Bankruptcy

If you owe more than $1,000 and you are unable to pay back your debt, you may be eligible for bankruptcy.

The only way to file for bankruptcy in Canada is through a Licensed Trustee in Bankruptcy. The first step when filing for bankruptcy is to contact a MNP Licensed Trustee to discuss your debt options. If filing for bankruptcy is the right step for you, your Licensed Trustee will guide you through the bankruptcy process.

Trustees in Bankruptcy, like those at MNP Ltd., work with you one-on-one to understand your financial challenges, let you know what all of your options are and help find a solution that’s right for you. If you declare bankruptcy or file a Consumer Proposal, your trustee will help you fill in all the required documents and file them with the Office of the Superintendent of Bankruptcy. Your trustee will also let your creditors know about the bankruptcy and deal with them directly on your behalf.

Both MNP Ltd. as a corporation and each of our individual Trustees are licensed by the Office of the Superintendent of Bankruptcy (OSB). Only a Licensed Trustee may file a Consumer Proposal on your behalf or assist you in declaring bankruptcy.

Each province in Canada has legislation dictating which assets you may keep in the event of a bankruptcy. These assets are exempt – or excluded – from the assets that would be sold by a Licensed Trustee for the benefit of your creditors. To learn what exempt assets exist in your province, click on one of the links below.

British Columbia 
Alberta 
Saskatchewan 
Manitoba 
Ontario 
Quebec 

If you declare bankruptcy in British Columbia, you can keep:

  • Necessary clothing of the debtor and the debtor's dependants;
  • Household furniture and appliances (up to $4,000 in value).
  • One vehicle (up to $5,000 in value, or $2,000 if you are behind on child support payments).
  • Tools and other personal property (up to $10,000 in value) you need to earn an income from your work.
  • Medical and dental aids you or your dependents need.
  • The equity of your principal residence (up to a $12,000 value if you live in Greater Vancouver or Victoria, or $9,000 for the rest of the province).
  • RRSPs are generally exempt, except for contributions made in the past 12 months.

If you declare bankruptcy in Alberta, you can keep:

  • Clothing (up to $4,000 in value)
  • Household furniture and appliances (up to $4,000 in value).
  • One vehicle (up to a $5,000 value).
  • Tools and personal property you need to earn an income from your occupation (up to $10,000 in value).
  • The equity in your principal residence (house or mobile home) up to $40,000 in value.
  • Medical and dental aids you and your dependents need.
  • RRSPs
  • RESPs

If you are a farmer in Alberta, you can keep:

  • Up to 160 acres of land provided your house is located on that land and the land is part of your farm.
  • If your main income is from farming operations, any personal property you need to run your farm for the next 12 months.
  • If you declare bankruptcy in Saskatchewan you can keep:

    • Clothing, including jewellery, up to $7,500 in value
    • Medical and Dental aids required
    • Household furnishings
    • Pets up to a value of $2,000
    • One motor vehicle up to $10,000
    • Personal Property required to earn income
    • Funds that were received as the result of compensation for injury
    • Prepaid Funeral Services
    • The Homestead
    • Equity in your Active Residence (including trailers) up to $50,000
    • Most RRSPs, RRIFs and Pensions

    If you are a farmer in Saskatchewan, you can keep:

    • Furniture, furnishings and appliances (up to $10,000 in value).
    • The cash equivalent of produce you need to provide food and fuel for heating until the next harvest.
    • All livestock, farm machinery and equipment, including one car or truck, necessary for the next 12 months.
    • One motor vehicle, if needed for business.
    • Seed grain equal to two bushels per acre of land under cultivation.
    • Cash equivalent of your crop equal to unpaid harvesting costs, living expenses until the next harvest and necessary costs of farming until next harvest.
    • The homestead.

If you declare bankruptcy in Manitoba, you can keep:

  • Furniture, household furnishings and appliances (up to $4,500 in value).
  • Necessary and ordinary clothing for you and your family.
  • Food and fuel your family needs for the next six months (or the cash equivalent).
  • Tools, implements, professional books and other items you need for your trade, occupation or profession (up to a value of $7,500).
  • One motor vehicle, if you need it either for work or to drive to and from work (up to a value of $3,000).
  • Articles and furniture you need for religious services.
  • Medical aids you or your family needs (including wheelchair, air conditioner, elevator, hearing aid, eye glasses, prosthetic or orthopedic equipment).
  • Municipal or school property.
  • Your residence or home (up to $1,500 in equity each if you own it jointly, or $2,500 if in your sole title).

