What is Personal Bankruptcy?

Over the years, I have met with many people who are struggling to pay their debts.  Their financial difficulty is usually a result of a combination of factors: Some things beyond their control and maybe some things they could have done better.  Some people may fall at either end of the spectrum but most fall somewhere in the middle.  No matter what the cause, there is usually a common theme.  The people are honest, hardworking individuals who would pay their creditors if they could.  They hang on for as long as possible, sometimes prolonging the inevitable,  hoping life will turn around and give them the opportunity to pay their debts.  If you’re faced with this situation, you may wonder what options are available to regain control.

Bankruptcy is a legal process under the Bankruptcy and Insolvency Act and is one of the many options available to provide you with a fresh start.  The side effects of financial difficulty aren’t minor and filing for bankruptcy is not an easy decision.  It may help to remember that your situation is temporary and that, with help, you can start over.   That’s where a licensed Trustee in Bankruptcy comes in.  A trustee will give advice on all of your options and will make you aware of your rights and responsibilities under the Bankruptcy and Insolvency Act as well as the rights of your creditors.  If Bankruptcy is not an option for you, the trustee will tell you outright, suggest an alternative or refer you to another credible professional.

Who can file a bankruptcy?

You are eligible to file for bankruptcy if you owe at least $1,000.00 and are insolvent, meaning you are unable to pay your debts as they become due and if your property is sold it would not be sufficient to pay your creditors.   One of the objectives of the Bankruptcy and Insolvency Act is to provide you with relief from the burden of your debts, so that means once a bankruptcy is filed, the trustee will notify your creditors and most action and garnishment against you will stop.  The creditors can’t call or collect from you.   Bankruptcy however, will not protect you from the collection of certain debts such as child support, alimony, some student loans, and traffic tickets.

What happens to my stuff?

When you file for bankruptcy you assign your assets to the trustee and cease to be able to deal with your own property.   The trustee must decide if you have any assets that can be sold and the proceeds distributed to your creditors.   This may imply that you lose everything you own but that is simply not true.  There are many assets, such as your basic household goods, most pension plans, tools of trade and a vehicle up to a certain value, for example, that are exempt from seizure by the trustee for your creditors.  These exemptions differ from province to province.  If you have an asset that is not exempt from seizure, you may have the option of purchasing it back from your own bankrupt estate.  You would simply pay the value of the nonexempt asset into your bankruptcy by making a monthly payment and you get to keep it rather than the trustee selling it to someone else.  So it’s not all doom and gloom - even if you have an asset that isn’t exempt, you have the opportunity to keep it as long as you pay for it.  Also, if there is no value to an asset beyond what is owing for it for example, your house, you may continue to pay the mortgage company and remain in your home.   In future posts we will write in greater detail about how assets are handled.


What do I have to do in a Bankruptcy?

During a bankruptcy you are obligated to perform certain duties, including but not limited to: making disclosure of all your assets and liabilities, turning over all credit cards, attending for two counselling sessions, submitting monthly statements of income and expense and usually making a monthly payment out of which your trustee will take a fee and distribute the balance to your creditors.

How long will I be bankrupt?

Typically, if you’ve never been bankrupt before,  the process is either 9 or 21 months depending on your level of income.  If you’ve been bankrupt once before it is either a 24 or 36-month proceeding.  At the end, if no party objects, you are entitled to receive an Automatic Discharge which legally extinguishes your personal liability for the debts incurred prior to your date of bankruptcy and will allow you to once again acquire assets.  As previously stated, some debts, such as child support, alimony or some student loans for example, survive bankruptcy and you will be required to pay those debts.

What do I do Now?

No one ever wants to file for bankruptcy but, for some, it is the last chance to regain financial control and it doesn't need to be an embarrassing prospect or the end of your financial future.  I’m not trying to imply that bankruptcy is a cure-all  but the process is available, under the law, for a reason.  It presents an opportunity to get back on your feet, to make lifestyle changes, to deal with the personal problems, marital issues or misfortunes that may have caused your bankruptcy.  It will allow you to re-establish your credit, obtain assets again and to contribute back into the economy with well functioning finances.  Sometimes you just need to be pointed in the right direction.

By:  Brenda D.  Owens, Trustee in Bankruptcy


Brenda works for James R. Yanch, Trustee in Bankruptcy
215 Simcoe St. N.
Oshawa, Ontario
L1G 4T1
905-721-7506
www.jamesryanch.com