The bankruptcy process – what goes on

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Are you curious about what occurs during bankruptcy?

Personal bankruptcy demands more from the debtor than any other debt relief option in Canada. Here are the duties required of you in bankruptcy:

  • Surrendering your assets
  • Income and Tax Requirements
  • Education and Legal Demands
  • Other Miscellaneous Duties

Surrendering your assets

Unlike most other debt-relief options, filing for bankruptcy indicates you must surrender certain assets to your bankruptcy trustee. These assets pay your creditors part of what you owe them. Otherwise, you submit them to avoid bearing new debt during bankruptcy.

With some exclusion that differ by province/territory, you may have to hand over your vehicles, household furnishings, jewellery, and other worthy items. You may even have to submit your house if it is worth more than what you owe on the mortgage. You will not be left broke but will have lesser assets when the bankruptcy is ultimately discharged.

One of the top causes of bankruptcy is credit card debt. Thus, you must surrender all your credit cards except employer-issued ones. This way, you will only rack up a little debt as you pursue debt forgiveness in bankruptcy.

Income and Tax Requirements

During the bankruptcy process, one of the costs you may have to pay is the extra income cost. Surplus income is the income you take home each month above Canadian law’s permitted income levels. So, if you make more than the law states you should be creating in bankruptcy, the excess goes to your trustee to pay your creditors. You must supply your trustee with pay stubs documenting your expenses each month in bankruptcy. Provide your bankruptcy trustee with all the documents needed to satisfy your tax return, including your T-4 slips.

Education and Legal Demands

Under a consumer proposal, creditors can call a meeting to determine whether they should accept your offer. These meetings seldom happen during bankruptcy, but they occur. At the meeting of creditors, you answer queries about your financial position and other matters.

The law states you must have two credit counseling sessions during bankruptcy. This counseling helps you learn the skills that can help keep you from falling into financial trouble again. Taking your initial session within 60 days of filing and the second within 210 days of filing makes you qualified for a discharge of bankruptcy nine months from the filing date.

Other Miscellaneous Duties

In addition to the above-mentioned bankruptcy duties, you are also required to:-

  • pay the LIT to administer your bankruptcy trust each month
  • inform any potential lender who is extending a $500 loan or more to you that you are bankrupt
  • keep in touch with your trustee and provide anything they demand, including various forms, your current address, and so on
  • refrain from serving as a company director

Are you considering declaring bankruptcy? Bankruptcy might be your final, most suitable option, but it is the most challenging debt relief option. If you want to know what happens during bankruptcy, we can discuss it more. Contact Dana MacRae, Licensed Insolvency Trustee, for a free and confidential consultation. 

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