What duties are required during the bankruptcy process?

Personal bankruptcy laws in Canada are governed by the Bankruptcy & Insolvency Act.  Failure to complete your duties will delay your bankruptcy discharge so it is important you understand fully your requirements once you declare bankruptcy.

Duties at the start of bankruptcy

As soon as your bankruptcy begins, you must complete the following:

  • Disclose all property (assets) in your possession and deliver non-exempt assets to the trustee;
  • Hand over all credit cards to the trustee for cancellation;

 Creditors meeting

  •  Attend any required meeting of creditors or examinations by the Official Receiver.  At this meeting, your creditors will have the opportunity to ask questions about your bankruptcy. A meeting of creditors is held if requested by the Superintendent of Bankruptcy or by creditors with an aggregate of at least 25% of the proven claims. These meetings are usually held at the office of the trustee.

Income tax/other documentation

  •  Provide any documents requested by the trustee including all forms, tax returns, insurance policies etc. When you file for bankruptcy, the day you file is treated like the end of your tax year so that in the year you file bankruptcy the trustee will file two different tax returns. Any income tax debt will be included in your bankruptcy up to the date of bankruptcy.  Any refund to which you are entitled will be an asset that will come to your trustee for your creditors.

Monthly reporting 

  • Report your household income and expenses each month to the trustee, along with copies of your pay stubs; and
  • Make all required payments, including surplus income. The trustee will determine if your net income was higher than the limit allowed by law for you to live. If you have any ” surplus income”, you will be required to make a payment each month to the trustee. These funds are held in trust for the benefit of your creditors.

Credit counselling

  • Attend two mandatory credit counselling sessions. This credit counselling is designed to teach you budgeting and good money management skills so that you are less likely to have financial problems in the future.

Other duties 

  • You must keep the trustee informed as to your whereabouts (ie change of address/phone number).
  • You must respond to the trustee’s requests, assist him or her as required, and provide whatever information is requested.
  • You cannot apply for credit of more than $1,000.00 without disclosing that you are an undischarged bankrupt. This means that while you are bankrupt you will not have access to credit.
  • You may not be a director of a company.

Timely completion 

It is essential you complete these duties in a timely manner, so that your bankruptcy can be completed as soon as possible. If the duties are not completed, your discharge date will be postponed. The earlier you obtain your discharge, the earlier you will be able to rebuild your credit and live life normally again.

Give us a call for a free consultation, we would be happy to assist you with a new financial beginning.

How do I correct an error on my credit report?

It is important that you request a copy of your credit report from the two credit-reporting agencies at least once a year to verify that your personal information is up to date, that your financial information is correct, and to ensure that you have not been the victim of identity fraud. You can do this free of charge by contacting both credit bureaus in Canada: Equifax and Trans Union.  Lenders will often refuse credit even if it is clear an error has occurred on your credit report, and they will not issue credit until the mistake is rectified.

To correct an error on your credit report, both credit bureaus provide a form to complete and send back to them.  When completing this form, be as specific as possible.  Once the form is received by the credit bureau and after their investigation, they will either correct the error or not, based on their findings.  Should your dispute be valid, the information on your credit report will be changed according.  If you do not agree with an item following the credit bureau’s investigation, Equifax and Trans Union websites inform you as to how you can add an explanatory statement to your report.

The contact information for the major credit reporting agencies in Canada are as follows:

Equifax Canada

Tel: 1-800-465-7166
Fax: 514-355-8502

Trans Union Canada
Tel: 1-866-525-0262 (For all residents except Quebec)
Tel: 1-877-713-3393 (For Quebec residents)

Give us a call for a free consultation, we would be happy to assist you with a new financial beginning.

What you can keep when filing for bankruptcy.

Bankruptcy provides an individual, who is overwhelmed with debt, the opportunity for a fresh financial start.   As part of the process, the individual is left with enough possessions to maintain their dignity and to assist them towards a fresh start.  The property exempt from seizure is set by the provinces, the territories and the Bankruptcy and Insolvency Act.

 

Bankruptcy exemptions refer to the equity in the property that is exempt from seizure in a bankruptcy.  (For example, if you have a vehicle worth $20,000 and there is a $15,000 secured loan against it, the equity in the vehicle would be $5,000).

The exemptions in British Columbia are as follows:

  • Equity in your principal residence in Greater Vancouver and Victoria up to a value of $12,000.  In the rest of the province up to a value of $9,000;
  • Equity in household items up to a value of $4,000;
  • Equity in a vehicle up to a value of $5,000.  The vehicle exemption drops to $2,000 if the person is behind on child care payments (to facilitate the enforcement of Maintenance Orders);
  • Equity in tools of the trade up to a value of $10,000;
  • Exemptions are in effect for all registered retirement savings plans (RRSP’s, RRIF’s and DPSP’s).  Contributions made in the 12 months prior to the date of bankruptcy will be recovered (clawed back) for the benefit of the bankruptcy estate.  RESP’s are not exempt.
  • Equity in essential clothing and medical aids is unlimited.

Is my retirement plan/pension safe if I file for Bankruptcy?

