Facts, Questions and Answers
General
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It is generally possible for a person to keep their house when they file for bankruptcy or file a proposal to creditors.
Any debtor in B.C. outside of the Lower Mainland area is entitled to equity in their principal residence of $9,000. (Exemption rules vary by province.)
Equity is calculated by deducting the total amounts owing on a mortgage and any property tax arrears from the market value of the property. If the equity is under $9,000 the house may be claimed exempt. There is no equity allowance if you do not live in the property.
If the equity exceeds $9,000 it is still possible to retain the property subject to the excess amount being made available to the Trustee, for the creditors (arrangements must be satisfactory to the Trustee, the creditors, and the Court if the amount is large).
Your mortgage company is not able to foreclose if your payments with them are current and there are no other acts of default under the mortgage.
If you have arrears on your mortgage or if you have in anyway violated your mortgage it may be tougher to retain the property. You may be wise to make arrangements with your mortgage company to catch up any arrears prior to filing a proposal or for bankruptcy ("filing").
Your mortgage company will be notified by the Trustee upon filing.
The mortgage is not "excluded" from these proceedings, it is simply treated differently as it is a secured debt, i.e. a debt in which an asset (the house) is held as collateral.
If a foreclosure has been commenced it will be difficult to retain your house. The lender has a right to foreclose in order to protect their investment if you fail to make the payments called for in the mortgage. In a foreclosure however the court will give a borrower some time to catch up which is referred to as a "Redemption Period". It can be as little as a day or as much as 6 months, or longer in some circumstances.
Renewal of the terms of a mortgage is normally routine but a lender may not be obligated to renew if they do not want to. In order to avoid the likelihood of this problem it may be worth renewing the mortgage for as long a period as possible prior to filing.
A 3-5 year term will generally allow you adequate time to resolve your financial difficulties and to commence the process of re-establishing your credit rating, thereby removing the issue of renewal in the short term.
The Legal Services Society of B.C. has a very informative description of the foreclosure process on their website.
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If your vehicle is owned outright (free and clear) you may retain it provided its market value does not exceed $5,000. (If you are subject to a Family Maintenance Order your exemption allowance drops to $2,000).
If the vehicle is jointly owned with a spouse or relative, your portion of the equity cannot exceed $5,000.
If the vehicle is secured by a lender (held as collateral for a loan) the equity in the vehicle cannot exceed $5,000.
If the equity in your vehicle exceeds $5,000 it is still possible to retain the vehicle provided that arrangements are made with your Trustee, for any over-exemption amount to be paid to the Trustee for the benefit of your creditors (by installments if necessary).
Lenders cannot repossess a secured vehicle simply due to you filing a proposal or for bankruptcy provided that you are current on your payments and are not in some other way in default. If you are in arrears, special Arrangement will be necessary with the lender.
If your vehicle is financed through GMAC, Ford Credit, or Chrysler Credit you will generally find them to be accommodating.
The banks generally have more strict guidelines but overall are also relatively good to work with. Our Trustee will be pleased to provide you with more information on this subject at your initial consultation, which is offered to you free and without obligation.
If you are in default and the lender does not want to co-operate with you they have a legal right to seize the vehicle.
If you realize that you cannot afford to keep a vehicle and wish to surrender it, you are able to do so if you file for Bankruptcy or file a Proposal. Refer to Surrendering a vehicle for further details. This equally applies to loans for trailers, campers, ATVs, snowmobiles and other similar vehicles.
When a Bankruptcy or Proposal is filed, a Trustee must verify a lender’s security. The process is as follows:
- The Trustee advises the lender of the Bankruptcy or Proposal in the first few days of your appointment.
- The lender is obligated to provide the Trustee with proof of the security
- The Trustee will review the documentation and ensure the lender has properly complied with his obligations to register the security and that the security is valid and in order.
- The Trustee will then prepare and fax the lender a “Release Letter” which authorizes the lender to work with you, or if you are in default they may seize the vehicle. A copy of the release will be sent by mail to the debtor.
- If you are planning to keep the vehicle and you are not in default, you must continue to make your payments as required by the security agreement, unless the lender agrees to amend the terms of the agreement.
Some lenders may be secured by your furniture or other assets as well as your vehicle. Lenders such as Citifinancial and Wells Fargo traditionally take household furniture as collateral. To determine if this is the case, look on your Security Agreement for a section on “Security” or for a section outlining “ assets held as security” for details.
It is common for these lenders to be owed a great deal more than these assets are worth, and so special consideration will be necessary for your specific circumstances. Our Trustee will be pleased to clearly outline your options if that is the case.
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If you realize that you cannot afford to keep a vehicle and you wish to surrender it, you are able to do so if you file for a bankruptcy or a consumer proposal. This equally applies to loans for trailers, campers, ATVs, snowmobiles and other similar vehicles.
Prior to commencement of a proposal or bankruptcy, a lender is free to repossess a vehicle if the loan is in default. However, once a proposal or bankruptcy is filed the lender requires the Trustee’s consent before they can seize it. The process is generally as follows:
- The Trustee advises the lender of the bankruptcy or proposal in the first few days of your appointment.
- The lender is obligated to provide the Trustee with proof of the security
- The Trustee will review the documentation and ensure the lender has properly complied with his obligations to register the security and that the security is valid and in order.
