumstances).
    • Each month during the bankruptcy, send the trustee proof of your income.
    • Make monthly payments to the trustee, if you have surplus income.
    • Attend two credit counselling sessions, to learn budgeting and money management skills.
  6. You are eligible to be automatically discharged in nine months, if you have never before been bankrupt, and if you have no surplus income. Otherwise, the length of your bankruptcy will be greater. It is your discharge that cancels your debts (with minor exceptions).

After the bankruptcy

  1. A note about your bankruptcy will remain on your credit report for a minimum of six years after the date of discharge.
  2. Even while the bankruptcy stays on your credit report, you may be able to get credit, depending on the individual lenders. You can help this along by taking active steps to rebuild your credit.

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