Budgeting is the most effective way to prevent debt. Keeping to a budget will help you control your spending. Prior to the introduction of credit cards in 1967 people paid for items using money they had saved. You should put money aside each month for fixed expenses that are due over the course of the year. A suggestion may be to set up a separate bank account where the monthly amount being set aside for non-recurring expenses be deposited in that account. That way you will have the funds available when you receive a bill (e.g. household and car expenses and repairs, non recurring expenses such as insurance not paid monthly, gifts). If you find that you are using the other account other than for the non-recurring expenses then it is a sign that you may have a cash flow problem dealing with your monthly expenses. You will be able to determine that there is a problem a lot sooner using this method rather than relying on credit to cover your monthly shortfall.
There is no typical profile that applies to all bankruptcy victims. People of any age or social status may face bankruptcy as a result of difficult personal situations such as illness, job loss, business failure or marital problems.
You should attempt to keep a steady job, make a budget and stick to it, use cash payments whenever possible, and save money for unexpected expenses. This will help improve your credit score. Taking out new loans from your financial institution and making your payments consistently will also show that you have recovered from your financial troubles.
Bankruptcy Laws in Ontario
In the majority of personal insolvencies in Canada, lawyers are not used. A Trustee in bankruptcy is licensed by the federal government to administer specific types of insolvency procedures under Canadian law. Most Trustees are professional accountants, although number of lawyers have specialized in the area of insolvency law. If any issues are contested in a bankruptcy then a lawyer may be hired to make an argument on behalf of the parties involved. Keep in mind that if you do need a lawyer they should have specialized knowledge in insolvency matters. The Canadian bankruptcy system has been designed to minimize the costs associated with filing bankruptcy so that as much money as possible may be returned to the creditors. The cost of bankruptcy is kept as low as possible by not involving lawyers except in the most contentious cases.
Bankruptcy fraud occurs when people abuse the system and continue to obtain and use credit knowing that they can’t repay the money they are borrowing. They may be in financial difficulty because of situations that they have created themselves through bad faith and fraud. The Office of the Superintendent of Bankruptcy (OSB) is responsible for supervising the administration of bankruptcy files in Canada and investigating cases where offences may have been committed. It may intervene before the Court in cases where bankrupts have failed to meet their obligations or when their conduct is deemed to be inappropriate. Trustees in bankruptcy and creditors may also make representations to the Court in such matters.
The most common offences committed under the BIA and the Criminal Code are when the bankrupt:
- Fraudulently disposes of property before or after the bankruptcy
- Makes false entries in a statement of account or hides, destroys or falsifies a document related to his/her property or affairs
- Obtains credit or any other goods through false representations
- Conceals or fraudulently removes property, or conceals claims or debts
- Obtains credit or engages in trade without informing the people involved that he/she is bankrupt (a person who is bankrupt and borrows $1,000 or more must inform the lender that he/she is bankrupt)
- Refuses to respond fully and truthfully to questions posed during an examination held in accordance with the BIA
Cost of Bankruptcy
Our fees are determined by the Bankruptcy and Insolvency Act and by our professional code of ethics. The cost of bankruptcy varies by case according to income, recoverable assets in the bankruptcy, and whether or not it is a first bankruptcy. The cost will be determined during your first meeting with us once we are able to discuss your specific issues.
Effects of Filing Bankruptcy
No. In fact, bankruptcy prevents your creditors from garnishing your wages and protects your income to ensure a reasonable standard of living.
If my wages were garnished by a creditor before my bankruptcy, will my employer be informed of my bankruptcy?
Your employer was already contacted by your creditors so they could garnish your wages. In order to stop this wage garnishment, we will have no choice but to inform your employer of your bankruptcy. To avoid this, you should consider declaring bankruptcy before one of your creditors garnishes your wages.
When a person files an Assignment in Bankruptcy, a portion of their take-home pay may be payable to the Trustee for the benefit of all creditors. The actual amount payable depends on several factors, including: the take-home pay of the family unit, the number of people in the family and whether the family has non-discretionary expenses such as child care or child support. Any questions you have with respect to surplus income can be addressed with the Trustee when you first meet with us.
Under the Canadian bankruptcy surplus rules, if you have surplus income greater than, on average, $200 per month, your bankruptcy is automatically extended for a further 12 months. A first time bankrupt with surplus income is bankrupt for 21 months, and they are required to make surplus income payments for the entire 21 months. The surplus income rules in Canada are very complicated. There are countless possible outcomes depending on your personal situation. Before you decide to file bankruptcy, you need to have a detailed consultation with a Dana Trustee professional, and ask them to explain, in detail, how your surplus income payment will be calculated in your case. Spending ten minutes with us and a calculator will help you prepare for your bankruptcy. With proper research you can understand how the rules will affect you, and you can be prepared for all possible situations. For more details on income during bankruptcy see Directive 11R2-2012 from the Office of the Superintendent of Bankruptcy Canada.
