Personal Bankruptcy

 
According to recent statistics released by the Canadian Government, in 2005 over 100,000 individual Canadians filed for personal bankruptcy or filed a Consumer Proposal.

This figure is the highest in Canadian history. So even though the economy in recent years has been strong, it is clear that there are many reasons that lead tens of thousands of people to be in a position where their debts overwhelmingly exceed their income.

The Canadian legislation provides financial relief for honest, but unfortunate people. No one chooses to be in unfortunate circumstances but it does happen and it is good that legislation is available to get protection from debt collection and to be able to get a fresh start.

Here are some things you need to know about what bankruptcy involves.

1. To obtain the protection of bankruptcy you are required to meet with a licensed Trustee in Bankruptcy. When you legally start your bankruptcy you file an "Assignment in Bankruptcy" and you are turning over control of your non-exempt assets to the Trustee. These assets are sold by the Trustee and the money received is used to repay a portion of your debts.

2. Provincial legislation, the Civil Enforcement of Alberta, provides that you can keep certain exempt assets. For the majority of people most assets are exempt.

Here are some examples of exempt assets:

a) Food required during the next 12 months

b) Clothing up to a value of $4,000;

c) Household furnishings and appliances up to a value of $4,000 (if there are no liens on the furniture or appliances)

d) Personal property to a value of $10,000 used to earn income (tools of trade);

e) One vehicle in which the equity or value is not more than $5,000;

f) Equity up to $40,000 in a house or mobile home actually occupied by the debtor;

g) Medical and dental aids;

h) In the case of an individual whose primary occupation is farming, up to 160 acres of land if the individual's principal residence is located on that land and that land is part of the farm;

i) In the case of an individual whose primary occupation is farming, the personal property that is necessary for the proper and efficient conduct of the farming operations for the next 12 months;

An item that is secured by a creditor by means of a mortgage or a security agreement must be either paid for or given up to the creditor even if it is otherwise an exempt asset. Most often payments continue to the secured creditor for assets like a house or car.

3. The Trustee is responsible for notifying all your creditors of your bankruptcy. The creditors must deal directly with the Trustee and you will not be bothered by collection efforts during the bankruptcy.

4. The Trustee has a duty and responsibility to both you and your creditors to ensure fair and equitable treatment according to the rules stipulated in the Bankruptcy and Insolvency Act. A Trustee is similar to a referee in a hockey game and helps to make sure that both sides understand and play by the rules. In rare situations either side may need a "coach" in addition to the referee and a lawyer would have to be retained.

5. Your goal in a bankruptcy is to obtain a discharge and be released from any obligations in the bankruptcy.

Required duties include:

a) There are two mandatory counselling sessions during the bankruptcy. The first counselling session is held after about two months and the second session is held after six months of the date of assignment.

b) While you are in bankruptcy, you must submit monthly statements of your income and expenses. They must be submitted by the 15th of the following month. A portion of your income may have to be paid to the Trustee depending on your income and size of family. A bankrupt may have to pay to the Trustee a portion of their net income that is above the Superintendent's Standards. These payments are to be remitted typically for 9 months and up to 21 months. The details of how this works will be explained to you at your assessment interview.

c) The Trustee will file tax returns for the year of bankruptcy and the year prior to bankruptcy if not already done. You are required to give whatever assistance is necessary in obtaining and delivering information to the Trustee.

d) Surrendering, delivering or assisting the Trustee in the sale of non-exempt assets, if there are any.

6. Normally, you will be discharged from bankruptcy automatically after nine months. However, the following matters can result in a Conditional, Suspended or a Refusal of Discharge:

• If you have failed to complete any of your duties in the bankruptcy.
• If there is an objection from a creditor a hearing will be set with the Court. This is very rare in Canadian bankruptcies. The Court will have to decide on the terms of your discharge.
• If, in the opinion of the Trustee, you could have made a viable proposal but chose to proceed with a bankruptcy, the Court will have to decide on the terms of your discharge.
• If during the first nine months your circumstances improve and if you have the ability to repay more to your creditors, you may be required to pay additional amounts.
• If you have been bankrupt previously you are not eligible for an automatic discharge and the Court will have to decide on the terms of your discharge.

7. Once discharged, you will no longer be responsible for most of your debts or obligations. Debts which must still be paid include the following:

a) Alimony or support of child or spouse;

b) Fines or penalties imposed by a Court;

c) Debts obtained by fraud or fraudulent misrepresentations;

d) Student loans incurred within the last ten years

8. Your credit rating will probably be destroyed whether you declare bankruptcy or file a formal proposal. (Chances are it's not in great shape now!) It may take several years to fix your credit rating and you are responsible for doing this. Owning a house, building up some savings, having good income and not changing your address frequently are likely to help this process.

For further information or to get assistance contact us by phone at 403 266-6665, email or come in for a free consultation.