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Learn Everything You Need to Know about Personal Bankruptcy

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.

What Exactly Is Bankruptcy?

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.

How Much Debt Do I Have to Have Before I Can File for Personal Bankruptcy?

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.

Will Bankruptcy Wipe Out All My Debts?

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.

Will My Spouse Be Impacted If I File for Personal Bankruptcy?

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.

What Kinds of Debt Can Be Included in a Bankruptcy?

Filing for bankruptcy in BC will eliminate nearly all types of debt, including (but not limited to):

  • Credit card debt
  • Lines of credit & overdraft debt
  • Payday loans
  • Medical bills
  • ICBC debts
  • Income tax debts (income taxes, GST, etc.)
  • Student loan debt (federal, provincial & private)
  • Secured debt shortfalls if you decide to end the commitment (vehicle shortfall, mortgage foreclosure)
  • Personal loans

What Debts Cannot Be Included in a Bankruptcy?

Bankruptcy will eliminate most of your debts, but some debts are not eligible. Those debts include:

  • Alimony or child support payments
  • Court-imposed fines
  • Debt incurred by misrepresentation (fraud)
  • Debt for damages imposed by Civil Court for intentional bodily harm, sexual assault, or wrongful death
  • Student loans (if the bankruptcy occurs prior to 7 years since your last date of study)

What Happens If I Declare Personal Bankruptcy?

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.

What Do You Lose If You File for Bankruptcy?

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.

Can I Keep My House and Car If I File for Bankruptcy?

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.

Can I Keep My RRSPs If I File for Bankruptcy?

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.

Am I Allowed to Have a Bank Account If I Declare Bankruptcy in Canada?

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.

Does Filing for Bankruptcy Eliminate Tax Debt Owed to the Canada Revenue Agency (CRA)?

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.

How Long Does a Bankruptcy Last?

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.

Do I Have to Go to Court If I File for Bankruptcy?

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.

Who Will Know If I File for Bankruptcy?

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.

Can I Keep My Current Credit Cards If I File?

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.

What Are My Options If I Don’t Want to File for Bankruptcy?

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.

How Do I File for Bankruptcy?

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:

  • Reach out to an insolvency firm like Smythe Insolvency and meet with a Licensed Insolvency Trustee. We’ll assess your debt and determine if you qualify for bankruptcy, and if so, if it is the best solution for you.
  • We’ll then help you gather all the necessary documents and information that are required to file for bankruptcy.
  • Once we have everything prepared, we will present the paperwork to you for you to sign. By doing so, you are legally agreeing to file bankruptcy.
  • Our trustees will then file the paperwork with the necessary government agencies and notify your creditors.

How Much Does it Cost to File for Bankruptcy?

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.

Can I File for Bankruptcy if I Have Been Bankrupt Before?

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.

Can Debt Collectors Keep Calling Me If I Declare Bankruptcy?

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.)

What Happens to My Income When I File for Bankruptcy?

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.

What Is Surplus Income?

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.

What Does “Discharged From Bankruptcy” Mean?

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. 

How Will I Rebuild My Credit After a Bankruptcy?

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:

  • Ask your financial institution if they have products available to help you rebuild your credit. If they do, consider using one of these options to help you begin your post-bankruptcy journey.
  • Ensure any errors are corrected on your credit report.
  • Obtain new credit, such as applying for a secured credit card or small secured loan. Make sure this new credit is being reported to the bureau, as sometimes they are not.
  • Do not miss a single payment and pay early if you can.
  • Remember to use the budgeting and money management tips you learned about in your counselling session.
  • Start saving for a down payment on a car or house.

Contact Us with Additional Questions

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.

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