How to File Bankruptcy in Canada
Bankruptcy is a legal process that can provide relief to honest but unfortunate debtors. When you are in bankruptcy, no unsecured creditor can garnishee your wages or initiate any other collection action against you.
However, bankruptcies generally do not affect the rights of secured creditors, i.e., those who have a valid security against your property, such as a car or a house.
A bankruptcy can only be filed through a trustee in bankruptcy, an individual licensed by theOffice of the Superintendent of Bankruptcy (OSB) to administer the bankruptcy process.
Note: Your own bankruptcy does not affect the liability of anyone who guaranteed or co-signed a loan on your behalf. Your spouse, for example, may be accountable for liabilities incurred jointly with you. It is, therefore, important to make the trustee aware of joint liabilities.
The Process of Bankruptcy in Canada
Step 1: Contact a trustee
Schedule a initial consult and then you will have a follow up meeting with him or her to talk about your personal situation and your options. The meeting is completely confidential and no charge or obligation to you.
The trustee will evaluate your financial situation and provide you with an explanation of the merits and consequences of the various options available to help you to solve your financial problems.
Step 2: Work with the trustee to compile your info and complete documents
The trustee will then file the bankruptcy with the Office of the Superintendent of Bankruptcy.
The trustee will prepare the necessary documents and file them with the OSB. You will then formally be declared bankrupt. From that point on, the trustee will deal directly with your creditors.
Once you are bankrupt,
- you will stop making payments directly to your unsecured creditors;
- Student loans have special rules in the BIA regarding bankruptcy
- garnishments against your salary will stop; and
- lawsuits against you by your creditors will be stayed (stopped).
Step 3: The trustee may sell your assets
The trustee will then sell your assets, except those exempted by provincial and federal laws, and hold the proceeds in trust for distribution to your creditors. This includes all existing assets as well as those acquired prior to the discharge of your bankruptcy.
Once you have filed for bankruptcy, you cannot dispose of any assets assigned to the trustee.
During the bankruptcy, you will also be required to make payments to your trustee for distribution to your creditors.
Step 4: Arrange to make payments to the trustee
The trustee determines how much you will be required to pay. He or she calculates the amount by taking into account your total income, income standards issued by the OSB, and your personal and family situation.
Step 5: The trustee notifies your creditors of the bankruptcy
The trustee will notify all of your creditors about your bankruptcy. Depending on the expected size of your bankruptcy estate and whether or not there are requests from creditors or the OSB, there may be a meeting of creditors.
Step 6: You attend a meeting of creditors, if one is called.
The purpose of this meeting is to
- allow creditors to obtain information about the bankruptcy;
- confirm the appointment of the trustee;
- appoint up to five inspectors to supervise the administration of your estate; and
- allow creditors to give directions to the trustee.
Step 7: You attend an examination by an officer at the OSB, if required
After filing for bankruptcy you may be examined under oath by a representative of the OSB. The purpose of the examination is to question you, the bankrupt, with respect to your conduct, the causes of the bankruptcy and the disposition of your property.
Step 8: You attend two mandatory counselling sessions
The purpose of the counselling is to help you discover and understand the causes of your bankruptcy. These sessions will also provide information to assist you in managing your financial affairs in the future.
Step 8: The trustee reports to the OSB your actions during the bankruptcy
In certain circumstances, the trustee prepares a report regarding your application for discharge. This report describes your financial situation and analyzes
- your financial affairs;
- the causes of the bankruptcy;
- the manner in which you performed your duties under the Bankruptcy and Insolvency Act (BIA);
- your conduct before and after the bankruptcy;
- whether you were convicted of any offence under the BIA (sections 198 to 208); and
- any other fact that could justify the Court refusing to your discharge.
Step 9: You attend the discharge hearing, if required
You will be automatically discharged nine months after filing for bankruptcy if the following conditions are met:
- this is your first bankruptcy;
- your discharge is not opposed by the Office of the Superintendent of Bankruptcy, the trustee or a creditor;
- you have not refused or neglected to receive counselling; and
- you are not required to pay a portion of your surplus income into the bankruptcy estate as per the standard established by the OSB.
If you are required to make payments from your surplus income, you will be eligible for an automatic discharge after contributing part of the surplus to your estate for 21 months.