That Unfamiliar Word: BANKRUPT
In this piece, we'd like to walk you through the basics of personal bankruptcy. Put simply, bankruptcy means being unable to pay your debts on time. That can include debts owed to financial institutions or private individuals, taxes, student loans, and so on. To put it another way, more officially, under the Canada Bankruptcy and Insolvency Act and the Ontario Execution Act, bankruptcy is a measure designed to help someone facing a financial crisis get free of debt and start fresh.
Who Can File for Bankruptcy? Anyone who is at least 18 years old, has debts of at least $1,000, and is unable to keep up with those debts on time. There are two paths into bankruptcy: the first is voluntary, and the second is when your creditors take you to court to have you declared bankrupt.
The moment you sign a declaration stating that you're declaring bankruptcy, your status changes to bankrupt.
The bankruptcy process typically lasts 9 months, and as long as everything goes smoothly, you meet your obligations, and this is your first bankruptcy, you'll most likely be automatically discharged from that status. There are situations where you may need to appear in court or attend an examination - this happens if your creditor or creditors don't want you discharged from bankrupt status, for instance in cases involving fraud, gambling, and so on. Discharge can also be conditional - for example, you may be discharged from bankruptcy on the condition that you pay a certain amount. Legislative changes took effect in 2009: the bankruptcy period can be extended to 21 months if the bankrupt individual has surplus family income - meaning income above the maximum allowable net monthly family income set out under the legislation. In other words, if your net family income exceeds that allowed threshold, you'll need to pay the difference over a 21-month period.
So, after 9 months, it's essentially like being born again - no debts, no obligations, you're just an ordinary person again. The one downside is that it can be difficult to get credit for a while. But we can help you get a secured credit card, so you can start rebuilding your credit history.
Which Debts Are Included in a Bankruptcy? You're required to include absolutely all of your debts. That said, certain debts must still be paid even after you've been discharged from bankruptcy: fines and court-ordered payments; anything obtained through fraud or misrepresentation; child and spousal support; and student loans, if fewer than 7 years have passed since you finished your studies.
A lot of people ask us what happens to their property. Under the Ontario Bankruptcy Exemptions, a bankrupt individual is entitled to keep the following: all necessary clothing; one motor vehicle worth up to $7,117 (car, truck, etc.); $14,180 worth of household furnishings and appliances; $14,405 worth of tools of the trade (equipment you use to earn a living); certain types of life insurance; and all RRSP, RRIF, and DPSP (Deferred Profit Sharing Plan) savings, except for contributions made in the 12 months before your bankruptcy.
And what about real estate? The trustee will review all of the documentation related to your property and determine how much equity you have in it. If there's no equity, and you're able to keep up with your mortgage payments, everything stays as it is. If there is equity, the trustee will need to convert it into cash to pay your creditors. This can be done, for example, through a private sale of the property to a spouse who isn't bankrupt, or by registering a lien or warning on title.
Yes, bankruptcy isn't pleasant, but if life has brought you to this point, our company can help you get through it and start a new chapter.
Call us - don't wait.