- The Trustee will then prepare and fax the lender a “Release Letter” which authorizes the lender to seize the vehicle. A copy of the release will be sent by mail to the debtor.
- The lender will then either call you to ask for your assistance to drop the vehicle off at a specified dealership, or appoint a bailiff to go out and seize the vehicle.
When a vehicle is seized or delivered to a dealership you should retain the plates and surrender them to ICBC for a refund. Otherwise you will remain obligated to ICBC until they are notified or the insurance elapses.
BEWARE
Once a lender has the authority to seize the vehicle a bailiff may be appointed quickly and he may seize the vehicle before you have the opportunity to remove your personal belongings.
If this occurs, you may not be able to recover your personal effects. As such, it is wise to refrain from leaving any personal effects in your vehicle well in advance of its seizure.
The vehicle may be removed without advising you (i.e. from your place of work).
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The Provincial Government determines what assets you may retain if you file for bankruptcy. The list, commonly known as “exemptions” is contained in the “Court Order Enforcement Act” and Regulations.
In Layman’s terms these exemptions are:
- Necessary clothing and medical equipment,
- Household furnishings and appliances with a market value to a maximum of $4,000,
- A vehicle with equity under $5,000 (reduced to $2,000 for maintenance debtors as defined by the Family Maintenance Legislation), per person,
- Tools or other personal property that are used for a person to earn income from their occupation, to a maximum market value of $10,000.
- Equity in a principal residence of $9,000 per person ($12,000 each in the Lower Mainland and Capital Region areas).
These exemptions generally apply to each adult person. Ownership of vehicles and real estate is determined by title documents. Other assets would generally be considered 50/50 in a marriage or common law relationship unless evidence shows otherwise.
Any creditor, who you have given assets to as collateral for a loan, will take priority over these exemption rules.
Any assets you own over and above your exemptions must be sold for the benefit of your creditors. Our Trustee will often make arrangements for you to retain these assets if you do not wish to give them up, provided that you compensate the creditors by providing the Trustee with the equivalent amount of money by way of monthly payments.
Will Everyone Know I'm Bankrupt (Or Have Filed A Proposal To Creditors)?
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Only a very small number of bankruptcies require a notice to be published in the local newspaper. This is a government requirement where there are perceived to be over $15,000 worth of net proceeds available for creditors from assets which the Trustee is expected to be dealing with. This is rarely the case in most bankruptcies. The calculation does not include assets exempt from seizure or assets secured by creditors in which no equity exists.
The Trustee in a bankruptcy and or proposal upon filing is required to notify:
- All creditors
- The Superintendent of Bankruptcy's office
- Canada Revenue Agency ( not in proposals where there are no tax debt)
In some cases it will be necessary to advise the Court and to open a Court file.
As Trustee we will generally only communicate with an employer if we cannot obtain required tax information directly.
There are generally only four ways anyone else would become aware of a bankruptcy.
- There are credit publications which disclose bankruptcy filings such as the “Credit Courier” in British Columbia. The readership of these publications tend to be mostly limited to lenders and collectors.
- Word of mouth. Unfortunately some creditors and collectors do not always respect a person’s right to privacy.
- A Superintendent of Bankruptcy search
The Superintendent of Bankruptcy keeps a log of all bankruptcy and proposal filings and a search can be conducted for a fee. The general public would not normally be aware of this service and would generally have no reason to conduct a search, unless they are specifically looking for evidence of a person’s bankruptcy or proposal. - If a Court file is required, hearing details may be posted at the Court House and the results of extraordinary decisions are often published. A Court file is however, required only in a small percentage of filings.
As your Trustee or Proposal Administrator we will be our utmost to respect your right to privacy. Read our Privacy Policy.
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If you file a Proposal to your creditors it is very unlikely that your employer need ever know about it. If you file for Bankruptcy it is necessary for us to prepare certain income tax returns on your behalf. If you provide us with the necessary information it will not usually be necessary for us to communicate with your employer. There are a few circumstances in which communication with your employer may however be necessary, such as to stop a wage garnishee.
In certain types of employment, you may be required to advise your employer if you file for bankruptcy and perhaps if you file a proposal.
This may be required in certain positions of Trust, if you are bonded, or if your employment involves handling cash.
Professionals may be required to advise their governing bodies.
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The Income Tax Act and Excise Tax Act forbid CRA (formerly Revenue Canada) from directly accepting a settlement of less than 100% of the principle amount owed for income tax, GST and payroll deduction debts.
A proposal to compromise a tax debt can only be entertained by CRA if the person filing the proposal is believed to be an “honest and unfortunate” debtor.
These debts can however be compromised or eliminated totally by filing a proposal or filing for bankruptcy.
If you have a significant tax debt it is critical that you seek advice promptly. CRA have the ability to seize bank accounts and other assets, garnishee income, off-set refunds, etc. Some actions they take to protect themselves can be difficult to correct.
The Court will be considering the following factors when considering the discharge application of a tax debtor:
- The circumstances of the bankrupt when the debt was incurred
- Any efforts made to pay the debt
- Payments made to other creditors
- The bankrupt's future prospects
- If the tax debt relates to obligations as a director, these do not apply in the calculation of the $200,000.
