The Guide to Filing for Bankruptcy in Ontario
Canadians don’t talk about money, especially when they’re doing well. They think it’s in bad taste. “Singer Sylvia Tyson, foreword in Chris Gudgeon, An Unfinished Conversation: The Life and Music of Stan Rogers (1993).
In Ontario, bankruptcy is an option that can offer relief from the financial burdens and strain that come from being in debt. Residents in Ontario who are overwhelmed with debt might be contemplating filing for personal bankruptcy. But there is a lot to consider before you know if bankruptcy is right for you. In fact, did you know that personal bankruptcy is just one of the options available to resolve your debt? Depending upon your situation, an optimal debt resolution strategy might include any of the following:
- Consolidation loan
- Consumer proposal
- Credit counseling
- Personal bankruptcy
- Settling your debt on your own
- Doing nothing
- Adopting a “wait-and-see” approach
How to File Bankruptcy in Ontario
Only Licensed Insolvency Trustees can do personal bankruptcies. Need help with bankruptcy in Ontario?
If you’re interested in filing for personal bankruptcy in Canada, it’s imperative you meet with a Licensed Insolvency Trustee in person. There are a substantial number of people and organizations claiming they’ll assist you in eliminating your debt. But they may not be Licensed Insolvency Trustees. Some of these “consultants” will meet with you and charge you substantial fees to provide very little advice or service of any real value, only to then inform you that you should meet with a Licensed Insolvency Trustee.
1. Initial Meeting with a Licensed Insolvency Trustee
A Canadian can file for personal bankruptcy by meeting with a Licensed Insolvency Trustee and completing the necessary paperwork. When you have your initial meeting with a Licensed Insolvency Trustee, you’ll typically be asked to complete some kind of Application Form that will assist with obtaining all the information required by the Bankruptcy Court and required under federal law.
Fees a consumer pays to Licensed Insolvency Trustee for filing for personal bankruptcy
It’s typical for a Licensed Insolvency Trustee to inform you of the fee for doing all the work associated with a bankruptcy. In Ontario, those seeking to file for personal bankruptcy will be asked to pay approximately $1,800 to the Licensed Insolvency Trustee. While many trustees accept monthly installment payments, there are some who require payment of this fee up-front.
2. Second Meeting with a Licensed Insolvency Trustee
At the second meeting with a Licensed Insolvency Trustee, you should be ready to provide most, if not all, of the requested documents, including:
- Proof of your legal name
- Copy of your most recent tax return
- Copy of your most recent pay stub from employer
- Copies of bank statements for any bank account(s) you have
If you did not already complete the Licensed Insolvency Trustee’s internal Application Form on your first visit, it should be completed by this second meeting.
The Licensed Insolvency Trustee will usually ask you to give them any credit cards you still have, at which point they’ll be photocopied and cut up.
3. Submission of Documents to Bankruptcy Court
The information you give to the Licensed Insolvency Trustee at this second meeting should enable them to electronically submit all the necessary documentation to the Bankruptcy Court. There are two documents that a trustee will submit to the Bankruptcy Court:
- Statement of Affairs (Form 79)
- Monthly Income and Expense Statement of the Debtor and the Family Unit (Form 65)
The Statement of Affairs has a number of distinct sections, including background information and another section that contains a detailed list of creditors and amounts owed.
Typically, within 48 hours of receiving a completed Form 79 and Form 65, the Bankruptcy Court will provide the Licensed Insolvency Trustee with a document known as a Certificate of Appointment, confirming an appointment with respect to your application for personal bankruptcy.
4. Creditors’ Notified that Bankruptcy Proceeding Have Commenced
On the same day the Licensed Insolvency Trustee receives the Certificate of Appointment, you are entitled to a stay of proceedings with respect to civil suits brought against you by unsecured creditors. At this point you’re also granted a stay of proceedings with respect to wage garnishments against you.
The Licensed Insolvency Trustee has five days from the date of appointment to notify your creditors that bankruptcy proceedings have commenced. At this point in time, it is possible for creditors who oppose your discharge to attempt to have a your bankruptcy proceeding annulled. However, this rarely happens. Creditors who oppose a bankruptcy are much more likely to oppose the discharge later in this process.
5. Debtor’s First Counselling Session
About four weeks after the Licensed Insolvency Trustee submits the Form 79 and Form 65 to the Bankruptcy Court, the Licensed Insolvency Trustee will arrange for you to meet. You’ll be asked to bring the following documents to this meeting:
- Any correspondence you have received from creditors or collection agents
- Copies of your pay stubs
The Licensed Insolvency Trustee has an obligation under the Bankruptcy and Insolvency Act (BIA) to determine if you are required to make any surplus income payments. During the first counseling session, it’s common for a discussion to take place regarding your monthly budget.
