Personal Bankruptcy in Canada

Written by: A Licensed Insolvency Trustee

Declaring bankruptcy in Canada is a simple process if you know the correct steps to take. First, it is important to recognize that there is no shame associated with declaring personal bankruptcy. People find themselves in this delicate position for a wide variety of reasons, from a sudden loss of employment to large unexpected bills. Whatever the reason may be, the only important thing to focus on is how to file your bankruptcy claim and the process you need to go through to help benefit your financial well-being.

No one plans to face the kind of financial difficulty that can lead to declaring bankruptcy. Many individuals in Canada find themselves asking the question “Should I file for bankruptcy?” According to the Office of the Superintendent of Bankruptcy, approximately 100,000 Canadians every year turn to a bankruptcy or consumer proposal as a way to deal with their debt problems.

While filing for bankruptcy in Canada is a simple process, it can be a very lengthy and time-consuming event. If you know what to expect ahead of time, it can alleviate a considerable amount of stress or fear some people experience when approaching this process.

Should I file for bankruptcy?

The first step to declaring bankruptcy in Canada is recognizing and assessing your financial situation. Filing for personal bankruptcy starts with understanding your debt situation. The sooner you can accept your financial struggles, the sooner you can begin your bankruptcy claim. If you have been wondering whether or not you should file for bankruptcy, here are a few signs that you might need to consider taking this step:

  • Your credit cards are always at their limit;
  • You are paying bills with your credit cards or cash advances;
  • You continually fail to make one or more important payment each month;
  • You have received letters threatening legal action against you in order to collect money owed
  • Loss of income in the household means there is no money to pay the debts;
  • You are making the payments but the debt isn’t going anywhere and it’s too much to maintain;
  • You are credit reliant – the cost of the debt is so high there is no money left for everyday expenses so you need use your credit cards to buy gas and groceries;
  • You are overwhelmed and stressed out about your finances and it’s affecting your sleep and personal wellness; and,
  • You have reached the borrowing limit and your bank will not provide you any further financial assistance.

Make sure all of your questions and concerns are addressed before deciding if bankruptcy is the right choice.

If any of those apply to your current debt situation, declaring personal bankruptcy may be the right choice to make.

Every bankruptcy file is somewhat unique but there are some commonalities that are good indicators you need to seek personal bankruptcy help.

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How to apply for bankruptcy?

Declaring bankruptcy in Canada requires the help of a Licensed Insolvency Trustee or their qualified staff. Only a Licensed Insolvency Trustee can help assist you with a bankruptcy claim because they are the only people licensed by the Canadian Superintendent of Bankruptcy to administer consumer proposals and bankruptcies. The government requires them to perform an assessment of your financial situation in order to determine if bankruptcy is the best option.

Generally, they will look at your assets, income and expenses, and debt level to make sure bankruptcy is a good option. At this meeting they explain all of your debt options. They will also make sure you are given a full explanation of the bankruptcy process so you can decide if you should declare bankruptcy.

Will I qualify for bankruptcy?

The Bankruptcy and Insolvency Act sets out very general qualifications that must be met in order to declare bankruptcy in Canada:

  1. You must be a resident of Canada;
  2. You are unable to pay your bills when they are due; and
  3. You owe more than $1000.00.

If you meet that criteria that doesn’t mean bankruptcy is your best option. It simply means that if bankruptcy is determined to be the best way to help you resolve your debt issues, you must meet these qualifications for you to declare bankruptcy in Canada.

When you declare personal bankruptcy the trustee prepares and files the necessary legal documents with the government and you will be considered bankrupt. There is no voting process or approval process involved in a standard consumer bankruptcy filing.

Factors to consider when deciding if you should declare bankruptcy

Bankruptcy is meant for those individuals where after paying for their basic cost of living there is no money left to pay down or put towards your debt. If this describes your situation declaring bankruptcy can provide you with a fresh financial start.

Bankruptcy provides these advantages:

  • Legal protection from your creditors (no judgements, wage garnishments);
  • Eliminates most unsecured debts (ie. Credit cards, loans etc);
  • Will usually be debt free in a 9 – 21 month period for a first bankruptcy;
  • The cost is relatively inexpensive, in particular when compared to the cost of the debt;

Disadvantages of filing for bankruptcy

The Bankruptcy and Insolvency Act (BIA) is the legislation by which licensed trustees administer bankruptcy files. Its rules and laws are meant to balance the scales between the need of an honest unfortunate debtor for a fresh financial start and the rights of the creditors. For this reason, filing for bankruptcy in Canada has some disadvantages:

  • It will lower your credit score and credit history to the lowest level for a minimum to six years from the time your bankruptcy is completed;
  • While most assets will not be affected by declaring bankruptcy, there may be some assets that will need to be surrendered or may mean your bankruptcy will have an additional cost; and,
  • In bankruptcy you must provide the trustee with detailed income and expense information, and including your income tax information.

If you have reached the point where you are over-extended and can no longer afford your debt, the advantages far outweigh the disadvantages in most cases.

Is personal bankruptcy the only solution?

No. There are alternatives to bankruptcy in Canada. Licensed Insolvency Trustees will look at all your options when they complete their financial assessment. Some individuals will qualify for a debt consolidation loan, a credit counselling program or a consumer proposal. Each of these options have their own set of pros and cons and not everyone will qualify for all of these options.

What happens after I file for bankruptcy?

After you complete the process for filing personal bankruptcy, there is an immediate “stay of proceedings.” This part of the process protects you from unsecured creditors trying to begin or continue any legal actions against you, such as wage garnishees, lawsuits, or any type of contact with you to collect a debt.

Within five days, your trustee will send a copy of the bankruptcy paperwork to all creditors so they can begin the process of filing a claim. 

Your trustee will also file any outstanding tax returns up until the date of bankruptcy. Any outstanding balances or penalties will be included.

After your personal bankruptcy paperwork is complete, you will have obligations such as providing monthly income statements and attending credit counseling sessions.  

When your bankruptcy is discharged, your debts will be canceled. It is important to understand that there may be minor exceptions to the debt cancellations. A note about your bankruptcy will remain on your credit report for a minimum of 6 years after the date of discharge. Once your debts are canceled, usually 9 months after filing, you can begin rebuilding your credit.


Free consultation with a Licensed Trustee

Declaring bankruptcy is not an easy step to take. It is a big decision to make and requires careful thought and consideration.

In Canada, having Licensed Insolvency Trustees administering bankruptcy filings means that you have qualified professionals available to advise you on whether or not you should consider a bankruptcy, as well as take you through all parts of the bankruptcy process, should you decide that a bankruptcy is the right option for you. The Trustees are here to help, and they have made their help easily available by offering a free, no-obligation initial consultation.

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