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Considering bankruptcy

Find a Licensed Insolvency Trustee

If you are considering bankruptcy, your first step should be to meet with a Licensed Insolvency Trustee (LIT). LITs are individuals licensed by the Office of the Superintendent of Bankruptcy (OSB) to administer the bankruptcy process. The LIT will evaluate your financial situation and discuss various alternatives that could help you to solve your financial problems.


What can you do if you can't find a Licensed Insolvency Trustee?

If you are unable to get an LIT to accept your file, or if you cannot afford to hire an LIT, the OSB's Bankruptcy Assistance Program may be able to help, provided that you:

  • have contacted at least two LITs and tried to obtain their services
  • are not, and have not recently been, involved in commercial activities
  • are not required to make surplus income payments; and
  • are not in jail

A creditor is harassing me daily. What should I do?

Although the regulations differ slightly across Canada, there are limits on what creditors and collection agencies are allowed to do. For example, they cannot make telephone calls of such a nature or frequency that they amount to harassment of you or your family. In addition, there are certain times when they are not allowed to call. (These times vary, depending on where you live.)

Tips for dealing with collection agencies
If you feel you are being harassed, contact either an LIT or a qualified and experienced credit counsellor. They can help you by serving as an intermediary between you and your creditor.

Contact us and we will send you some information and a list of LITs who participate in the program.

What happens when you file for bankruptcy

New What to expect if you file for bankruptcy (Video)

If bankruptcy is the option you choose, you will work with the LIT to complete the required forms. The LIT will then file these documents with the OSB and you will be formally declared bankrupt.

From that point on, the LIT will deal directly with your creditors on your behalf. Once you have been declared bankrupt

  • you will stop making payments directly to your unsecured creditors
  • any garnishments against your salary will stop; and
  • any lawsuits against you by your creditors will also be stopped

Your assets will be sold by the Licensed Insolvency Trustee

Once you have been declared bankrupt, the LIT sells your assets, including any acquired during your bankruptcy. Assets that are exempted by provincial and federal laws are excluded from this sale. The LIT will hold the money raised by the sale in trust for distribution to your creditors.

Your creditors will be notified

After you declare bankruptcy, the LIT will notify all your creditors about your bankruptcy.

Your creditors may hold a meeting

Sometimes, a meeting of creditors is required or requested. The purpose of this meeting is to

  • allow creditors to obtain information about the bankruptcy;
  • confirm the appointment of the LIT;
  • appoint up to five inspectors to supervise the administration of your estate; and
  • allow creditors to give direction to the LIT.

If a meeting is called, you will be required to attend.

You may be examined by the OSB

After you file for bankruptcy, a representative of the OSB may examine you under oath. The purpose of the examination is to ask you about your conduct, the causes of the bankruptcy and the disposition of your property.

You will attend two financial counselling sessions

As part of your bankruptcy, you will be required to attend two financial counselling sessions. The purpose of these sessions is to help you understand the causes of your bankruptcy and to assist you in managing your financial affairs in the future.

You may make "surplus income" payments

New Bankruptcy and surplus income payments (Video)

Your responsibilities

When you file for bankruptcy, you must do the following:

  • disclose to the LIT information about all of your assets (property) and liabilities (debts);
  • advise the LIT of any property that was sold or transferred (disposed of) in the past few years;
  • surrender all your credit cards to the LIT;
  • attend the first meeting of creditors (if a meeting is requested);
  • attend two counselling sessions;
  • advise the LIT in writing of any address changes;
  • if required, attend an examination at the Office of the Superintendent of Bankruptcy; and
  • assist the LIT as needed in administering your estate.

You may be required to make additional payments to your LIT for distribution to your creditors.

In addition to paying the LIT's fees, you may be required to make additional payments to your LIT for distribution to your creditors. These are called surplus income payments.

Each month during the bankruptcy process, you must submit a copy of your pay stubs and proof of other income to the LIT. The LIT then calculates your surplus income.

Surplus income is the part of your earnings that exceeds the amount of income a family needs to maintain a reasonable standard of living. This amount is set by the OSB annually. The larger your family, the more you are allowed to keep; the more you earn, the more you are required to contribute.

In other words, if your household income exceeds the level set by the OSB, then you must make additional payments to your LIT during your bankruptcy. (Contact an LIT to find out the current limits for your family size.)

If your surplus income is more than $200 per month, you will be required to contribute 50 percent of that amount.

You will be discharged from bankruptcy

New Understanding the bankruptcy discharge (Video)

A discharge releases you from the legal obligation to repay the debts you had as of the date you filed for bankruptcy, except for specific types of debts that are excluded by law. These include alimony and child support payments, student loans (if you stopped being a student less than seven years ago), court-ordered fines or penalties, and debts arising from fraud.

The timing of your discharge depends on a number of factors, including whether this is your first bankruptcy, and whether you are required to make surplus income payments.