A new category of "Tax Debtor" has been created for people who owe over $200,000 to Canada Revenue Agency where the tax debt is equal to or exceeds 75% of their total debt. These debtors are not entitled to an automatic discharge in bankruptcy and a Court Hearing will be delayed to:
- At least 9 months for first time bankrupts with no surplus income
- At least 21 months for first time bankrupts with surplus income
- At least 24 months for second time bankrupts with no surplus income
- At least 36 months for second time bankrupts with surplus income
The legislators are clearly attempting to discourage people from paying other creditors in priority to Canada Revenue Agency. It appears they are also attempting to encourage people to file a Proposal rather than a bankruptcy if you are a tax debtor.
Also see definition of Tax Debtor
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Section 178 of the Bankruptcy and Insolvency Act outlines the debts, which are not released by filing for bankruptcy or a proposal to creditors.
Section 178. Debts not released by order of discharge
(1) An order of discharge does not release the bankrupt from
- any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail;
(a.1) any award of damages by a court in civil proceedings in respect of
(i) bodily harm intentionally inflicted, or sexual assault, or
(ii) wrongful death resulting therefrom; - any debt or liability for alimony;
- any debt or liability under a support, maintenance or affiliation order or under an agreement for maintenance and support of a spouse or child living apart from the bankrupt;
- any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity;
- any debt or liability for obtaining property and or services by false pretences or fraudulent misrepresentation;
- liability for the dividend that a creditor would have been entitled to receive on any provable claim not disclosed to the trustee, unless the creditor had notice or knowledge of the bankruptcy and failed to take reasonable action to prove his claim;
- any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred
(i) before the date on which the bankrupt ceased to be a full or part-time student, as the case may be, under the applicable Act or enactment, or
(ii) within seven years after the date on which the bankrupt ceased to be a full or part-time student; or - any debt for interest owed in relation to an amount referred to in any of paragraphs (a) to (g).
An application can be made to release student loans after 5 years if hardship and good faith can be shown.
See also: Student Loans and How Is Child Support Affected?
- any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail;
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The Bankruptcy and Insolvency Act which governs bankruptcy and proposal “filings” in Canada, does not allow for the elimination, in any circumstances of debts relating to child support or alimony obligations. Please refer to Section 178 (see details in previous question) for details of debts not eliminated.
These debts however must be listed as debts on the “Statement of Affairs”.
An ex-spouse who is a creditor or FMEP on their behalf will be notified of the filing.
In most cases they will file a claim in the bankruptcy or proposal, in which case they will be entitled to receive a portion of any monies which are available to be paid out to creditors. The legislation gives priority to these types of claims over most other creditors, so they are among the first people to receive funds if they are available.
The amount of claims left unpaid will survive the bankruptcy or proposal filing.
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Generally all creditors in a bankruptcy are either “secured” by holding an asset as collateral or “unsecured”.
All unsecured creditors in a bankruptcy are treated equally except creditors whom the legislators have determined should have some form of “priority” over other unsecured creditors. These creditors include child support and alimony debts, wage claims and landlords.
The amounts entitled to a priority are limited.
The precise details of which creditors are considered “preferred” are contained in Section 136 (excerpt follows).
- Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:
- In the case of a deceased bankrupt, the reasonable funeral and testamentary expenses incurred by the legal representative or, in the Province of Quebec, the successors or heirs of the deceased bankrupt;
- The costs of administration, in the following order,
- The expenses and fees of any person acting under a direction made under paragraph 14.03(1)(a),
- The expenses and fees of the trustee, and
- Legal costs;
- The levy payable under section 147;
- the amount of any wages, salaries, commissions, compensation or disbursements referred to in sections 81.3 and 81.4 that was not paid;
- the amount equal to the difference a secured creditor would have received but for the operation of sections 81.3 and 81.4 and the amount actually received by the secured creditor;
- the amount equal to the difference a secured creditor would have received but for the operation of sections 81.5 and 81.6 and the amount actually received by the secured creditor;
- claims in respect of debts or liabilities referred to in paragraph 178(1)(b) or (c), if provable by virtue of subsection 121(4), for periodic amounts accrued in the year before the date of the bankruptcy that are payable, plus any lump sum amount that is payable;
- municipal taxes assessed or levied against the bankrupt, within the two years immediately preceding the bankruptcy, that do not constitute a secured claim against the real property or immovables of the bankrupt, but not exceeding the value of the interest or, in the Province of Quebec, the value of the right of the bankrupt in the property in respect of which the taxes were imposed as declared by the trustee;
- the lessor for arrears of rent for a period of three months immediately preceding the bankruptcy and accelerated rent for a period not exceeding three months following the bankruptcy if entitled to accelerated rent under the lease, but the total amount so payable shall not exceed the realization from the property on the premises under lease, and any payment made on account of accelerated rent shall be credited against the amount payable by the trustee for occupation rent;
- the fees and costs referred to in subsection 70(2) but only to the extent of the realization from the property exigible thereunder;
- in the case of a bankrupt who became bankrupt before the prescribed date, all indebtedness of the bankrupt under any Act respecting workers’ compensation, under any Act respecting unemployment insurance or under any provision of the Income Tax Act creating an obligation to pay to Her Majesty amounts that have been deducted or withheld, rateably;
- claims resulting from injuries to employees of the bankrupt in respect of which the provisions of any Act respecting workers’ compensation do not apply, but only to the extent of moneys received from persons guaranteeing the bankrupt against damages resulting from those injuries; and
- in the case of a bankrupt who became bankrupt before the prescribed date, claims of the Crown not mentioned in paragraphs (a) to (i), in right of Canada or any province, rateably notwithstanding any statutory preference to the contrary.
- Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:
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In order for a creditor to participate in a bankruptcy or proposal they will be required to file a document with the Trustee called a “Proof of Claim” form (PDF available). Details of the debt and “a statement of account" must be provided with the form and be approved by the Trustee before a creditor has status as a proven creditor.
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Generally a spouse is not affected by your decision to file for Bankruptcy or a Proposal to Creditors.
Your spouse's credit rating should not reflect your actions.
A spouse will however become responsible for any debt which you have jointly agreed to such as joint loans and credit cards you have on the same account.
If your spouse's co-signed debts are significant it may be necessary for them to also take steps to protect themselves.
For the purpose of calculating payment requirements in a bankruptcy, the Trustee is required to obtain details of the whole family’s Income and Expenses. Please refer to the Guidelines for further details of the calculation.
Although the income is reported, your spouse’s or other family member’s income will be pro-rated out of the calculation so that they are not penalized by contributing to the household income. Please refer to Sample Surplus Income Calculations for an illustration of the calculation.
Should your spouse or other family members refuse to provide this information, the Government reduces your entitlement to one half of the allowable guideline amount. In most cases this will significantly increase your payment obligations.
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In the vast majority of bankruptcies and proposals it is not necessary to appear in court. The Trustee attends court on a regular basis to deal with a variety of matters but a debtor is rarely required to attend. The key exception to this is where a creditor opposes a debtor's discharge from bankruptcy.
In this case it is generally in the debtor's best interest to attend the hearing and or to obtain legal assistance to do so. Creditor oppositions are relatively rare and the need to obtain a lawyer is also uncommon. We can provide you with further details on the process should this situation arise.
It will be necessary to attend court if you are deemed to be a "Tax Debtor".
Any bankrupt who has been previously bankrupt more than twice before, will likely be expected to appear before the Court at their discharge hearing.
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In the vast majority of Bankruptcies and Proposals there are no Meetings of Creditors. The creditors have the opportunity to request a meeting in which all of your creditors are invited to attend, but these are rarely deemed necessary. If a creditor has questions it is more common for them to ask the Trustee to obtain a response by correspondence.
If a creditor wishes to call a meeting, subject to certain guidelines, the Trustee is obliged to do so. At the meeting the creditors have a right to ask reasonable questions relative to your assets, your income and any transactions you have entered into in the recent past. Meetings are often requested where a creditor believes that some assets are not accounted for or to ensure the Trustee has a satisfactory means of disposing of the assets. In some Bankruptcies and Division 1 Proposals, Meetings of Creditors are mandatory. The debtor’s attendance at the meeting is also mandatory, except in some extreme cases. In these meetings the Trustee will provide the creditors with information; seek the creditor’s approval to act as the Trustee; and determine how any assets will be liquidated.
Although it is mandatory for a debtor to attend his creditor’s meeting, it is rare for any creditors to attend in person, except in large or more complex situations.
Also see: 'What Happens at a Creditor’s Meeting?' (on this page) & Creditor’s Meeting
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If a meeting is called, the trustee will give a report about your assets and liabilities and creditors may ask you related questions. The creditors will then vote to either confirm the trustee’s appointment, or substitute a trustee of their choice. The creditors will then have an opportunity to vote for the appointment of inspectors. An Inspector is a creditor or their representative who is chosen to represent the best interests of the creditors as a whole.
Creditors' meetings are not called for in most bankruptcies and proposals.
Inspectors are not appointed in many bankruptcies or proposals.
The creditors or any inspectors will be required to approve the sale of assets by the Trustee and certain other matters.
E. & O. E.
What Does An Examination With The Official Receiver Involve?
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The Official Receiver may send you a notice instructing you to appear before him or her for an examination under oath. The Official Receiver will then ask you a number of questions about the causes of your bankruptcy, your conduct, the recent disposition of any of your property, and the nature of your debts.
An Official Receiver is a representative of the Federal Government’s “Office of the Superintendent of Bankruptcy”, who oversees the administration of bankruptcies and proposals in Canada.
Examinations are not conducted in many bankruptcies. They will generally be called for in larger or more complicated bankruptcies or where fraud may be suspected, or in the case of a repeated bankruptcy.
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In a proposal once the creditors (and the Court if applicable) have approved the offer, they are not entitled to receive any unusual or unexpected windfalls occurring afterwards.
In a bankruptcy the creditors would be entitled to 100% of the amount which they are owed plus 5% per year interest until paid.
Creditors are not entitled to any proceeds from windfalls which occur after a bankrupt is discharged.
For clarity the relevant date is the date which the windfall occurs or it is known it will occur, not the date it is payable or received.
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Some collectors have been known to threaten that they will have you arrested and sent to jail.
This is a threat, which is generally not enforceable by them.
Some Exceptions
- If you commit an offence under the Bankruptcy and Insolvency Act the penalties can include significant fines and or jail terms. For more information see 'Bankruptcy Offences' (on this page).
- If you fail to attend a Court hearing relative to one of your debts without receiving the permission of the Judge, a warrant for your arrest could be issued.
We can help you to understand these matters so that they can be avoided.