Tax refunds for the bankruptcy year will be seized by the Trustee. HST refunds will be sent to the Trustee until the Trustee notifies Canada Revenue Agency that the HST refunds can be sent to the bankrupt directly. This would be the case when your fee obligations to the bankruptcy estate have been met. Any HST refunds received by the Trustee and are not required for the fee obligation of the bankruptcy estate are returned to the bankrupt before the Trustee finishes the administration of the estate. Federal tax credits will be sent directly to the Trustee. Provincial tax credits for the year of your bankruptcy will have to be transferred to the Trustee.
If I declare bankruptcy, will the money I receive for my children from the federal and provincial government be seized?
No, family allowances will not be seized and are sent directly to the bankrupt.
Only contributions made to RRSPs during the 12 month period prior to the date of bankruptcy will be seized. Pensions are generally exempt from seizure but are recorded as income during the bankruptcy administration.
If you finished school more than seven years ago, you will not have to pay off your student loan because it becomes a dischargeable debt in the event of bankruptcy. Otherwise you will have to continue paying off your loan but may qualify for suspended payments until the bankruptcy has been completed. Contact students loan to see if you would qualify.
Income taxes owed before the date of bankruptcy are almost always dischargeable in a bankruptcy, therefore you will not have to pay them.
Your share of an inheritance may be seized in the event of bankruptcy.
For a first bankruptcy, you are eligible for an automatic discharge after nine months or 21 months if you have income exceeding the standard amount deemed to be reasonable by the Government of Canada. For a second bankruptcy, it may take 24 to 36 months. In any case, if you are an individual with tax debt of over $200,000 that totals more than 75% of your total debt, you cannot receive an automatic discharge. The licenced insolvency trustee will have to file an application with the court. Company debt obligations are not included in the $200,000 calculation for directors.
It varies by credit agency. In general, your credit score will be affected for 6 years after discharge for a first bankruptcy and for 14 years for a second bankruptcy. You may be able to rebuild your credit earlier, though. Our experts can show you how to fix your credit. However, if you make a consumer proposal your credit score will be affected for 3 years after you have paid the full amount promised to your creditors in your proposal.
The law sets no limit. However, if you have declared bankruptcy repeatedly (3 or more times) the application for discharge must be filed with the court. The bankruptcy court may then issue a discharge judgment extending the bankruptcy period or a conditional discharge judgment ordering the payment of an additional amount.
A person who has declared bankruptcy cannot be the director of an incorporated company but can still be an officer of the company. However, if the company is not incorporated, the bankrupt person may continue to manage it. If the bankrupt person is self-employed, he or she may continue to run the business.
When you are in bankruptcy, you cannot be the director of an incorporated company. You may continue to be self-employed, however. During your bankruptcy, you may also run an unincorporated sole proprietorship.
To annul your bankruptcy, you have to pay your creditors back in full and file a petition with the court. It could also be annulled if you make a proposal to creditors while in bankruptcy and the proposal is accepted by creditors.
Debt Problems and Possible Solutions
You may be able to borrow money from a bank or other financial institution depending on your income, job stability, and debt level. If you cannot reach the debt ratio required by financial institutions, you cannot consolidate your debt. In that case, we recommend you meet with a Licensed Insolvency Trustee.
I have a lot of debt and I don’t want to declare bankruptcy. Is there another way I can get out of debt?
Yes, there are several ways for people to get out of debt including consumer proposal and debt consolidation. One of our professional team members will explain your options to help you make the best choice for your situation.
The steps to bankruptcy are as follows: assessing the situation, signing the documents, and filing for bankruptcy, reporting your monthly income, the two follow-up counseling sessions, and discharge. Expect the process to take at least nine months for a first time bankruptcy provided you do not have any income exceeding the standard amount deemed to be reasonable by the Government of Canada. If your income exceeds the standard amount deemed to be reasonable by the Government of Canada it may last 21 months. The process is longer for a second time bankruptcy. It will last between 24 months and 36 months, depending on income.
According to the Bankruptcy and Insolvency Act, people with $1,000 in debts can declare bankruptcy if they are unable to pay their debts on time. In practice, when someone has less than $5,000 in debts other solutions may be considered.
Most debts, but not all are discharged through the bankruptcy process.
