What is bankruptcy?
Bankruptcy is a legal proceeding that is available to you in order to resolve your debts. The bankruptcy legislation is in place to provide you with an opportunity to free yourself from an unmanageable debt load and to give you a start fresh financially.
In order to declare personal bankruptcy, you must owe at least $1,000 and be unable to pay your regular payments as they are due to be paid
How do I declare bankruptcy?
Typically, you would contact a Licensed Insolvency Trustee (LIT) to discuss your options; if you decide bankruptcy is the best option for you, the Licensed Insolvency Trustee will help you prepare the required paperwork to start the process.
What are the alternatives to bankruptcy?
Choosing to file for personal bankruptcy usually occurs after reviewing the following options and determining that they won’t work for you:
- Contact your creditors: Explain why you cannot make your payments and suggest an arrangement that could work for both of you.
- Debt Consolidation Loan: You can approach a bank or financial institution about combining or “consolidating” your debts into one loan. This creditor pays off all your debts and, in return, you make monthly payments to that creditor. Make sure that you shop around because interest rates vary. Avoid further credit purchases because this could increase your debt load and make the consolidation loan too difficult to handle.
- Informal Proposal: In some cases, we can work with you and your creditors to set up a payment plan that allows you to pay your creditors in an orderly way, thus helping to preserve your credit rating. This operates similar to a debt consolidation loan, except that you do not borrow the money to pay off your creditors.
- Consumer Proposal: Under the Bankruptcy and Insolvency Act, a Licensed Insolvency Trustee (formerly referred to as Bankruptcy Trustee) files a proposal, which is an arrangement between you and your creditors that allows you to pay off only a portion of your debts, extend the time you have to pay off the debt, or provide some combination of both. To be acceptable, you must offer your creditors more money than what they would expect to receive in a distribution under a bankruptcy.
Will my creditors stop harassing me?
Yes, they will! By law, all actions against you must cease once the bankruptcy documents are filed. This does not apply to Family Maintenance Enforcement or to secured creditors such as banks or finance companies that hold, for example, a lien on a car.
Who will know?
For most bankruptcies, only the creditors, Licensed Insolvency Trustee, Office of the Superintendent of Bankruptcy and the debtor are aware of the proceedings.
The filing of a bankruptcy is public information to which the general public has access, though there is a fee for each search of the database. Credit reporting agencies obtain this information and keep it on your credit record for six years after your discharge from bankruptcy. However, this does not mean that you cannot obtain credit during this time; any granting of credit is the decision of the creditor. During your bankruptcy counseling sessions we will provide you with the tools you need to reestablish your credit rating after bankruptcy
What am I allowed to keep?
When you file for bankruptcy in Alberta, the property you are allowed to keep is called “exempt property” and includes:
- RRSPs up to an unlimited value
- Equity in a home up to a $40,000 value
- Household furniture up to a $4,000 value (garage sale or auction value)
- One vehicle up to a $5,000 value (auction value)
- Work tools up to a $10,000 value.
What am I not allowed to keep?
In a bankruptcy, any non-exempt assets are considered the property of the Licensed Insolvency Trustee and available for the benefit of your creditors. For the majority of people who file for personal bankruptcy, the exempt property thresholds are sufficient to allow for the retention of all of their assets. One of the most common assets we see that people may lose are RESP’s.
Any assets that you may acquire during the bankruptcy, such as inheritances or lottery winnings are also the property of the Licensed Insolvency Trustee for the benefit of your creditors.
What do I have to do during the process of bankruptcy?
We will review your duties in bankruptcy with you in detail. However, the following duties comprise the majority of your obligations as a bankrupt:
- You must attend two financial counselling sessions held at Hardie & Kelly’s offices and scheduled at the date you file bankruptcy. The appointments are approximately 30 - 45 minutes in length and are typically tailored to your situation.
- You must keep the Licensed Insolvency Trustee (LIT) informed of your current address, and co-operate with the LIT's requests for assistance and information (e.g. income tax information)
You must also provide the Licensed Insolvency Trustee with monthly reports of your household income and living expenses, and inform the Licensed Insolvency Trustee of any change(s) in your family situation. The Licensed Insolvency Trustee will supply you with the monthly report forms when you file for bankruptcy, there is also an option to prepare the forms on-line. What about tax debt with Canada Revenue Agency?
Can Government debt be included in bankruptcy?
If you owe Canada Revenue Agency for income taxes, GST, or employee remittances, these debts will be included in a bankruptcy and can be discharged under certain conditions. Generally speaking, a discharge of the debt is granted if you have completed your duties under the Bankruptcy and Insolvency Act and you have complied with making the appropriate filings and remittances after the bankruptcy is filed.
What about student loans?
If the date of bankruptcy is more than seven years after the end of your studies, the debt will be released upon your discharge from bankruptcy.
If the date of bankruptcy is less than seven years after the end of your studies, student loans survive your bankruptcy and arrangements will have to be made for repayment of the loan. However, if you have acted in good faith and continue to experience difficulty paying the student loan, a Court can order the discharge of a student loan. This is only applicable if more than five years have passed since the end of studies