Cost

What are the costs of a bankruptcy?
The costs vary from case to case. At the start of a file, a budget is prepared with the help of a qualified administrator monthly payments to be made during the period of the bankruptcy (normally nine (9) payments in the case of a first bankruptcy) are established based on your financial capacity.
 Eligibility

Is there a minimum amount of debt required before I can declare bankruptcy?
The minimum amount of debt required by the Act before you can declare bankruptcy is $1,000. On the other hand, it stands to reason that with a debt of only $1,000, you should not consider bankruptcy as an immediate solution. Moreover, according to the Act, your must also be insolvent, in other words, you cannot honour your financial obligations as they generally become due. In actual practice, the first piece of advice that we give people in financial difficulty is to prepare a budget. The budget will help you to determine the monthly surplus that may be available to pay your monthly debt obligations. If you find that your expenses are greater than your income, you will have to cut out the expenses that you consider less important in order to balance your budget. To help you prepare your budget, please refer to the section – Budget under the heading Financial Health.

Can I declare bankruptcy if I am unemployed?
Yes. Often times, people with financial problems are out of work, and nothing can prevent them from declaring bankruptcy. Nevertheless, you will have to make monthly payments, to the Trustee, during the nine month period of the bankruptcy.

Can my creditors refuse my bankruptcy?
No, only the court can annul a bankruptcy at the request of a creditor. This procedure is exceptional rare and hardily ever seen. However, in certain circumstances, creditors may oppose your discharge from bankruptcy for the following reasons: if the creditors can prove that, prior to your bankruptcy, you acted irresponsibly to their detriment, that you sold, disposed of, or hid some of your assets, or if you continued to increase your debts knowing that you would be declaring bankruptcy. In such cases, the court can suspend your discharge from bankruptcy and / or demand that additional amounts be paid to the bankruptcy as a condition of your discharge. These oppositions by the creditors are rare but still possible.

Can I declare bankruptcy for only some of my debts?
No. If you declare bankruptcy, you do so for all of your debts. However, if for any reason, moral or otherwise, you wish to repay a debt to a family member or close friend, although your are not obliged to do so, you may repay such a debt after your discharge from bankruptcy.
 What happens to my assets?

Can my car be seized if I declare bankruptcy?


A. Lease: In the case of a lease, the vehicle legally belongs to the leasing company and cannot be seized by the creditors. However, the leasing company, may in the case of a bankruptcy, repossess the vehicle since the declaring of a bankruptcy constitutes a default in the lease agreement. We would therefore, prior to declaring of your bankruptcy, suggest that you contact the leasing company and obtain the authorization to keep the vehicle while your continue the lease payments. In general, the leasing companies are usually open to such an arrangement, provided that the payments continue to be made on time.
B. Vehicle being subject to a guaranteed loan:

If your vehicle is not fully paid and the financial institution or finance company that has advanced you the money holds a security (also called a "Conditional sales contract or mortgage"), the trustee shall determine if the vehicle is worth more than the amount owed on the loan. If the value of the vehicle is higher than the balance owed, the vehicle will either be sold by the trustee or an equivalent amount of money will asked of you (usually in monthly instalments) in return for the continued use of the car. If the value of the car is less than the loan balance, the creditors, in all likelihood, will not seize the vehicle.

That being said, the lender could demand that you return the vehicle since the bankruptcy in itself constitutes a breach of contract. As for the lease, we recommend that you contact the lender prior to the declaring of your bankruptcy to request permission to keep the car while continuing making the monthly payments.

In the two cases outlined above, it goes without saying that the compensation payments that you will make, if you want to keep your car, will not reduce the amount of the monthly payments that you are to deposit with the trustee during the period of your bankruptcy. In other words, your creditors should not be penalized due to the fact that you are keeping your car.

That being said, the lender could demand that you return the vehicle since the bankruptcy in itself constitutes a breach of contract. As for a lease, you should contact the lender prior to filing the bankruptcy to request permission to keep the car while promising to continue making the payments.

C. If your vehicle is paid in full.

Here are three situations that may present themselves:

1- If the vehicle has a negligible value due to its age or mileage, you may be able to keep the car by paying a symbolic compensation to the estate. In such a case, your vehicle must be registered and insured.

2- Secondly, if your vehicle has a material value, the trustee or the creditors will insist that you "buy back" the vehicle by paying monthly instalments. As was in the previous case, your vehicle must be registered and insured.

3- Lastly, if your vehicle has a material value, the creditors may object to the fact that you are keeping your vehicle and request that the trustee repossess and sell the vehicle.


Can I solve my financial problems without losing my house or my car?
Yes! The first step to take when encountering financial difficulties is to prepare a budget and consider cutting certain expenses in order to create a monthly budget surplus which will allow you to respect, or better yet accelerate the reimbursement of your debts.