If you are a farmer in Manitoba, you can keep:

  • Animals you need to continue running your farm for the next 12 months.
  • Farm machinery, dairy utensils and farm equipment you need for the next 12 months.
  • One motor vehicle (if you need it for your agricultural operations).
  • A quarter of the land and all buildings thereon.
  • Enough seed for any land you have that is being cultivated.

If you declare bankruptcy in Ontario, you can keep:

  • Clothing (up to $5,650 in value)
  • Household Goods (up to $11,300 in value)
  • Tools of the Trade (up to $11,300 in value)
  • Farmers $28,300
  • Motor Vehicle $5,650
  • RRSPs are generally exempt, except for contributions made in the past 12 months

If you declare bankruptcy in Quebec, you can keep:

  • The movable property* which furnishes the main residence, used by and necessary for the life of the household, up to a market value of $6,000 established by the seizing officer
  • The food, fuel, linens and clothing necessary for the life of the household
  • The instruments* of work needed for the personal exercise of a professional's activity
  • Family papers and portraits, medals and other decorations
  • Property declared by a donor or a testament to be exempt from seizure except in certain cases
  • Judicially awarded support and sums given or bequeathed as support
  • Benefits payable under a supplemental pension plan to which an employer contributes on behalf of his employees, other amounts declared unseizable by an Act governing such plans and contributions paid or to be paid into such plans
  • Periodic disability benefits and expense reimbursements under a contract of accident and sickness insurance
  • Property of a person that is required to compensate for a handicap
  • RRSPs, Registered Retirement Income Funds (RRIFs) and Deferred Profit Sharing Plans (DPSPs)
  • A certain portion of salaries and wages based on the number of dependants

*Nevertheless, the property referred to in the first and third bullets above may be seized and sold by a creditor holding a hypothec thereon

If you declare bankruptcy in Nova Scotia, you can keep:

  • One motor vehicle up to a value of $3,000 or to a value of $6,500 if required for your employment and where there is not a loan outstanding specifically for the purchase of the vehicle
  • Furniture, household furnishings and appliances used by a debtor or a dependent up to a value of $5,000 and where there is a not a loan outstanding specifically for their purchase
  • Tools of trade or other chattels, as are used in the debtor's chief occupation, to a value of $ 1,000
  • A life insurance policy/products that has a preferred beneficiary (i.e. spouse, child, parent, or grandchild)
  • Registered Pension Plans
  • Registered Retirements Savings Plans, with the exception of contributions made in the 12 months prior to the date of bankruptcy;
  • Medical and Health aids necessary enable a debtor or dependent to work or sustain health and here there is not a loan outstanding specifically for the purchase.

*Nevertheless, the property referred to in the first and third bullets above may be seized and sold by a creditor holding a hypothec thereon

If you declare bankruptcy in Newfoundland and Labrador, you can keep:

  • Motor vehicles of the debtor up to a value of $2,000
  • Appliances and household furnishings up to a value of $4,000
  • Clothing up to a value of $4,000
  • Sentimental items up to a value of $500
  • Debtor's equity in principal residence as defined up to $10,000
  • Specified personal property used for income earnings up to a value of $10,000
  • All pensions and RRSPs
  • Food for 12 months
  • Medical and dental aids required by the debtor and dependents
  • Domesticated anithals and pets
  • Fuel and heating as necessary for the debtor and dependents.

*Nevertheless, the property referred to in the first and third bullets above may be seized and sold by a creditor holding a hypothec thereon

If you declare bankruptcy in New Brunswick, you can keep:

  • One motor vehicle having a realizable value of not more than $6,500 at the time the claim for exemption is made, or not more than any greater amount that may be prescribed, if the motor vehicle is required by the debtor in the course of or to retain employment or in the course of and necessary to the debtor's trade, profession or occupation
  • Furniture, household furnishings and appliances reasonably necessary for the debtor and his family
  • Food, clothing and fuel necessary for the debtor and his family
  • Necessary tools, equipment and books to the value of $6,oo used in the practice of the debtor's trade or profession
  • Necessary Medical and Health aids
  • A life insurance policy/products that has a preferred beneficiary (i.e. spouse, child, parent, or grandchild)
  • Registered Pension Plans
  • Registered Retirements Savings Plans, with the exception of contributions made in the 12 months prior to the date of bankruptcy;

*Nevertheless, the property referred to in the first and third bullets above may be seized and sold by a creditor holding a hypothec thereon

If you declare bankruptcy in Prince Edward Island, you can keep:

  • Motor vehicles of the debtor up to a value of $3,000 or $6,500 if required for work
  • Appliances and household furnishings up to a value of $5,000
  • All necessary and ordinary clothing of the debtor and his family
  • Specified personal property used for income earnings up to a value of $2,000 and for a farmer $5,000
  • All pensions and RRSPs
  • Registered Retirements Savings Plans with preferred beneficiary (life insurance and non-life insurance institutions), with the exception of contributions made in the 12 months prior to the date of bankruptcy. Preferred beneficiary are spouse, child, parent, or grandchild

*Nevertheless, the property referred to in the first and third bullets above may be seized and sold by a creditor holding a hypothec thereon

Anyone filing personal bankruptcy must attend two financial counselling sessions. The first session will be one to two months after you filed for bankruptcy, while the second will be within seven months of filing. Your first session will focus on budgeting, money management and goal setting. In your second session, you will learn more about the bankruptcy cycle, identify non-financial reasons that may have caused your problems and ways to repair your credit.

Filing for bankruptcy should not affect your job. Some professional bodies may require you to disclose your bankruptcy. If you're bonded in your current position, you may want to contact your Human Resources department to confirm if there will be any impact on your job / duties.

Filing bankruptcy will not affect your spouse’s credit rating. However, if you have any joint debt, your spouse would be responsible for paying that joint debt in full.

It can be found in our Forms section. Please keep in mind we do not require you to fill these out prior to your appointment. If you have any questions about any of the forms, feel free to contact us.

The length of the bankruptcy process will depend on your final calculated surplus income, if any. Where the total household income exceeds the standards set by the government, then additional payments called ‘surplus income’ must be made to your Licensed Trustee during your bankruptcy (Directive 11R, Bankruptcy and Insolvency Act).

If you meet and fulfill your duties and payments in a timely manner, you may receive an automatic discharge from bankruptcy.

For a first-time bankruptcy:

  • 9 months where there is no surplus income; or
  • 21 months when there is surplus income.

Your credit rating will reflect the bankruptcy for 6 years after you are discharged from the bankruptcy process.

For a second time bankruptcy:

  • 24 months where there is no surplus income; or
  • 36 months when there is surplus income.

Your credit rating will reflect the second bankruptcy for 14 years after you are discharged from the bankruptcy process.

High personal income tax debtors are individuals where their total personal income tax debt, which includes penalties and interest is over $200,000 and represents at least 75% of their total unsecured proven debt. The minimum duration of the bankruptcy process for high tax debtors is outlined above. The only difference is the Licensed Trustee will have to apply to the court for a hearing and the discharge application will have to be heard in court.

It is possible your unsecured creditors may oppose your discharge from bankruptcy (which may postpone your discharge), but this only happens on rare occasions.

There are certain debts that survive a bankruptcy filing as outlined in Section 178 of the Bankruptcy and Insolvency Act. These include:

  • Court fines, penalties and restitution orders
  • Alimony, child support and maintenance
  • Any award by the Court for intentional bodily harm, sexual assault or wrongful death
  • Any debt or liability arising out of fraud, embezzlement, misappropriation or misconduct while acting in a fiduciary capacity
  • Any debt or liability for obtaining property under false pretences or fraudulent misrepresentation
  • Liability for any dividend a creditor would have been entitled to receive when you fail to disclose the creditor to your trustee
  • Student loans in certain circumstances

There are various duties required of you when you go bankrupt (some of which are described here . If you do not complete them, the Licensed Trustee may obtain its discharge from administering your bankruptcy, thereby leaving you in bankruptcy. This will essentially put you back into the same situation as you were prior to filing for bankruptcy, wherein all of your unsecured creditors can once again pursue you directly for payment of the full amount of their debt. You may reopen your bankruptcy file with a Licensed Trustee in order to obtain your discharge, but the process will likely cost you more, require more effort and take longer than it would have if you complied with your duties in the first attempt.

The federal government provides guidelines to all Licensed Trustees in Bankruptcy to help them determine if an individual or family has ‘surplus’ income. Your threshold for surplus income is calculated based on the number of dependents in your household and your net family income. Net family income refers to how much income you have after deducting income taxes, payroll deductions, essential medical expenses, alimony and child support, but typically doesn’t include things like rent / mortgage payments, food, utilities and other similar day-to-day expenses.

The current guidelines for surplus income statements are:

# in Family Net Family Income (monthly ) 
1  $2062
2  $2567
3  $3156 
4  $3831
5  $4345 
6  $4901

The federal guidelines dictate a household of one person could earn a net monthly income of up to $2062 and have no surplus income payment obligation to the Trustee. However, to use an example, if the actual net income was $2,500 per month, the difference of $438 per month is considered surplus income. Half of this surplus income (i.e. $219) will be payable to your Trustee for the benefit of your unsecured creditors. In this example, the individual would have to pay $219 each month during their bankruptcy period. The precise calculation of surplus income payments varies based on the number of people in your household and will be completed with your Licensed Trustee once you’ve chosen to declare bankruptcy. This will also be reviewed in detail during your confidential consultation.