The vast majority of Canadians who file for bankruptcy are honest but unfortunate debtors who will go to great lengths to pay off their debts.  Some of these people have cashed in their RRSPs in a desperate, futile attempt to pay off their creditors. By the time they file for bankruptcy, their RRSPs are gone – leaving them no savings for their retirement years.

Under the Bankruptcy and Insolvency Act, a trustee is appointed to administer a person’s file.  When a person files for bankruptcy, they assign over their assets to the trustee.  One of the trustee’s duties is to take the assets, convert them into cash, and distribute them amongst your creditors.  Under the Act, the government of Canada supports a person’s right to hold on to their RRSPs, even in a bankruptcy.

The Act provides that a person, who files for bankruptcy, can retain the following

  • All Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFS) are exempt from seizure in bankruptcy, except for contributions made in the 12-month period leading up to the bankruptcy
  • An RRSP that is locked-in as a result of a previous employment. The most common example of a locked-in RRSP is an employee who works for a company with a pension plan. The employee leaves the company before retirement, so the employee’s accumulated pension entitlement is converted to a locked-in RRSP.
  • RRSP’s that have a life insurance element are usually exempt in a bankruptcy.

To discuss your RRSP investments and bankruptcy, make an appointment today.  We offer a free initial consultation to explore options for a financial fresh start.

Not all debts are Forgiven

A consumer proposal or a bankruptcy is a formal process under the Bankruptcy and Insolvency Act that allows people to get discharged from their debts that they owe to creditors.  Certain debts/obligations will survive the process and you will be still required to pay them.  The five most common debts that would survive are as follows:

1)        Student loans less than 7 years old:  A consumer proposal or bankruptcy can only discharge student loans that are over 7 years old.  If you have a student loan that is more recent than this, the debt will still be yours to repay even after completion of the process. If you have other debts, a consumer proposal or bankruptcy would eliminate these obligations possibly making it earlier to service your student loan debts.

2)        Child support: If you have been ordered by a court to pay child support, a consumer proposal or bankruptcy will not affect this arrangement. You will be required to continue to make payments.  As well, whatever payment arrangements you have will remain in effect during the process.

3)        Alimony: Similar to child support, alimony or spousal support is not discharged in a consumer proposal or bankruptcy. Even after completion of your bankruptcy, you are not released from spousal support payments.

4)        Debt related to fraud or misrepresentation: Any debts accumulated as a result of fraud will not be discharged through a consumer proposal or a bankruptcy. For example, if prior to your consumer proposal/bankruptcy, you racked up expensive charges on your credit cards (with no intention of paying these debts back), your creditors can apply to have this debt excluded from your discharge.

5)        Court-imposed fines: If you have been fined in a court of law, you will have to pay the fine regardless of your consumer proposal or bankruptcy.

Surplus income in Bankruptcy

When you make an assignment into bankruptcy, you are required to make a surplus income payment, a contribution to your estate, each month based on your income.  Somewhat of a confusing term, as surplus income is based on your net take-home pay on a monthly basis and not based on what available funds you may have left after you pay your monthly bills.  The more you earn above the established limits, the more you are required to contribute.  Surplus income is accumulated in a trust account and dispersed amongst all your creditors at the end of the process. 

Here are the income limits set for 2012, based on your family size:

          Family Size          Limit

                1                 $1,980
                2                 $2,465
                3                 $3,031
                4                 $3,680
                5                 $4,174
                6                 $4,737
                7+               $5,241

 As an example, a single person in 2012 is allowed to have take-home pay each month (income after taxes) of $1,980. For every dollar their income exceeds this limit in a month, they are required to make a contribution of 50% of the amount they are over the limit to the trustee, in form of a surplus income payment.

If that person earned net-take home pay of $2,500 in a month, they are $520 over the limit, so they would be required to contribute $260 (which is referred to surplus income) to their bankruptcy estate for the current month.

Each month you would be required to submit proof of your net take-home pay to the trustee.  If you have proof of the following payments, you can deduct these amounts from your net take-home pay – spousal/child support payments, child care payments, medical bills, fines and employment expenses, as allowed by Canada Revenue.

The duration of your bankruptcy will be based on your surplus income requirements as follows:

  • A first time bankrupt with no surplus requirement is entitled to an automatic discharge in 9 months.  If you have $100 or more in surplus requirements, you will be bankruptcy for 21 months.
  • A second time bankrupt with no surplus requirement is entitled to an automatic discharge in 24 months.  If you have $100 or more in surplus requirements, you will be in bankruptcy for 36 months.
  • A third (or more) time  bankrupt would be required to go to bankruptcy court, and the bankruptcy court will decide how long you would be in bankruptcy (quite possibly for more than three years if you have excess earnings).
  • A bankrupt who has debt owing to Canada Revenue Agency in excess of $200,000 is not eligible for an automatic discharge.

If you require additional information, please contact us for a free consultation.  During the process, we would calculate your surplus income.  The most important thing to understand is what your limit is, so you can estimate the cost of your bankruptcy.  For further information, you can visit the website of Office of the Superintendent of Bankruptcy at www.osb.ic.gc.ca