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This will be provided as a pdf file, with a brief description of what is in the file. Because it is a large table of numbers it will be difficult to display this as copy within the page
Bankruptcy
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After meeting with Mr. Beverley, if you decide to proceed with a bankruptcy the process is as follows in a typical bankruptcy:
- Documents are prepared by the Trustee and an appointment is arranged for you to visit the office to sign them. This process is called a sign-up. If you live outside the Prince George area we will e-mail or mail these documents to you. The documents must be witnessed by a lawyer or notary. The following people in your community can witness the documents for you: Your Community.
- Upon receipt of the notarized documents from you they are registered with the Office of the Superintendent of Bankruptcy, which protects you from any further action by creditors.
- The Trustee notifies your creditors of your filing within a few days.
- The Office of the Superintendent of Bankruptcy notifies the Credit Bureau.
- Your creditors file what is called a Proof of Claim which the Trustee verifies.
- The Trustee obtains information from you and files any outstanding tax returns and the pre-bankruptcy tax return (January 1st to the date of bankruptcy).
- The Trustee verifies any secured creditor’s claims and provides releases as necessary.
- The Trustee receives from you, reviews and verifies monthly statements of income and expenses
- The Trustee schedules and conducts two counselling sessions.
- The Trustee disposes of any assets which are not exempt or secured.
- The Trustee responds to any questions asked by the creditors or the Office of the Superintendent of Bankruptcy.
- Shortly prior to the date of the automatic discharge, the Trustee will ensure all duties have been complied with.
- The Trustee will issue the Certificate of Discharge acknowledging discharge.
- The Office of the Superintendent of Bankruptcy notifies the Credit Bureau of the bankrupt’s discharge.
- If duties have not been complied with, or for other reasons such as a creditor opposition, the Trustee will schedule a Court hearing. The Trustee will advise the bankrupt, the creditors and the Office of the Superintendent of Bankruptcy of the hearing, attend the hearing, and advise the Court of the reasons for the hearing.
- The Trustee will then advise all parties of the outcome of the hearing.
- The Trustee will then attempt to ensure compliance with any Conditional Discharge Order.
- After the end of the tax year the Trustee will obtain any relevant information and file a post-bankruptcy tax return (from the date of the bankruptcy to December 31st).
- After all tax matters are settled, assets are released or sold, the bankrupt’s discharge has been dealt with, and all claims filed have been verified, the Trustee will proceed to close his file.
- The Trustee prepares a statement of Receipts and Disbursements (R&D) to show all income and expenses incurred.
- The Office of the Superintendent of Bankruptcy will review the R&D and provide a Comment Letter.
- The Trustee will then proceed to take his fees and release dividends to creditors. (In larger bankruptcies the Court must also approve the R&D).
- The Trustee, after a period of time, also receives a Discharge, at which time his duties are deemed to be complied with.
- The Trustee’s records are kept in storage for four years prior to being destroyed.
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Section 158 – Bankruptcy and Insolvency Act
A bankrupt shall
- make discovery of and deliver all his property that is under his possession or control to the trustee or to any person authorized by the trustee to take possession of it or any part thereof;
- (a.1) in such circumstances as are specified in directives of the Superintendent, deliver to the trustee, for cancellation, all credit cards issued to and in the possession or control of the bankrupt;
- deliver to the trustee all books, records, documents, writings and papers including, without restricting the generality of the foregoing, title papers, insurance policies and tax records and returns and copies thereof in any way relating to his property or affairs;
- at such time and place as may be fixed by the official receiver, attend before the official receiver or before any other official receiver delegated by the official receiver for examination under oath with respect to his conduct, the causes of his bankruptcy and the disposition of his property;
- within five days following the bankruptcy, unless the time is extended by the official receiver, prepare and submit to the trustee in quadruplicate a statement of the bankrupt’s affairs in the prescribed form verified by affidavit and showing the particulars of the bankrupt’s assets and liabilities, the names and addresses of the bankrupt’s creditors, the securities held by them respectively, the dates when the securities were respectively given and such further or other information as may be required, but where the affairs of the bankrupt are so involved or complicated that the bankrupt alone cannot reasonably prepare a proper statement of affairs, the official receiver may, as an expense of the administration of the estate, authorize the employment of a qualified person to assist in the preparation of the statement;
- make or give all the assistance within his power to the trustee in making an inventory of his assets;
- make disclosure to the trustee of all property disposed of within the period beginning on the day that is one year before the date of the initial bankruptcy event or beginning on such other antecedent date as the court may direct, and ending on the date of the bankruptcy, both dates included, and how and to whom and for what consideration any part thereof was disposed of except such part as had been disposed of in the ordinary manner of trade or used for reasonable personal expenses;
- make disclosure to the trustee of all property disposed of by gift or settlement without adequate valuable consideration within the period beginning on the day that is five years before the date of the initial bankruptcy event and ending on the date of bankruptcy, both dates included;
- attend the first meeting of his creditors unless prevented by sickness or other sufficient cause and submit thereat to examination;
- when required, attend other meetings of his creditors or of the inspectors, or attend on the trustee;
- submit to such other examinations under oath with respect to his property or affairs as required;
- aid to the utmost of his power in the realization of his property and the distribution of the proceeds among his creditors;
- execute such powers of attorney, conveyances, deeds and instruments as may be required;
- examine the correctness of all proofs of claims filed, if required by the trustee;
- in case any person has to his knowledge filed a false claim, disclose the fact immediately to the trustee;
- (n.1) inform the trustee of any material change in the bankrupt’s financial situation;
- generally do all such acts and things in relation to his property and the distribution of the proceeds among his creditors as may be reasonably required by the trustee, or may be prescribed by the General Rules, or may be directed by the court by any special order made with reference to any particular case or made on the occasion of any special application by the trustee, or any creditor or person interested; and
- until his application for discharge has been disposed of and the administration of the estate completed, keep the trustee advised at all times of his place of residence or address.