Timing of your discharge from bankruptcy (automatic discharge)

If this is your first bankruptcy and you are not required to make surplus income payments (because your surplus income is less than $200 per month), you will be eligible for an automatic discharge from bankruptcy in nine months. If your surplus income is higher, your bankruptcy will be extended to 21 months and you will be required to make payments from your surplus income.

Your discharge from bankruptcy will happen automatically if

  • the discharge is not opposed by the LIT, a creditor or the Office of the Superintendent of Bankruptcy;
  • you have attended the mandatory financial counselling sessions; and
  • this is your first or second bankruptcy.

To ensure that a greater percentage of debts is repaid to creditors, the following standards set out when an automatic discharge will occur.

Timing of your discharge from bankruptcy (automatic discharge), First Bankruptcy
First bankruptcy Timing of discharge
Not required to make surplus income payments (surplus income is less than $200 per month) 9 months after filing
Surplus income is greater than $200 per month 21 months after filing
Timing of your discharge from bankruptcy (automatic discharge), Second Bankruptcy
Second bankruptcy Timing of discharge
Not required to make surplus income payments (surplus income is less than $200 per month) 24 months after filing
Surplus income is greater than $200 per month 36 months after filing

Discharge hearing (non-automatic discharge)

If you do not qualify for an automatic discharge, the LIT will ask the court to hear your application for discharge. The court will then schedule a date for the discharge hearing.

I didn’t get my discharge from bankruptcy. How do I obtain one?

The first step is to contact the LIT who handled your bankruptcy. The LIT will inform you of the reasons why you did not receive your discharge. For example, you may need to fulfill certain conditions. (If you do not remember the LIT’s name, contact the Office of the Superintendent of Bankruptcy.)

The LIT may agree to process the discharge for a fee. Alternatively, you can ask a lawyer to apply for your discharge. If you cannot afford the LIT or lawyer fee, you may wish to contact legal aid services in your province. In addition, some provinces offer a do-it-yourself discharge kit.

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Prior to your discharge hearing, the LIT prepares a report. At the hearing, which you attend, this report is used to inform the court of the circumstances surrounding your bankruptcy. This report describes your financial situation and analyzes

  • your financial affairs;
  • the causes of your bankruptcy;
  • the manner in which you performed the bankruptcy-related duties you are required to carry out under the Bankruptcy and Insolvency Act;
  • your conduct before and after the bankruptcy;
  • whether you were convicted of any offence under sections 198 to 208 of the Bankruptcy and Insolvency Act); and
  • any other fact that could justify the court refusing your discharge.

The court can then decide to

  • grant an absolute discharge;
  • grant a conditional discharge (typically, the condition is that you pay a certain amount of money);
  • suspend the discharge (postpone it to a future date); or
  • refuse the discharge.

Impact of a bankruptcy on…

your credit rating

A person who declares bankruptcy is assigned the lowest possible credit rating (credit score).

The information in your credit report that affects your credit score is usually removed after a certain period of time. The amount of time depends on the type of information and where you live. Generally, it will be removed after six or seven years for a first bankruptcy, and after 14 years for subsequent bankruptcies.

Whether you can obtain credit after your discharge from bankruptcy will depend on your ability to convince lenders of your financial maturity and ability to repay the debt. There are no guarantees—no one is required to give you credit.

property (such as a house or car)

Bankruptcies generally do not affect the rights of secured creditors. If a creditor has a valid security against your property (e.g., a car or a house), consult with your LIT. If you can afford monthly payments, financial arrangements can be made with the secured creditor.

your spouse

Your debts are your own; however, if you and your spouse have a joint (co-signed) debt, then a creditor can pursue your spouse for repayment.

Only the portion of assets that you own is included in your bankruptcy. So, if you own assets jointly with your spouse, your portion may have to be sold and distributed to your creditors. It is important to make the LIT aware of joint assets so that each case can be reviewed individually.

someone who co-signed your loan

Anyone who co-signed a loan for you will still be responsible for making the loan payments after you go bankrupt.

wages

Wages are not affected by bankruptcy; however, you will be required by the LIT to fill out a form listing any income. If your income exceeds certain standards established by the Office of the Superintendent of Bankruptcy, you will be expected to make payments to your LIT for distribution to your creditors.

student loan debt

There are programs available to help if you are experiencing financial difficulty because of student debt.

The Government of Canada’s Repayment Assistance Plan helps those with federal student loans pay back what they can reasonably afford. If you have a student loan issued by your provincial or territorial government, contact the appropriate student financial assistance office to find out about their repayment assistance programs.

A discharge from bankruptcy will release you from your obligation to repay your student loans if you filed for bankruptcy at least seven years after you stopped being a part-time or full-time student. In the event that repaying the student loan will result in undue hardship, and provided you have made efforts to repay your loans, the court can reduce this period to five years.

Any questions?

Feel free to contact us if you have

  • questions about the bankruptcy process;
  • a complaint; or
  • a problem with your LIT.

The OSB keeps records of all complaints and can investigate any complaint. If you have a complaint against your LIT, we can review and investigate your complaint and attempt to reach an acceptable resolution with your LIT.

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