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When your debt becomes so overwhelming that you can longer make your monthly payments, it can feel like there is no way out of your financial troubles. You may have heard of bankruptcy before but you are unsure how to begin the process or lack an understanding of how it can help you. Smythe Insolvency is here to help put your questions to rest by providing answers to all your inquiries about the personal bankruptcy process. We’ve compiled a list of our most frequently asked questions to give you the information you need to understand bankruptcy and how it can provide relief from your debt. If you have additional questions, please feel free to reach out to us.
Bankruptcy is a legal proceeding used by individuals who have debt they are unable to pay. To be eligible for bankruptcy, you must owe at least $1,000 and be insolvent, or unable to repay your entire debt at once. The bankruptcy process helps you find relief from these financial burdens by allowing you to eliminate some or all of the debts. It also stops creditor harassment and gives you a chance to start over financially. When you file bankruptcy, your creditors can no longer legally call you incessantly asking for payment. It’s important to know that bankruptcy is not a magic process that comes with no consequences. You will have to surrender many of your assets in return for the discharge of your debts. You’ll also have to work for years to rebuild your credit. However, it will still help you in the long run by helping you relieve financial burdens.
To qualify to file for bankruptcy in BC you need to owe $1,000 or more and you need to be “insolvent” which means that you’re not able to pay your debts on time. A Licensed Insolvency Trustee can help you determine whether or not you’re insolvent and will discuss all of the options available to you and help you decide what makes the most sense for you and your unique financial situation.
Not always. While there are some cases where bankruptcy can clear all debts, that is usually not the case. Some debts cannot be included in bankruptcy, such as child support payments, criminal fines, etc. In addition, debts you accrued through secured creditors receive special treatment, even when you file bankruptcy. A secured creditor is one that has a right to a specific asset. This can include creditors that financed your car or home. The effects of bankruptcy on secured debts will vary in every situation. A Licensed Insolvency Trustee will be able to help you understand the process better.
Unless your spouse is a joint owner and has co-signed your debt, there should be no impact to your spouse if you declare bankruptcy. The unpaid debts will not transfer from one spouse to the other.
However, if your spouse is a co-signer, co-borrower or co-cardholder and you file bankruptcy, your spouse would remain responsible for repaying the full balance of the joint debt.
Filing for bankruptcy in BC will eliminate nearly all types of debt, including (but not limited to):
Bankruptcy will eliminate most of your debts, but some debts are not eligible. Those debts include:
If you declare personal bankruptcy, your creditors will be automatically notified and will be forced to stop contacting you. In addition, they will have to stop all legal actions against you, including pending lawsuits and wage garnishments. However, secured debts, like mortgages and car loans, may remain active, meaning you must keep up with these payments or risk losing the asset. Most of your other assets will be handed over to a Licensed Insolvency Trustee as part of the process.
When you file for bankruptcy, you agree to hand over many, if not all, of your personal assets in return for debt relief. However, there are some items that you will be able to keep. These items are referred to as bankruptcy exemptions because they are exempt from seizure. Exempt items will vary from situation to situation but may include clothing, household furnishings, some land, sentimental items, pensions and retirement plans, and more. It’s important to know that you will be surrendering some of your assets when you file for bankruptcy. However, the process will help you get out of debt and start over.
Filing for bankruptcy should not impact your home, car, or any other secured debts, as long as you continue to make payments and there is little-to-no equity in your secured assets.
The Bankruptcy and Insolvency Act provides protection for your RRSPs. You’re allowed to keep your RRSPs if you file a personal bankruptcy in BC, except for amounts contributed in the 12 months prior to your date of bankruptcy.
You can have a bank account but before you file for bankruptcy, it’s recommended that you open a new bank account at an institution where you do not owe any money. The reason for this is to prevent your creditors from taking money from your account. It’s advised that you only use your new bank account going forward and that you not use any accounts that were active prior to your bankruptcy.
Debt owed to the CRA is unsecured debt and can be included in your bankruptcy. After filing for bankruptcy, you are protected from all interest and collection activity by the CRA and your trustee will communicate directly with the CRA on your behalf.
If it’s your first time filing for bankruptcy and you complete all the requirements that go along with filing, it will typically take you 9 months to complete the process.
