If you’re filing for bankruptcy for the first time, understanding the process can reduce the stress of uncertainty.
Here, we’ve broken it down so you know what to expect and how to get things started with the help of a Licensed Insolvency Trustee (LIT).
Bankruptcy is a legal form of debt forgiveness governed by the Bankruptcy and Insolvency Act which is legislation that protects honest debtors who can no longer pay their debts. Some people may find the formality of bankruptcy intimidating, but in practice, having a regulated solution can eliminate confusion for you, while ensuring your lenders and creditors are treated fairly. The only person qualified and authorized to manage a bankruptcy file is a Licensed Insolvency Trustee. An LIT represents you, as a debtor, but is also legally required to disclose all financial facts and information to the courts and your creditors, while helping you to resolve your debts and get a fresh financial start.
Many people experience financial problems, and this has been especially common with the added personal and financial stress of COVID-19. The effects are far-reaching: of the nearly 4-in-10 Canadians who are worse off financially due to the pandemic, almost half (46%) admit it has caused overwhelming personal debt.
If you are experiencing any of these warning signs of financial problems, it’s best to meet with a Licensed Insolvency Trustee as soon as possible. During your first meeting, an LIT will assess your financial situation and discuss available debt relief options. Bankruptcy is not right for everyone and is always considered a last resort after all other solutions are eliminated. If you’re unable to manage your debt and keep up with your payments, an LIT may find that you are insolvent as defined in the Bankruptcy and Insolvency Act. Being insolvent simply means that you are not able to pay the debts that you owe.
The LIT you choose to work with will be with you for the entire bankruptcy process. He or she will ensure you understand your rights and obligations, and will communicate with your lenders and creditors. If you choose to file for bankruptcy, an LIT will draw up the necessary paperwork, which you will need to sign. Your LIT will then file your paperwork with the Office of the Superintendent of Bankruptcy Canada.
When you file for bankruptcy, a stay of proceedings is put in place, which provides you with protection from your unsecured creditors. These creditors cannot take any further legal action against you once they’ve been legally notified that you’re working in good faith with the LIT to resolve your debts. Wage garnishments, collection activity and credit calls will stop. Even the Canada Revenue Agency should stop contacting you to collect unpaid taxes once they’re notified of your bankruptcy filing.
Certain debts aren’t covered by a stay of proceedings, such as car loan debt from a secured creditor. In that case, the creditor may be able to take your vehicle if you can no longer make your payments. If you make support payments, such as child or spousal support, you’ll be required to continue to do so. Many fines or penalties are also not covered. When you are reviewing your debts with an LIT, he or she will inform you what can be included in your bankruptcy filing and what cannot.
While it doesn’t happen often, your creditors and lenders have the legal right to dispute the LIT’s assessment. In this situation, a judge will review the filing and determine whether or not the stay of proceedings should be upheld. Once the stay of proceedings is in place, people often feel a huge sense of relief.
During the term of your bankruptcy, you will have certain responsibilities in order to be eligible for a discharge, including the following:
Typically, you will be automatically discharged from bankruptcy after nine months if you are a first-time filer. Assuming you complete all of your duties under the bankruptcy agreement, you’ll receive a certificate of discharge. If the LIT recommends that you should be discharged with conditions, or if a creditor/lender is opposed to your discharge, there may be other conditions put in place to help you avoid future financial problems and satisfy your creditors. Sometimes, if you have surplus income (greater than $200 a month), your bankruptcy can be extended to 21 months, and you will continue to make payments as determined in your filing.
Filing for bankruptcy in Canada doesn’t have to be confusing or stressful. If your debt has become overwhelming and you want to know what solution is right for your situation, meet with a Licensed Insolvency as soon as possible. If you’d like to read more about the bankruptcy process, check out this list of bankruptcy Q&As.
If you want relief from your debt and are considering filing for bankruptcy in Canada, schedule a free no-obligation meeting with a BDO Licensed Insolvency Trustee today.