E. & O. E.
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Section 158 of the Bankruptcy and Insolvency Act lists the specific Duties.
Of these Duties many will not apply if you have not been self-employed. If you have been self-employed, please see comments below.
While it is sometimes necessary to attend a “Meeting of Creditors” it is very rare that you will be asked to.
An “Examination Under Oaths” is also possible but extremely unlikely in an average bankruptcy.
In general the duties which every bankrupt must comply with in general layman’s terms are as follows:
Tax Information
Provide all T-4’s and other relevant details for the Trustee to compile a pre-bankruptcy tax return, (January 1st to the date on which the bankruptcy commenced) and a post-bankruptcy tax return, (the date the bankruptcy commenced to December 31st). It will also be necessary to cooperate with your Trustee to ensure that any outstanding prior year’s tax returns are filed.
Counselling Sessions
Attend two counselling sessions with your Trustee or a qualified Insolvency Counsellor. These sessions will generally be beneficial to you. They are designed to ensure that you understand:
- The true cause of your insolvency
- How to manage and budget your income and expenses
- How to re-establish your credit rating
Complete Monthly Income And Expense (Budget) Reports
The Trustee will issue you with a series of blank Income and Expense forms. A set of forms must be completed monthly during your bankruptcy and submitted to the Trustee shortly after the end of the month you are reporting.
If your income shows a surplus above Government guidelines one half must be forwarded to the Trustee with these forms. Income from all members of your household must be declared. They will not be affected by the surplus income calculation, as they are pro-rated out of the calculation.
See also: Guidelines and Sample Surplus Income Calculations
General Cooperation
You must keep your Trustee informed of your address and telephone number until your file is closed and the Trustee is discharged. This is usually between 6 months and a year after your discharge. You must also advise the Trustee of any changes to your employment or income details.
You must assist the Trustee generally by providing a response to any questions which he or the creditors may have and by helping (if asked to) in the liquidation of any assets, etc. If you have been self-employed you must provide your books and records to the Trustee. You must assist with the preparation of any required GST / HST, Payroll or Corporate Returns and in completing an inventory of your assets, among other things.
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A discharge is the process where a bankrupt is officially released from his debts.
A discharge will release the bankrupt of all debts owed at the date of bankruptcy except for:
- Any secured debts, which the bankrupt and the secured creditor have mutually agreed to continue to honour despite the bankruptcy (usually vehicle loans or mortgages).
- Any debts contained in Section 178 of the Bankruptcy and Insolvency Act.
E. & O. E.
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At a hearing for a discharge the court decides on one of the following orders:
- Order of Absolute Discharge
- This order relieves the bankrupt of the debts owed at the date of bankruptcy, except those listed in Section 178.
- Order of Conditional Discharge
- The court may impose conditions that must be met before a discharge becomes absolute. For example, the Court may require you to pay an amount to your trustee for distribution to your creditors.
- Order of Suspended Discharge
- The court orders a delay so that the discharge will not be effective until a certain date.
- A suspension is commonly 3 months but can be longer or shorter.
- A suspension is commonly the order made in the case of a previous bankruptcy.
- Refusal
- The Court can refuse an Order of Discharge. This will only generally occur in the case of multiple previous bankruptcies.
- Adjournment
- The Court may adjourn the hearing to a later date or indefinitely. A short adjournment will be ordered where the Court seeks further details on any matter. An indefinite adjournment will generally occur where the debtor has failed to comply with his Duties, or has committed a Bankruptcy Offence. Where an indefinite adjournment occurs, eventually the Trustee will obtain his own discharge, at which time Creditors will be permitted to re-commence their collections activities against the bankrupt, as if the Bankruptcy never occurred.
E. & O. E.
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Sections 198 and 199 of the Bankruptcy and Insolvency Act outline the following offences and consequences.
Bankruptcy offences
Section 198
- Any bankrupt who
- makes any fraudulent disposition of the bankrupt’s property before or after the date of the initial bankruptcy event,
- refuses or neglects to answer fully and truthfully all proper questions put to the bankrupt at any examination held pursuant to this Act,
- makes a false entry or knowingly makes a material omission in a statement or accounting,
- after or within one year immediately preceding the date of the initial bankruptcy event, conceals, destroys, mutilates, falsifies, makes an omission in or disposes of, or is privy to the concealment, destruction, mutilation, falsification, omission from or disposition of, a book or document affecting or relating to the bankrupt’s property or affairs, unless the bankrupt had no intent to conceal the state of the bankrupt’s affairs,
- after or within one year immediately preceding the date of initial bankruptcy event, obtains any credit or any property by false representations made by the bankrupt or made by any other person to the bankrupt’s knowledge,
- after or within one year immediately preceding the date of the initial bankruptcy event, fraudulently conceals or removes any property of a value of fifty dollars or more or any debt due to or from the bankrupt, or
- after or within one year immediately preceding the date of the initial bankruptcy event, hypothecates, pawns, pledges or disposes of any property that the bankrupt has obtained on credit and has not paid for, unless in the case of a trader the hypothecation, pawning, pledging or disposing is in the ordinary way of trade and unless the bankrupt had no intent to defraud, is guilty of an offence and is liable, on summary conviction, to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year or to both, or on conviction on indictment, to a fine not exceeding ten thousand dollars or to imprisonment for a term not exceeding three years, or to both.
