Common questions about Bankruptcy & Proposals
How long does bankruptcy last?
A number of factors can determine the answer to this question such as;
- Is this a first time bankruptcy?
- Is the individual’s monthly net income above the monthly surplus income guidelines?
A first time bankrupt, without surplus income, would be eligible to be discharged from bankruptcy nine months plus a day from the start of the bankruptcy.
A Second time bankrupt, without surplus income, would be eligible to be discharged from bankruptcy twenty-four months plus a day from the start of the bankruptcy.
How much does bankruptcy cost?
There is a basic minimum cost to file for bankruptcy. This cost will differ based on the type of assignment, whether it is a 1st, 2nd or more times you are filing.
- It will also depend on your level of income based on the Superintendent of Bankruptcy guideline.
- Your Bankruptcy Trustee will clearly explain the costs associated with filing for bankruptcy.
- Payments are usually broken down into reasonable monthly payments to allow an individual to pay the bankruptcy fee while they are being protected from their creditors.
Will I lose my house in bankruptcy?
No, most people that want to keep their homes can do so during a bankruptcy.
- Each situation is different and your home will be discussed at your first consultation with a Trustee.
- To be sure you will not lose your house to your creditors, please ensure you keep your mortgage payments current.
Is Bankruptcy advertised in the local newspaper?
Most personal bankruptcies are NOT advertised in the local newspaper. However – All Business bankruptcies are advertised in the local newspaper.
- If an individual’s bankruptcy was required to be published in the newspaper, you would be advised of this requirement (prior to you making the decision to file) by your Trustee, who may discuss other alternatives, such as a proposal to prevent the publication if it is a concern.
How should I handle creditor calls and harassment?
Creditors do have certain rights to collect upon their debts; however you need to know that you have rights too.
- A creditor is allowed to call to enquire about their debts and request a payment plan. They are however, restricted on what they can say, how they act, when and where they call.
- Once an individual has filed for protection under the bankruptcy and insolvency act, a stay of proceedings is put into effect to stop all legal and collection proceedings including harassment.
- All calls received after filing a proposal or bankruptcy should be referred to your trustee.
How does Bankruptcy affect my credit rating?
The fact of bankruptcy will remain on an individual’s public record for up to 7 years although most credit bureaus remove reference to a first time bankruptcy after only 6 years.
- The credit rating associated with bankruptcy is R9 and is the same credit rating used if your debts have been put into collection, your debt is more than 120 days past due and considered as bad debt.
How long will it take to re-establish credit after bankruptcy?
The ability to reestablish credit will depend on a number of factors. Many of which have nothing to do with having filed for bankruptcy. Some of the items considered with applying for credit are:
- Do you have a full time job?
- How much do you make?
- What is your debt equity ratio?
- What have you done since filing for bankruptcy? Are your utilities up to date?
- What is the loan for? It is often easier to borrow for the purchase of a car, as opposed to an unsecured loan to take a vacation.
Will my employer know if I file for bankruptcy?
Your employer would not be notified by the trustee about your bankruptcy, unless you owe them money. They would also be notified only if you do not provide your Trustee with required paystub information to file your income tax.
In bankruptcy would I still handle my own money and can I have a bank account?
Yes, and Yes. A bankrupt continues to receive their own pay cheque, have their own bank account and pay their own monthly bills, subject to any required payments under the bankruptcy and insolvency act.
Even people who are having financial problems may still have a bank account, however it is suggested that you open an account with a bank that you do not owe money.
Can bankruptcy help with Student loan debts?
Yes, bankruptcy can help with student loan debts if you have been out of school for seven years or more.
- If you have been out of school for 7 or more years student loans are treated like regular unsecured debts.
- Students, who have only been out of school for 5 year (but less than 7 years) and are experiencing financial hardship, may apply to the Court to request their student loans be discharged along with the rest of their debts.
How is my spouse affected by my bankruptcy?
Technically bankruptcy does not affect your spouse or common-law partner. Their assets remain their own, and should not be affected by your bankruptcy.
- Your spouse or partner would only be responsible for debts they co-signed, guaranteed or made a joint application for the credit.
- Sometimes it makes sense for couples to file and other times it makes sense for only one partner to file a proposal or bankruptcy. A free consultation with a trustee will help you in this decision, as all spousal situations are different.
What about wage garnishes?
Most garnishees are stopped by bankruptcy.
- Certain garnishments continue such as alimony and child support.
- Other garnishments such as Revenue Canada for income tax will STOP as soon as you file for bankruptcy protection.
How are RRSP’s treated in bankruptcy?
RRSP’s are exempt assets.
- RRSP’s are yours to keep and are protected from your creditors with the exception of any new contributions in the twelve months leading up to bankruptcy.
What happens to Income tax refunds, GST cheques and Child Tax Credits received from Revenue Canada when someone is in bankruptcy?
Income tax refunds – Tax refunds for tax years prior to bankruptcy or the year of bankruptcy would be forwarded by the government to your trustee. These refunds form property of the estate and would be available for distribution as a dividend to unsecured creditors.
- GST Cheques – GST will automatically be sent to your trustee while you remain in bankruptcy. Future GST cheques will be sent directly to the individual, by the government if you qualify to receive them, once you have been released from bankruptcy.
- Child Tax Benefit / Universal Child Tax Benefit – These cheques will continue to be sent directly to the bankrupt as a part of their income.
Why am I still receiving calls and/or correspondence from creditors after I filed for bankruptcy?
Upon filing, we notify all creditors, listed on your statement of affairs. In 99% of the cases, all calls and letters from creditors should stop within a week of filing for bankruptcy. (We have to allow some time for creditors to receive notice and update their records.)
- If after one week from the date of filing you continue to receive calls or letters we ask that you notify our office so we can contact that specific creditor again
- In the case of phone calls, we ask you to notify us of the name, phone number and company of the person calling so we can contact them directly.
Is bankruptcy my only option?
Bankruptcy is only ONE option to help with financial and debt problems.
- Although there may be other options, bankruptcy still may be the right option based on an individual’s circumstances.
- Consumer Proposals are one of the biggest alternatives to bankruptcy and should be reviewed with a Trustee to see if it suits your needs.
- Debt Consoldiations may also help if your debt load is not huge.
- The sooner a financial problem is identified and steps are taken to resolve the problem, the easier it is to deal with.
Who can file a proposal?
A consumer proposal can be filed by an individual or couple who owe $250,000 or less, excluding a mortgage on a principle residence. A division I proposal can be filed by an individual or a corporation and there are no upper limits on the amount owed.
Can I keep my house or vehicle if I file a proposal?
Yes. If you have a house or vehicle secured by financing or mortgage you can keep them as long as the loan is current and remains up to date. If your property has any equity you should discuss this with your trustee at a free consultation.
Will a proposal affect my credit rating?
Yes, a proposal will affect your credit rating. The credit bureau will report the proposal on your credit report as an R7 credit rating and this rating will remain on your credit report for 3 years from the completion of the proposal. If you are behind on your payments or have accounts in collections, the proposal rating on your credit report may actually be an improvement.