If this turns out to be impossible, you can consider making arrangements with each of your creditors (if they are not too numerous). The goal is to reduce the monthly payments and ideally reduce either the interest rate, or the amount of the debt, or even both. Creditors normally appreciate if a reasonable effort is made to find a solution. They will prefer that to the risk of losing everything in the event that you declare bankruptcy.

Another alternative to be considered is a debt consolidation which is a loan from a bank, a credit union or a family member large enough to reimburse the smaller creditors and propose a plan to reimburse the major loan over a longer period of time. This has the advantage of maintaining a good credit rating, regrouping all your various payments into one and it normally reduces the interest rate. Moreover, opting for the debt consolidation, you will avoid declaring bankruptcy, and you will keep your house, your car and maintain a good credit rating score.

If none of these options are possible, you can consider the possibility of filing a Consumer Proposal which is an effective tool to regroup your payments and to reduce it to one that corresponds to your financial capacity. As soon as you file, all interest on the debts are reduced to zero. The favourable vote of the majority of your creditors binds all creditors. Once you have respected the terms of your proposal, you will obtain a waiver of your debts (except those provided for by the law) while keeping all of your assets.
Finally, there exists the voluntary deposit, although considered somewhat archaic. Under this system, you must deposit at your local courthouse a portion of your wages (30% before income taxes, less some minor deductions) which will be distributed amongst your creditors. The yearly interest rate is reduced to 5%.

Only bankruptcies and consumer proposals must to be done through a trustee. All the other options may be done without the intervention of a professional.



If I declare bankruptcy, do I lose my income tax refunds and how does my bankruptcy affect the preparation of my income tax returns?

If you decide to declare bankruptcy, the federal tax refunds of the previous years, as well as the current year in which you declare bankruptcy, will be considered as an asset of the bankruptcy and will therefore be deposited into the bankruptcy estate.

On the other hand, the provincial tax refunds, which are considered non-seizeable by law, will be forwarded directly to you. The same holds true for GST refunds which would belong to the creditors, with certain exceptions, until the trustee closes your bankruptcy file. The Provincial sales tax refunds, on the other hand, will continue to be forwarded directly to you.

As for your income tax returns for the year of your bankruptcy, the trustee may undertake to file them on your behalf. The will be a pre-bankruptcy tax return for the period starting from the 1st of January to the date prior to the date of your bankruptcy, and a post-bankruptcy tax return from the date of your bankruptcy to the 31st of December of the bankruptcy year.





Can my RRSP or my pension plan be seized?

There are many types of RRSP's available to the consumer, and to answer the question, the individual contracts must be closely analyzed by the trustee. One must be aware, however, that the majority of RRSP’s can be seized with the exception of those mentioned below:

1- Registered pension funds
A pension fund to which you and your employer contribute and that are registered by law.

2- Locked-in RRSP accounts (CRI):
Should you leave your job where you and your employer both contributed to a pension fund, you may transfer these funds into a your personal RRSP. However, in this particular case, the law dictates that you deposit the funds into a locked-in RRSP account which you cannot access until you have reached your retirement age. These locked-in RRSP accounts benefit offer the same protection as the special registered pension fund to which your employer contributed, and, as such, will normally be unseizable.

What property may I keep if I go bankrupt?

Property that you may keep and that cannot be seized are provided for in articles 552 and 553 of the Code of civil procedure and, in general, include primarily the following items, which is not all inclusive:
• The moveable property which furnishes the main residence, used by and necessary for the life of the household, up to a market value of $6,000.
• The food and clothing.
• The tools and instruments needed for the personal exercise of a professional activity (ex. Mechanic’s tools).
• The personal documents and family portraits.
• The alimony and child support paid to you.
• The equipment necessary for a handicapped person to get around.
• All goods received in an inheritance (provide that the last will contains the appropriate covenant).
• CSST and invalidity indemnities.


 Consequences

What happens if I used my credit cards just before my declaring bankruptcy?
It goes without saying that if, just prior to your declaring bankruptcy, you used your credit cards and made purchases knowing full well that the charges would not paid back, such actions are not acceptable under the Act. In such cases, the Act provides that the creditors may oppose your discharge, or they may ask the court to have you pay additional amounts to the trustee or to have the debt declared non-dischargeable. This last recourse would mean that the debt would have to be paid back after your discharge from your bankruptcy, with interest. This type of behaviour is not recommended.

Can I keep one or more of my credit cards?
If you declare bankruptcy, you are required to turn in all of your credit cards, whether or not amounts are owed. On the other hand, in the case of a proposal, although, you are not required to turn in your credit cards, the credit card companies, having been informed of the proposal, will in most cases cancel the card.