6. Second Counseling Session – Two Months Before Date of Discharge From Bankruptcy
It’s common for Licensed Insolvency Trustees to meet with you approximately two months prior to the anticipated date of discharge. Pursuant to section 170 of the Bankruptcy and Insolvency Act (BIA), Licensed Insolvency Trustees have an obligation to submit a report to the Bankruptcy Court advising whether or not your discharge is opposed, and if it is opposed, who is opposing it.
If no one opposes your discharge, your are deemed to be discharged 60 days after the Licensed Insolvency Trustee’s section 170 report.
If your discharge is opposed, there will be a delay as the file will stand in a queue to be heard in Bankruptcy Court. Delays could take up to 11 months before you receive a discharge from bankruptcy.
How Long Will It Take Me to Get Out of Bankruptcy?
A common question Licensed Insolvency Trustees receive is how long will it take for me to get out of bankruptcy? There are several key variables that can affect the length of time involved in getting out of bankruptcy. Read on for more information and a visual timeline that shows the process.
There are four variables that could potentially affect the length of time it takes to obtain a discharge from bankruptcy:
- Opposition to your discharge from bankruptcy – about 30 percent of all bankruptcy discharges are opposed, resulting in additional delays of up to 11 months.
- Licensed Insolvency Trustees may oppose a discharge due to a failure to comply with the requirements of the federal
- Bankruptcy and Insolvency Act (BIA).
Creditors may oppose a discharge if they suspect fraud.
- Delays arising from your election to purchase a non-exempt asset from the trustee – Certain property is referred to as exempt, and you need not transfer your Registered Retirement Savings Plans (RRSPs) to the Licensed Insolvency Trustee, except for any contributions you made during the 12 month period prior to filing.
- Prior bankruptcy – Canada’s bankruptcy laws are more generous towards first-time bankrupts than people who have already filed for bankruptcy. The minimum waiting period for a first-time bankrupt obtaining a bankruptcy discharge is nine months. Compare this with a 24-month minimum waiting period for someone with a prior bankruptcy.
- Obligation to make surplus income payments – If you file for personal bankruptcy, depending upon your level of income, your family’s monthly income and living expenses, you might be required to make what is known as surplus income payments until the date or your discharge.
Want to learn more about how long filing bankruptcy in Ontario typically takes?
Preliminary Considerations in a Bankruptcy
You might not be eligible to file for personal bankruptcy.
Not everyone who is experiencing financial difficulties is entitled to file for personal bankruptcy under the federal Bankruptcy and Insolvency Act (BIA). Federal law does not permit people owing less than $1,000.00 in unsecured consumer debt to their creditors to file for personal bankruptcy. The Act does not permit a person to file for personal bankruptcy unless they are “insolvent” as defined in the Act. A person is “insolvent” under the Act if they satisfy the following two conditions:
- They cannot meet their financial obligations as they become due
- Their total debt exceeds their total assets
Some people experiencing major financial problems may have significant equity in their homes that cause them to fail to meet the second condition. Therefore, they are not eligible to file for personal bankruptcy or to make a Consumer Proposal. These individuals are “house-poor” and they might be able to pay off all their debts if they simply sell their house and use the proceeds to pay their creditors.
Which of your debts are eliminated in a bankruptcy?
It’s important to understand what type of debts you have prior to making a decision to file for bankruptcy because not all debts are eliminated or discharged in bankruptcy. In the context of bankruptcy, there are three different types of debt, which can be summarized as follows:
Secured debt: A secured debt is one where a creditor has collateral they can take if you do not fulfill payment obligations. Mortgages, homes and liens on cars are the most common types of secured debt in Canada. Filing for personal bankruptcy does not eliminate or discharge any of your secured debt.
Unsecured debt: Any debt which is not secured debt is unsecured debt. There are two types of unsecured debt. If you borrowed money or purchased goods or services as part of a consumer transaction, that debt would be referred to as unsecured consumer debt. Unsecured consumer debt is eliminated or discharged under personal bankruptcy.
If you have unsecured consumer debt and some time has passed since the date of your last payment, you might be able to take advantage of the expiry of a limitation period to avoid having to pay anything on these debts. The statute of limitations is:
- Two years in British Columbia, Saskatchewan, Ontario, and New Brunswick
- Three years in Quebec
- Six years in the rest of the country
You should be aware that you cannot take advantage of the expiry of a limitation period to defeat your creditors for secured debt, monies owing to the government or for debts which fall into our next debt category, non-dischargeable debt.