- A bankrupt who, without reasonable cause, fails to comply with an order of the court made under section 68 or to do any of the things required of the bankrupt under section 158 is guilty of an offence an is liable
- on summary conviction, to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year, or to both; or
- on conviction on indictment, to a fine not exceeding ten thousand dollars or to imprisonment for a term not exceeding three years, or to both.
Failure to disclose fact of being undischarged
Section 199
An undischarged bankrupt who- engages in any trade or business without disclosing to all persons with whom the undischarged bankrupt enters into any business transaction that the undischarged bankrupt is an undischarged bankrupt, or
- obtains credit to a total of one thousand dollars or more from any person or persons without informing such persons that the undischarged bankrupt is an undischarged bankrupt, is guilty of an offence punishable on summary conviction and is liable to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year, or to both.
E. & O. E.
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A bankrupt who complies with his obligations is entitled to an automatic discharge as follows:
- A first time bankrupt with no surplus income-after 9 months.
- A first time bankrupt with surplus income-after 21 months.
- A second time bankrupt with no surplus income-after 24 months.
- A second time bankrupt with surplus income-after 36 months.
Surplus income is deemed to be an amount of at least $100 above the Superintendent’s Guidelines.
See also: Sample Surplus Income Calculations
A discharge application must be considered by a Judge in the following circumstances:
- Any creditor opposes the automatic discharge.
- The Trustee opposes the automatic discharge for failure of the bankrupt to comply with his/her duties.
- The Trustee opposes due to evidence of any facts obtained in Section 173 of the Bankruptcy and Insolvency Act. See: Facts Outlined in Section 173 for Which a Trustee Must Oppose a Discharge (on this page)
- The Superintendent of Bankruptcy opposes the discharge. This is only likely in the most extreme bankruptcy cases, and is very rare.
See also: What Kind of Discharge Orders Can a Court Issue? (on this page)
Facts Outlined in Section 173 For Which A Trustee Must Oppose A Discharge.
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Facts for which discharge may be refused, suspended or granted conditionally 173.
- The facts referred to in section 172 are:
- the assets of the bankrupt are not of a value equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities, unless the bankrupt satisfies the court that the fact that the assets are not of a value equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities has arisen from circumstances for which the bankrupt cannot justly be held responsible;
- the bankrupt has omitted to keep such books of account as are usual and proper in the business carried on by the bankrupt and as sufficiently disclose the business transactions and financial position of the bankrupt within the period beginning on the day that is three years before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included;
- the bankrupt has continued to trade after becoming aware of being insolvent;
- the bankrupt has failed to account satisfactorily for any loss of assets or for any deficiency of assets to meet the bankrupt’s liabilities;
- the bankrupt has brought on, or contributed to, the bankruptcy by rash and hazardous speculations, by unjustifiable extravagance in living, by gambling or by culpable neglect of the bankrupt’s business affairs;
- the bankrupt has put any of the bankrupt’s creditors to unnecessary expense by a frivolous or vexatious defence to any action properly brought against the bankrupt;
- the bankrupt has, within the period beginning on the day that is three months before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included, incurred unjustifiable expense by bringing a frivolous or vexatious action;
- the bankrupt has, within the period beginning on the day that is three months before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included, when unable to pay debts as they became due, given an undue preference to any of the bankrupt’s creditors;
- the bankrupt has, within the period beginning on the day that is three months before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included, incurred liabilities in order to make the bankrupt’s assets equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities;
- the bankrupt has on any previous occasion been bankrupt or made a proposal to creditors;
- the bankrupt has been guilty of any fraud or fraudulent breach of trust;
- the bankrupt has committed any offence under this Act or any other statute in connection with the bankrupt’s property, the bankruptcy or the proceedings thereunder;
- the bankrupt has failed to comply with a requirement to pay imposed under section 68;
- the bankrupt, if the bankrupt could have made a viable proposal, chose bankruptcy rather than a proposal to creditors as the means to resolve the indebtedness; and
- the bankrupt has failed to perform the duties imposed on the bankrupt under this Act or to comply with any order of the court.
- The facts referred to in section 172 are:
Proposals
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A Consumer Proposal is a written offer by a person to his or her creditors. The offer is primarily aimed at unsecured creditors but will also outline how you intend to deal with secured creditors. The offer is designed to either reduce the monthly payments to creditors or to reduce the total amount owing.
Our Trustee can prepare a Proposal for you.
The Proposal is registered with a department of the Federal Government responsible for managing the insolvency process in Canada. Once it is registered you are protected from creditors taking action against you until the offer is considered by the creditors.
The creditors are presented with a copy of the proposal, along with a report and some other relevant financial information. They may then vote upon the offer. At the end of a 45 day period any votes received are counted.
Provided that a majority of the participating creditors are in favor, your Proposal succeeds. In some cases a Meeting of Creditors may be necessary to respond to any creditor inquiries but these are not common.