Will I be allowed to operate my business?
The only requirement is that a business, whose sole proprietor is in bankruptcy, must give notice to those with whom he deals that is in personal bankruptcy. On the other hand, you no longer can be an administrator of an incorporated company so long as you are not discharged from your bankruptcy..

 Spouse

Do I have to go bankrupt if my spouse goes bankrupt?
The fact that your spouse declares bankruptcy does not necessarily mean that must also declare bankruptcy. Should the question arise, the trustee will verify whether or not you are jointly responsible for any of your spouse’s debts or obligations. In the event that you are jointly responsible for an unpaid debt or obligation, the creditors may demand, from you, full payment of the debt or obligation, unless you also file a proposal or bankrucpty.

If my spouse is paying alimony and goes bankrupt, what happens to the alimony obligation?
On the other hand, if there are arrears in alimony payments, are these debts erased in bankruptcy?
If your former spouse declares bankruptcy, it does not release you in any way from continuing to pay alimony, child support, or any arrears. As well, if you owe your former spouse alimony, or child support payments, you could have your wages garnished notwithstanding the bankruptcy. Alimony, child support and arrears are very well protected and these debts will live on after the bankruptcy.

What happens to the co-signor of my loan if I go bankrupt or if I file a proposal?
A bankruptcy or a consumer proposal does not take away the right from your creditor to sue the co-signor of your loan. Notwithstanding your bankruptcy or proposal, your guarantor or co-signor will have to pay the debt in your place; your co-signor will however be entitled to claim a dividend in lieu of your creditor.



Student loans. What happens to my student loan if I go bankrupt?
Since June 18th 1998, student loans are no longer discharged if the bankruptcy or consumer proposal proceedings are initiated less than 10 years following the end of your studies. The end of your studies is considered by the ministry as the date at which the teaching establishment declares that you have stopped studying. If your bankruptcy or consumer proposal was filed less than 10 years following the end of your last studies, you may, at the end of the 10 year period, present a motion to the court requesting to be discharged of the student loan. Should you satisfy the criteria and the court sees fit your application, a judgement may be rendered and your debt may be discharged.

 Consumer proposals

How is my credit rating affected if I file a consumer proposal?

Your credit rating score will be an R-9 during the period of your proposal and an R-7 for a period of three (3) years after the end of your proposal. Whereas in the case of a bankruptcy, your credit rating score will be an R-9 for six (6) years following your discharge from the bankruptcy. Most people refer to the time period as seven (7) from the date you declare bankruptcy.



If a file a consumer proposal, will I be able to keep all of my assets?
Yes. One of the primary goals of the consumer proposal is to allow the debtor to keep all its assets. However, the more assets you have, the more your proposal will have to offer in order for it to be interesting for the creditors.
 

Am I discharged from all of my debts?

The discharge from bankruptcy will erase all debts, except those listed in Section 178 of the Act which reads as follows:

• Any fine or penalty imposed by a court in respect of an offence, or any debt arising out a recognizance or bail;
• Any award of damages by a court in respect of bodily harm intentionally inflicted, or sexual assault, or wrongful death resulting therefrom;
• any debt or liability for alimony;
• Any debt or liability under an order for the maintenance and support of a spouse or child living apart from the bankrupt
• Any debt or liability arising out of fraud, embezzlement, misappropriation while acting in a fiduciary capacity;
• Any debt or liability for obtaining property by false pretences or fraudulent misrepresentation;
• Any liability for the dividend that a creditor would have been entitled to receive on any provable claim not disclosed to the trustee;
• Any debt or obligation in respect of a student loan guaranteed by the government where the date of bankruptcy occurred before the date on which the bankrupt ceased to be a student or within 10 years after the date on which the bankrupt ceased to be student.
• Any debt for interest owed on any of the above noted non-dischargeable debts.


 Seizure

Can a bankruptcy or a consumer proposal stop legal proceedings including the seizure of my property or the garnishment of my wages?

In declaring bankruptcy or filing a consumer proposal, you place yourself under the “protection of the law”. All seizures or judicial proceedings are stopped except for three exceptions:

A secured creditor may continue his proceedings (ex. a mortgage creditor), but the proceedings are limited to the repossession the assets subject to a lien (ex. mortgage, conditional sales contract);

A garnishment of wages for alimony or child support payments;

A creditor who has obtained a judgement of the Court. This is an extremely rare exception and usually involves fraud.

 N.b.:
Please note that the answers to the questions herein do not constitute a legal opinion. They are based on theoretical situations which may vary depending on a particular situation. .
© Jean Fortin & Associés Syndics Inc. Bankruptcy trustee • Receiver-manager