Non-dischargeable debt: There is a special basket of specific debts, which is referred to as non-dischargeable debt. This type of debt is not eliminated or discharged in a personal bankruptcy. Non-dischargeable debt includes:
- Child support and spousal support obligations
- Government fines
- Student loans in circumstances where you have not ceased attending school for a minimum of seven years
- Civil judgments against you involving fraud
Obligation to transfer your non-exempt assets to your Licensed Insolvency Trustee
If you’re an Ontario resident and you file for personal bankruptcy, it’ll be necessary for you to transfer all your “non-exempt property” to your Licensed Insolvency Trustee. Each province has a law permitting individuals to keep certain property should they file for personal bankruptcy. This property is referred to as exempt property. In Ontario, this law is the Ontario Execution Act. Furthermore, certain property, such as assets in your RRSP – with the exception of any contributions you made 12 months prior to filing for personal bankruptcy – is exempt property under federal law. Additionally, company pension plans are exempt as they cannot vest in the immediate future.
“If you file for personal bankruptcy then virtually any property you own will be transferred to the Licensed Insolvency Trustee except that property which is exempt under either provincial or federal law.”
Property Exempt Under Ontario Law
The following chart summarizes what property is exempt from the requirement of being transferred to a Licensed Insolvency Trustee when filing for personal bankruptcy under Ontario law.
Exempt Property Under Ontario Law (Execution Act)
Ontario Residents Filing For Personal Bankruptcy
|Amount of exemption
|Household furniture, utensils, food, and fuel
|For non-farmers, any “tools of the trade” used by a bankrupt in the bankrupt’s business, profession or calling
|For farmers, livestock, and assets used in the furtherance of operating a farm
|A motor vehicle
If you do not operate a farm or you have a regular salaried job, your exemptions under the Ontario Execution Act are going to be limited to:
- $5,650 for clothing
- $11,300 for household items
- $5,650 for a motor vehicle
Some individuals, however, are entitled to more generous exemptions with respect to exempt property. People who operate their own business are entitled to an exemption of:
- $11,300 for “tools of the trade”
- Farmers are entitled to an exemption of $28,300 for livestock and items used for farming
- A self-employed person who uses their car, or even a salesperson on the road virtually every workday, would be able to take advantage of $11,300 exemption for an automobile compared with the $5,650 motor vehicle exemption for regular folks
What happens to your car if you file for personal bankruptcy?
In terms of what happens to your automobile, there are various scenarios that might arise after you file for personal bankruptcy.
Scenario A: You car is worth less than $5,650 – If the fair market value of your car is less than $5,650, then you would be entitled to keep the car.
Scenario B: Your car is worth more than $5,650 – If the fair market value of your car is more than $5,650, then are two potential outcomes.
- You can keep the car provided you pay the Licensed Insolvency Trustee an amount of money – the difference between $5,650 and the fair market value of the car. An example will help illustrate this point.
If the fair market value of John Smith’s car is $6,650 and he files for personal bankruptcy, he has the option of paying the Licensed Insolvency Trustee $1,000 – the difference between the car’s fair market value and the $5,650 exemption for an automobile.
- Alternatively, if John Smith transfers this car to the Licensed Insolvency Trustee who subsequently sells the car for $6,650, then the trustee will pay $1,000 to John Smith.
What Happens to Your RESP or Life Insurance Policy with Cash Surrender Value?
Real estate (homes, condos, townhouses, cottages, rental properties and farms) are non-exempt property in Ontario.
Other non-exempt property includes Registered Educational Savings Plans (RESPs), and life insurance policies with a cash surrender value. It’s quite common to be able to make installment payments to a Licensed Insolvency Trustee in order to purchase the non-exempt property you transferred to your estate at the time of filing for bankruptcy.
When Does Bankruptcy Make Sense or Not?
Filing for personal bankruptcy does nothing to eliminate secured debt or certain types of debt which survive bankruptcy, referred to earlier as non-dischargeable debt.
When Does Filing for Personal Bankruptcy Make the Most Sense?
Filing for personal bankruptcy might be advantageous if you:
- Have a substantial amount of unsecured debt and/or owe substantial amounts to the government
- Earn less than $40,000 a year and do not have a significant net worth
- Do not need to own shares in a corporation
- Have an employment or professional status that wouldn’t be adversely affected by becoming a bankrupt
- Have large student loans, in circumstances where you ceased attending school more than seven years ago
- Have substantial amounts of money in RRSPs and have been withdrawing monies from there to pay your bills
When Does Filing for Personal Bankruptcy Make the Least Sense?
Filing for personal bankruptcy is likely not advantageous if you:
- Are a high-wage earner
- Have a significant net worth
- Need to own shares in a corporation
- Have a profession or job that would be adversely affected by becoming bankrupt
- Do not wish your financial problems become a matter of public record
- Have substantial student loans where you have not yet ceased attending school for at least seven years
Want to learn more about how to file for bankruptcy in Ontario? See our FAQ page for the answers to frequently asked questions about filing for bankruptcy in Ontario.
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