Note that if you are required to pay surplus income payments, your bankruptcy period will be extended to 21 months for a first time bankruptcy.

When you file for bankruptcy, unsecured creditors will be given the chance to file a claim with the Trustee for the amount they are owed in order to receive their share of any funds distributed in your bankruptcy. Your creditors will deal directly with the Licensed Trustee and are required by law to immediately stop contacting you regarding collections. If a creditor persists in contacting you, you should notify your MNP Licensed Trustee immediately.

If a debt included in your bankruptcy has been co-signed or guaranteed, the co-signer / guarantor will be responsible for making the payments in full.

Once your bankruptcy is accepted, you will typically make monthly payments to your Licensed Trustee, as agreed upon by you and the Licensed Trustee. Your Licensed Trustee will distribute any funds received through the bankruptcy to unsecured creditors at the end of the Bankruptcy as required under the Act. Click here to learn more about how those payments may be determined.

Once you file for bankruptcy, your Licensed Trustee has the duty to notify all of your creditors. Also, Canada Revenue Agency, credit reporting agencies and the Office of the Superintendent of Bankruptcy must be informed. A very limited number of bankruptcies (typically corporate bankruptcies) require an advertisement in the Classified section of a local newspaper.

A bankruptcy is a matter of public record with the Office of the Superintendent of Bankruptcy and it will appear on your credit report. When you provide the Licensed Trustee with a copy of your most recent pay statement, your employer is not usually notified, unless the Licensed Trustee is required to send a notice to your employer in order to stop a garnishee of your wages.

Your Licensed Trustee is required to file your prior year’s income tax return if it remains unfiled at the date of bankruptcy, as well a pre-bankruptcy income tax return for the period from January 1 to the date of your bankruptcy. The Licensed Trustee will retain any refunds arising from these income tax returns. If there is a balance owing on these income tax returns, the amount owed is included in your bankruptcy.

Your Licensed Trustee will also file a post-bankruptcy income tax return for the period from the date of your bankruptcy to December 31. Again, any refund from this income tax return will be retained by the Licensed Trustee. If there is a balance owing on the post-bankruptcy income tax return, the amount due is your responsibility.

When you file for bankruptcy you will need to turn over all of your credit cards to your Licensed Trustee. At that time, they will be cancelled on your behalf as your credit will be reset once you declare bankruptcy. You will be unable to obtain new credit cards until after your discharge. However, you may be able to obtain either a prepaid or a secured credit card for use during your bankruptcy. Note that only a secured credit card will help you rebuild your credit rating.

A secured credit card is ideal for people with low or no credit. In order to obtain one, you must make a deposit, which is essentially treated as collateral. For example, if you deposited $1,000 you should be able to charge up to $1,000 on your account. From there, a secured credit card essentially works like a regular credit card, with required minimum monthly payments. You will be able to make purchases online and in-stores, plus you’ll be able to use the credit card to ‘secure’ costs like a vehicle rental or hotel room. The initial deposit on your card will remain there until you close your account, move over to an unsecured credit card upon completion of your bankruptcy or Consumer Proposal or default on your secured balance (in which case the financial institution would use your deposit to pay off any outstanding debts).

Demonstrating good behaviour while using a secured credit card is a positive way to rebuild your credit and earn the trust of your financial institution. Your lender may be more willing to offer you an unsecured credit card upon completion of your bankruptcy or Consumer Proposal or they may increase your secured credit limit without requiring you to make another deposit.

If you are obtaining a secured credit card, be sure to review any fees surrounding the card carefully, as they are typically higher than applying for an unsecured credit card.

In order to file for bankruptcy, certain conditions must be met:

  • Debt must be at least $1,000.00;
  • Debtor must be discharged from a previous bankruptcy;
  • Debtor must reside, carry on business or have property in Canada;
  • Debtor must be unable to meet regular payments as they become due;
  • Property owned by the debtor must be insufficient to enable payment of all debts.

Once you have been discharged from bankruptcy, the process of rebuilding your credit begins. Establishing a new credit history and earning the trust of potential creditors will take some time. You will have to show you have the ability to meet your obligations and repay debt when it is due. If you make your payments on time, do not bounce cheques, get and use a secured credit card or borrow money from a bank and pay the loan off in a short period of time, these will help boost your credit rating. If you are able to obtain a credit card, expect a low credit limit and make sure monthly balances are paid off by their due date.