If you file for bankruptcy a second time (or multiple times), the process will take 24 or 36 months.
If you fail to comply with your requirements or have committed a bankruptcy offence, you may need to go to court and that’s where your timeline will be determined.
In many cases, you will not have to go to court for bankruptcy proceedings. If you are eligible for an automatic discharge, there is no court hearing necessary. You will be released automatically, and your trustee will send you a copy of your discharge papers. You can qualify for an automatic discharge if you complete all your bankruptcy duties and no one opposes the discharge. On the other hand, if you do not qualify for an automatic discharge, you may have to appear in court with your trustee to review the discharge before it is finalized.
Filing for bankruptcy in BC is confidential and private. In most cases, when you file for personal bankruptcy, only your Licensed Insolvency Trustee, the Office of the Superintendent of Bankruptcy (OSB), your creditors and credit reporting agencies will know about the proceedings.
Following notification of your bankruptcy, most credit card companies will cancel your card, so you can no longer use them. This means you will not be able to keep current credit cards after you file and may have to wait several months before you’re eligible for another. However, you can apply for a pre-paid credit card for situations where a credit card is necessary.
There are certain circumstances where you may be able to keep your credit card. There are stipulations and risks that come with keeping your existing credit cards, as you will be signing a new contract with the company. This essentially means you are again personally liable for the debt you accrue. Your insolvency trustee will be able to help you determine if keeping your current cards is a good idea. Usually, it isn’t.
Bankruptcy is not the only option when you have debt you are unable to repay. There are other alternatives, including a consumer proposal, which can still help you get out of debt. Your best course of action is to contact an insolvency firm to discuss your options with a Licensed Trustee. They will be able to assess your situation and determine the best option for you. However, it is important to note that bankruptcy may be your only option depending on the amount you owe and your current income level.
Filing for bankruptcy may seem like a daunting process. You may feel like you don’t know where to begin. However, when you choose the right insolvency trustee firm, you’ll have someone to walk you through each step. Our team at Smythe Insolvency will help you understand the entire process, which can help to relieve some of the stress and anxiety you may be feeling. To file for bankruptcy, you’ll want to start by taking the following steps:
All bankruptcy fees are regulated by the federal government and are consistent from LIT to LIT. The fees do vary depending on each individual’s unique financial situation. You can discuss what the costs of filing for bankruptcy would look like for you with a LIT during your free, initial consultation.
As long as you were discharged (released) from your previous bankruptcy, you are free to file for bankruptcy again—if you meet the requirements outlined by the OSB.
Once you file for bankruptcy, all creditors and collection agencies are legally required to stop contacting you immediately. As well, a creditor cannot garnish your wages, including the CRA.
Your bankruptcy does not protect you from calls from secured creditors (car payments, mortgage, alimony, etc.)
Your income is not affected by your bankruptcy but when you file, you’re required to report your monthly income and expenses to your Trustee. And if your income changes at any point during the process, you need to inform your LIT.
You may also be required to make monthly “surplus income payments” to your LIT. This is determined based on your average earnings over the duration of the bankruptcy and the number of people in your home. Your LIT will explain this in detail during your consultation.
When you’ve been “discharged” from your bankruptcy, it means that your bankruptcy has come to an end. Your debts have been forgiven and you no longer are responsible for paying them back. You can now apply for credit and start fresh financially.
If you do not complete the duties that were required of you throughout your bankruptcy (making your payments, attending two counselling sessions and reporting your monthly income and expenses) then you will not get discharged. Your Trustee will close your file and creditors are free to pick up where they left off before you filed and resume their collection efforts.
After filing for bankruptcy, you must be the driving force behind rebuilding your credit. This is the only way to overcome the financial troubles and start fresh. Your Licensed Insolvency Trustee will help you build a plan, but the rest is up to you. Here are some steps you can take to rebuild your credit:
If you are facing financial difficulties and considering bankruptcy, Smythe Insolvency is here to help. We are conveniently located across Greater Vancouver and Vancouver Island to help you through this process. We know filing for personal bankruptcy can be overwhelming, but we want to make sure it goes smoothly for you. Please feel free to reach out to us if you have additional questions or wish to set up a time to speak about your situation.