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Bankruptcy
To declare bankruptcy is to exercise a right that allows you to get out of a financial dead-end and have a fresh start under fair and equitable conditions as determined by the Bankruptcy and Insolvency Act. Bankruptcy is a legal right that allows any person who has suffered financial difficulties to turn the page and get a second chance. Obviously, bankruptcy remains a difficult decision, but it is important to note that you do not necessarily lose everything. New amendments to the Bankruptcy and Insolvency Act protect more assets than before.
As soon as bankruptcy is declared, you are no longer obligated to make payments to your unsecured creditors (i.e. other than creditors holding a specific security on a property that you will keep). In addition, the unsecured creditors cannot bring or continue any action or legal proceedings against you. Secured creditors, in turn, (i.e. creditors holding a mortgage, a lease purchase agreement or lease) cannot terminate nor amend a contract, or even reclaim the property from you simply because of your bankruptcy, notwithstanding what may be indicated in your original contract.
Property exempt from seizure under the Bankruptcy and Insolvency Act
Assets that cannot be seized include:
- household furniture which is necessary for living up to a liquidation value of 6,000$..
- all RRSPs [retirement savings plans) except for contributions made during the 12 months preceding your bankruptcy (for some RRSP only).
- food and clothing.
- work instruments needed for a profession.
- alimony or child support.
- items needed to overcome a physical disability.
Assets that can be seized
By declaring bankruptcy, a person only gives up only certain assets for realization and distribution to their creditors.
At the first meeting, the trustee will analyze your financial situation and inform you on all the options. If bankruptcy proves to be the best solution, you will be informed of the consequences of bankruptcy including those on your property, such as your car or your home. Depending on the value of your assets and the amounts that you owe (e.g. mortgage, lease, etc.), it may be possible for you to keep them.
Debtor's commitment
In most cases, the person must make monthly payments based on his/her financial capacity. The amount will be determined with the trustee at the beginning of the file. The Act provides that the Trustee must re-evaluate your financial capacity seven (7) months after the filing of the bankruptcy (after 22 months for a second-time bankruptcy). This can have an impact on the duration of the bankruptcy and the monthly payments to be made.
Specific terms and conditions for the calculation of surplus income are also provided for self-employed workers and for people who have irregular income in order to make bankruptcy as accessible as possible.
Discharge
The objective of a bankruptcy is to free the debtor of most of his debts.
The discharge erases all debts except the following:
- fines and penalties rendered by a court and any debt arising out of a commitment or a bail bond.
- judgments for compensation for injuries caused intentionally or for sexual assault, or death resulting therefrom.
- debts or obligations for alimony or child support.
- debts arising from fraud, embezzlement or abuse of fiduciary trust.
- goods or services obtained by misrepresentation or fraudulent misrepresentation of facts.
- amount that a creditor not declared to the trustee by the bankrupt may have received as a dividend.
- student loans guaranteed by the government if the debtor declares bankruptcy while still a student or within 7 years after graduation.
- interest payable on debts mentioned above.
Since the coming into force of the new Bankruptcy and Insolvency Act (September 18, 2009), the prescribed period during which you are considered bankrupt depends on several elements; i.e. whether it is your first or second bankruptcy and whether you have surplus income or not. For more details on these distinctions, please click on Term and Surplus Income.
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