Upon the acceptance of the proposal it will be binding upon you and all the creditors. Dissenting creditors are bound by your proposal as long as the majority are in favor of it.
Creditors may request that additional funds be offered before they will vote in favour of a proposal. If their vote is necessary to obtain a majority we will advise you of the request and discuss it with you. If you agree to the requested amendment and if there are now a majority of creditors in favour of the offer, the proposal succeeds.
Upon completion of the terms of the proposal you will be issued with a "Certificate of Full Performance", acknowledging your compliance.
If you fail to meet the terms of your Proposal it will lead to its default, therefore allowing your creditors to once again take action against you.
If you are temporarily unable to meet your commitments in the Proposal the Trustee will have a limited time to seek the creditors' permission for a delay. It is however imperative that you advise the Trustee of the problem as soon as possible.
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Any assets which are not specifically secured by a creditor can be retained by you if you file a Consumer Proposal.
A Consumer Proposal is generally aimed at unsecured creditors, but the offer will outline your intentions relative to any secured debts. If your assets are held as collateral by a lender you must choose if you wish to continue to pay that lender, in order for you to retain the asset. This would apply to vehicle loans and leases, mortgages etc. In a Consumer Proposal secured lenders must cooperate in allowing you to keep making payments on a secured loan provided that you are not in default on the loan. Any loan arrears will require specific attention. If you are in arrears on a secured loan and wish to retain the asset secured, we can request the lenders consent to allow you to retain the asset, provided that you can afford to bring the arrears up to date relatively quickly and the lender consents.
If you are in arrears, the lender is in no way obligated to allow you to retain the asset and may insist on its seizure.
If you realize that a secured loan is unmanageable and you wish to be relieved from the obligation, the proposal can state that you will be releasing the secured asset to the lender.
Student Loans
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Student Loans In A Proposal
Student loans are not compromised in a proposal unless they specifically agree to the offer. They are not obligated to accept a compromise and rarely to the best of our knowledge do so.
If you file a proposal your student loans must be notified and will be eligible to receive funds in the proposal. However, any amount which remains outstanding to them at the end of the proposal will remain owing.
Section 178 of the Bankruptcy and Insolvency Act contains a list of debts which are not released by bankruptcy or generally in a proposal.
Presently a Student Loan must be at least 5 years old in order for it to be released. An application to court is necessary which we are able to assist you with. It will be necessary for you to prove that:
- It has been at least 5 years since you received any funds from the Student Loan and since the last date you received any education funded by the loan.
- That you acted in good faith during the 5 years, i.e. that you attempted to make payments as required under the loan and
- That you are experiencing hardship, i.e. that you could not easily repay the remaining Student Loan debt in a reasonable period of time.
A student loan of over 7 years will automatically be released upon filing for bankruptcy.
Whom to Contact For Clarification:
National Student Loans Service Centre
Public Institutions Division: 1.888.815.4514
Private Institutions Division: 1.866.587.7452 What Relief Is Available If My Student Loan Is Not Yet 5 Years Old?
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Student loans under 5 years old cannot be compromised in a bankruptcy or proposal without the consent of the student loan authorities who are unlikely to agree.
Interest Relief and Debt Reduction in Repayment are debt management measures for borrowers who are in repayment and experiencing financial hardship.
The following information is provided by the Canadian Student Loan authorities:
Interest Relief (IR)
IR provides relief to borrowers who are experiencing temporary financial hardship. While borrowers are receiving IR, they are not required to make any payments on their student loan (interest OR principal) and the Government of Canada pays the monthly loan interest.
Borrowers may receive up to 54 months of IR. Up to 30 months of IR is available at any point in repayment. Borrowers who use up their 30 months and have not been out of school for 5 years (as indicated by the post-secondary end date specified on the initial application for IR), may receive up to an additional 24 months of extended IR.
Debt Reduction in Repayment (DRR)
DRR is a targeted debt management measure available to assist borrowers who have exhausted IR and who continue to experience exceptional long-term financial difficulty. The measure provides a reduction in the borrower’s loan relative to the borrower’s income.
Borrowers in financial difficulty may be eligible for an initial reduction of their loan principal of up to $10,000. Borrowers who continue to experience difficulty in repaying their student loans may be eligible for two additional reductions of up to $5,000 each. In order to be eligible, twelve months must elapse between each reduction. Borrowers will be required to make a minimum monthly loan payment of $25 in order to qualify for the second or third reduction.
As these provisions could change at any time we recommend that you contact the student loan authorities directly for up to date details of their present policies.
Whom to Contact For Clarification:
National Student Loans Service Centre
Public Institutions Division: 1.888.815.4514 -
The following information is provided by the Canadian Student Loan authorities:
Borrowers who participate in a Bankruptcy or Proposal while in full-time study may apply for new Canada Student Loans for a maximum of 3 additional years. In addition, borrowers will be eligible for interest free status on all existing Canada Student Loans. In order to remain eligible for new loans and/or interest-free status, these borrowers must remain in the same program of study on a full-time basis.
As these provisions could change at any time we recommend that you contact the student loan authorities directly for up to date details of their present policies.
Whom to Contact For Clarification:
National Student Loans Service Centre
Public Institutions Division: 1.888.815.4514
Private Institutions Division: 1.866.587.7452