Examples of debts not discharged are:
- Secured debts (e.g. Mortgage or car loan);
- Child support, maintenance, alimony
- Court fines, penalties and traffic offences
- Debts obtained by fraud or fraudulent misrepresentation
- Student loans, if less than seven years since leaving university or college
- Civil claims arising from personal or sexual assault
A secured creditor is a lender to whom you have pledged one of your assets as collateral to obtain a loan or mortgage. For example, when you purchase a home, it is used as collateral for the mortgage. Or if you obtain a loan, the vehicle you own may be taken as collateral against the loan. One word of caution: If you decide to retain financed assets and then decide later, after bankruptcy, that you would like to return the asset, you may be required to repay the creditor the total amount due. No debtor should make arrangements to reaffirm a loan and retain an asset until the secured creditor has filed a claim with the Trustee and the security is valid and has confirmed that the Trustee has no interest in the asset. If you are unsure whether a creditor has collateral against your assets you can do a Personal Property Registry search at any Ontario registry office.
Bankruptcy and Consumer Proposals are two ways of stopping seizure proceedings. Feel free to contact us today for advice.
Assets You Can Keep in Bankruptcy In Ontario
The Execution Act of Ontario provides exemption from seizure by judgment creditors) or in bankruptcy proceedings are as follows:
- Clothing and personal effects up to a value of $5,650.00
- Household furniture up to a value of $11,300.00
- Motor Vehicle up to a value of $5,650.00
- Tools of the Trade up to a value of $11,300.00
- The livestock, fowl, bees, books, tools and implements and other chattels ordinarily used by the debtor in the debtor’s business or calling not exceeding $28,300 in value;
- Sufficient seed to seed all the person’s land under cultivation, not exceeding 100 acres.
- Fourteen bushshels of potatoes; Where seizure is made between the October 1st and the April 30th, such food and bedding as are necessary to feed and bed the exempt livestock and fowl until the following April 30th.
Other Legislation also allows Ontario residents to keep:
- registered retirement savings plans (RRSPs) with the exception of any contributions made to RRSPs during the 12 month period prior to the date of bankruptcy
- Cash surrender value of life insurance policies where the beneficiary named is the spouse, child, parent or grandchild.
- Generally, pension plans.
For further details on what you can keep, see Directive 11-R2 (from the Superintendent of Bankruptcy)
Income during bankruptcy (Surplus Income – Directive 11-R2)
When a person files an Assignment in Bankruptcy, a portion of their take-home pay may be payable to the Bankruptcy Estate for the general benefit of the unsecured creditors. The actual amount payable depends on several factors, such as the net take-home pay (Income after statutory deductions such as Canada Pension Plan (CPP), Employment Insurance (EI) and Income Tax) of the family, the number of people in the family and whether the family has non-discretionary expenses such as child care or child support. Any questions you have with respect to surplus income can be addressed at your initial consultation.
My Spouse, Partner, and Family in Bankruptcy
A party can only be held responsible for repayment of a debt if they have signed a contract, loan agreement or credit card application. If your spouse or partner never signed a contract or requested a credit card for your debt, they cannot be held responsible for the debt. In Canada, marriage does not make you responsible for your spouse’s debts. A spouse’s credit rating is not affected by you filing an assignment in bankruptcy unless your spouse has debt common to both you and your spouse and that debt is not being paid by your spouse. Depending on the families financial situation a spouse may not have to file an assignment in bankruptcy. Meaning that if your spouse continues paying their own debt , no steps need to be taken by the spouse. With respect to credit cards, there are two ways in which the second party can be held responsible for repayment of the debt.
- The individual actually requests a secondary card and signs an agreement saying they accept full responsibility for current and future debt.
- The credit card company sends a card out in the second individual’s name with the primary cardholder’s number and the second individual actually signs and uses the card. Use of the card will hold the secondary person responsible for any past and or future debt.
Should you wish to remove your spouse or partner from your credit card or loan document, you must get confirmation in writing from the financial institution. If you do not obtain written confirmation, there is no guarantee the institution has removed the second party from their records. Also, responsibility for debt between spouses as listed in a separation or divorce agreement does not legally bind a financial institution or creditor. Unless you obtain concurrence to the division and re-assigning of responsibility of debt from the creditor, they have the right to pursue anyone who signed on the debt.
Bankruptcy does not relieve the bankrupt of any support obligations that has been ordered by a Court.
A member of my family died, leaving behind a lot of debt. As heir, do I have to pay the debt? If so, how can I get rid of it?
To avoid paying this debt, you just have to relinquish your inheritance. The deceased’s estate will then be placed under curatorship or it will go bankrupt. On the other hand, if you take the inheritance you will be responsible for the debt to the extent of funds you have received. You must first determine how much the assets are worth and whether they are worth more than the debts. If they are, some assets will be liquidated to pay the debts. If you are an executor in an insolvent estate in Ontario you might want to consider assigning it into bankruptcy. We have had plenty of experience with these situations.
Any inheritance that you are entitled to vests in the bankruptcy estate until you are discharged from bankruptcy. The funds will be paid to the licensed insolvency trustee to the extent necessary to pay your unsecured creditors and bankruptcy costs. If any funds remain, those funds will be delivered to you by the licensed insolvency trustee.