Declaring bankruptcy

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 the Office 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.

Process

Step 1:  Contact a trustee and attend a meeting with him or her to talk about your personal situation and your options.

To find a trustee in your area, consult the Yellow Pages and search using the keywords Bankruptcy Trustees.

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 complete the required forms. 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;
• garnishments against your salary will stop; and
• lawsuits against you by your creditors will be stayed (stopped).

Step 3:  The trustee sells your assets and you make payments to the trustee.

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.

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 4:  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 5:  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 6:  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 7:  You attend two 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 prepares a report to the OSB describing 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.

For a second bankruptcy, if payments from surplus income are not required, automatic discharge takes place 24 months after the date of the bankruptcy. Second-time bankrupts with surplus income, however, are required to contribute part of the surplus to their estate for 36 months, after which they are eligible for an automatic discharge.

If you are granted an automatic discharge, there is no Court hearing and the trustee sends you a copy of the discharge.

For those who do not qualify for an automatic discharge, the trustee will apply to the Court for an appointment to hear the application for discharge.

At the hearing, the trustee's report is used to inform the Court of the circumstances surrounding your bankruptcy.

The Court will choose one of the following discharge alternatives:

• Absolute discharge — With an absolute discharge you will be released from the obligation to repay the debts you had as of the date your bankruptcy was filed, except for certain types of debts that are excluded (see Step 10).
• Conditional discharge — A conditional discharge requires that you fulfill certain conditions prior to obtaining your absolute discharge. Typically, you will be required to pay a certain amount of money, possibly over time. However, the Court may impose other types of conditions as well. Once the conditions are met, an absolute discharge will be granted.
• Suspended discharge — A suspended discharge is an absolute discharge that does not take effect until a future date.
• Discharge refused —The Court has the right to refuse a discharge.

Step 10: The bankruptcy is discharged.

Once you are discharged from bankruptcy, you will be released from the legal obligation to repay the debts you had at the date of bankruptcy, except for certain types of debts that are excluded.

The types of debts that are excluded from discharge include:

• Alimony payments and child support.
• Student loans, if it is less than seven years since you ceased to be a full- or part-time student. However, five years after your studies, you can make an application for release from your student loans on the basis of hardship (Learn more …).
• A fine or penalty imposed by the Court.
• Debt arising from fraud.

Note that bankruptcy does not affect the liability of someone who guaranteed or co-signed a loan on your behalf.

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Enquiries or complaints

If you have questions about the bankruptcy process, contact the Office of the Superintendent of Bankruptcy (OSB) in your region.

If you feel that the process was poorly managed or believe you have suffered a prejudice, you can file a written complaint with the Office of the Superintendent of Bankruptcy (OSB) in your region. The OSB keeps records of all complaints and can investigate any complaint from a debtor or other person.