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Bankruptcy is a legal process that provides you immediate relief, halting the actions of all your creditors who may have a claim against your estate (garnishments, seizures, lawsuits, etc.). Your discharge from bankruptcy extinguishes the majority, if not all, of your debts.
In order to declare bankruptcy, you must meet certain conditions:
A trustee is an individual or a corporation licensed by the Federal Government to process personal and corporate bankruptcies as well as administer proposals to creditors. A trustee is an officer of the Court whose primary role is to ensure that your creditors' rights and your rights are maintained throughout the process. Trustees' fees are paid by the bankrupt or from the disposition of the bankrupt's property.
The filing of a bankruptcy halts all garnishments, lawsuits or other Court proceedings initiated or that may be initiated by your creditors in respect to debts incurred prior to the date of bankruptcy. Only the Court may grant permission to creditors to continue actions against you once you are bankrupt.
For first time bankrupts, nine months after the bankruptcy you will be automatically discharged (granted an Absolute Order of Discharge) from bankruptcy provided:
If your discharge is opposed or you have previously been bankrupt, we will arrange for your application for discharge to be heard by the Bankruptcy Court of the district. After hearing our report on your conduct throughout the bankruptcy, your present economic situation, and the opposing creditors' arguments, the court may issue any of the following orders:
Upon obtaining your discharge, you are released from all debts, except for:
The bankruptcy will be noted at the Credit Bureau for six years after obtaining your discharge.
Your assets, whether in your possession or in the possession of a third party, vest in the trustee for the general benefit of creditors. Where a creditor holds security against any asset, he will normally be allowed to exercise his rights to realize on his security, after permission from the trustee. Often you can make arrangements with the secured creditor so that you continue to keep possession of the secured asset. The ability to make this arrangement with the secured creditor will often depend on, among other things:
The trustee will not take possession of certain assets if they are exempt from seizure. Exempt property will vary from one province to another. Effective May 1, 1998, in B.C., free and clear goods and chattels of any debtor are exempt from seizure as follows:
Financial assets such as RRSPs, GICs, term deposits, savings, life insurance cash surrender value, stocks, bonds, etc. must be turned over to the trustee. Personal effects such as jewellery, collectables, recreational equipment, etc. are not exempt and must be turned over to the trustee or you may elect to purchase the value of these assets from the trustee if you wish to keep them.
Income from all sources must be reported monthly. If you earn income in excess of the Superintendent of Bankruptcy's Standards, you are required to make payments to the trustee from that excess until the date of discharge. The amount of the payment will be calculated based on the number of dependents you have. In the event of a dispute, the Superintendent of Bankruptcy may be asked to mediate to determine the amount to be paid. Should there be any subsequent change in the situation, the amount of the payment would be varied at that time. Failure to make the required payments will result in a conditional discharge for up to an additional 12 months.
Property acquired by you, such as lottery winnings, an inheritance, a gift or a lump sum settlement such as an ICBC award, WCB superannuation, CPP benefits, etc. for which you may become eligible for prior to your discharge, must be turned over to the trustee as it constitutes assets divisible amongst your creditors.
A tax return for the period of January 1st to the date of bankruptcy will be prepared by the trustee (pre-bankruptcy return). Any tax refund for that period as well as refunds of previous years not yet received will be remitted to the trustee. Another tax return will be prepared for the period from the date of bankruptcy to December 31st (post-bankruptcy return). Any refund from that tax return will also be paid into the bankruptcy estate, as well as any GST credits. If there is a balance owing to revenue Canada on the post-bankruptcy return, you are responsible for payment.
Gifts or transfers of property during the 12 months prior to bankruptcy (five years in certain circumstances) are subject to review by the trustee and may be reassessed by the court. If, during the three months prior to bankruptcy (12 months if a related person), a creditor received preferential or special treatment, such as being paid while others were not, the trustee may demand reimbursement from these creditors. The trustee must be informed of these payments.
You must fulfill all of the following duties while you are an undischarged bankrupt:
In an effort to assist you in reestablishing yourself financially, you will be provided with two counselling sessions. These counselling sessions are to:
In general, bankruptcy should only be considered if you cannot consolidate your debts at a reasonable cost and repay them over a reasonable period of time (at most 3-5 years).
A consumer proposal is a settlement of debts offered to your creditors, either by making a lump sum payment or several payments over an extended period of time. The settlement must provide your creditors with a greater realization than what would be available to them in a bankruptcy.
If you owe $75,000 or less, excluding debts owing on mortgages of your personal residence, you are eligible to file a consumer proposal.
Filing a consumer proposal halts all garnishments, lawsuits or other Court proceedings initiated or that may be initiated by your creditors in respect of debts incurred prior to the date of the consumer proposal.
An administrator will prepare the documents required outlining the terms of your offer which will be sent to all creditors. The creditors have 45 days to accept or reject the terms of your consumer proposal. Unless creditors holding 25% in value of the proven claims request it, there will be no meeting of creditors. If creditors do not request a meeting, the proposal is deemed to be accepted by the creditors. Upon acceptance you will commence payment(s) to the administrator who will distribute the proceeds to the proven creditors. Upon fulfilling the terms of your consumer proposal, you will receive a Certificate of Compliance and the balance of your debts are extinguished.
There is no vesting of assets in a consumer proposal. Your property will remain in your possession. You will file your own income tax returns and be eligible to receive any applicable refunds. You will not be required to report income and expenses or be subject to surplus income guidelines.
You must provide full disclosure of all your assets and liabilities and details of property disposed of in the past year or five years for real estate. You must surrender all credit cards. You must attend two counselling sessions.
If payments are three months in default, the consumer proposal will be annulled and the administrator will inform the creditors. The creditors' rights will be revived and you will be unable to make a subsequent consumer proposal.
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