In order to file for bankruptcy, certain conditions must be met:

  • Debt must be at least $1,000.00;
  • Debtor must be discharged from a previous bankruptcy;
  • Debtor must reside, carry on business or have property in Canada;
  • Debtor must be unable to meet regular payments as they become due;
  • Property owned by the debtor must be insufficient to enable payment of all debts.

As mentioned above, if you are approved for a credit card after bankruptcy, expect a low credit limit and make sure that balances are paid off every month. Obtaining a secured credit card is also an effective means to improve your credit rating and accelerating your ability to get an unsecured credit card after bankruptcy.

If you need a personal loan after bankruptcy, you will likely have to obtain a co-signor depending on the state of your credit. A co-signor is an individual that promises to pay your debt if you cannot pay it yourself.

Assuming you have a regular source of income, you should be able to obtain a loan to purchase a vehicle after the discharge from your bankruptcy. However, the interest rate that is payable on that loan will likely be higher to reflect the higher credit risk as a result of your bankruptcy.

Like many loans after bankruptcy, it is likely you will need a co-signor to obtain a mortgage, although this will largely depend on your credit rating at the time of applying for a mortgage. To improve your chances of being approved for a mortgage, you should save as much money as possible for the down payment. If you can show steady, reliable employment income, this will also help.

The Bankruptcy and Insolvency Act requires that all bankruptcies be filed by a Licensed Trustee.

Bankruptcy services are not provided for free. If you are filing for personal bankruptcy but aren’t financially able to afford the cost, there is a bankruptcy assistance program available through the Office of the Superintendent of Bankruptcy.

The cost of a Licensed Trustee administering a personal bankruptcy is set by government regulations. This will be discussed with you at your confidential meeting with the Licensed Trustee.

Initiating bankruptcy proceedings may be appropriate if you’ve considered all of your other debt relief options . If you are unable to pay your debt as it comes due and the net worth of your assets is less than the total amount of your debt, bankruptcy is an option.

There are two options for Canadians under our bankruptcy law. Both individuals and corporations can file for bankruptcy under the same law but utilize two different processes. For most individuals, bankruptcy is a relatively streamlined process referred to as a Summary Administration. However, depending on the amount of assets an individual owns, an Ordinary Administration may be applicable. All corporate bankruptcies are processed as Ordinary Administrations.

These terms do not mean the same thing. Bankruptcy is a formal legal process whereby you assign your non-exempt assets to a Licensed Trustee in order to be relieved of your unsecured debts. Insolvency is a term that means you are unable to pay your debts as they come due or your total assets are worth less than the amount of all of your debt. You must be insolvent in order to file for bankruptcy but you are not automatically bankrupt just because you are insolvent.

Chapter 7 is a section of the United States bankruptcy code (law) which is used by individuals to file for bankruptcy in order to get a fresh financial start. This law does not apply in Canada.

Chapter 11 is a section of the United States bankruptcy code (law) which is used by businesses to obtain protection from creditors while it restructures its operations so that it can sustain itself in the future. This law is similar to the two Acts that apply to companies in Canada, the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (CCAA).

Chapter 13 is a provision in the United States bankruptcy code (law) which is comparable to the Consumer Proposal option under Canadian bankruptcy law.

It is a piece of legislation that governs the orderly liquidation of a bankrupt’s estate and oversees the distribution of its value to the estate’s creditors, while providing a fresh financial start for individual debtors. Both bankruptcies and Consumer Proposals are filings under the Bankruptcy and Insolvency Act.

Bankruptcy is a legal process in which you may be discharged from most of your unsecured debts. It is regulated by the Bankruptcy and Insolvency Act. The purpose of the Act is to permit an honest, but unfortunate debtor to obtain a bankruptcy discharge from his or her debts, subject to reasonable conditions.

  1. To start the bankruptcy process, first contact your local MNP Ltd. Trustee Office and discuss your particular circumstances with a consultant or Licensed Trustee. They will arrange a meeting with you at our office depending on the path you decide on. Your Licensed Trustee will conduct a review of your situation from a financial perspective.
  2. The Licensed Trustee will discuss and explain all of your options based on your assessment. If you decide that bankruptcy is the best solution for you then we will help you complete the various forms and let you know what to expect going forward. You are only considered ‘bankrupt’ when the Licensed Trustee files these forms with the Office of the Superintendent of Bankruptcy.
  3. After filing bankruptcy, the Licensed Trustee’s office will notify all of your creditors. You will make monthly payments to your Licensed Trustee who may also sell any non-exempt assets for the benefit of the estate. Your unsecured creditors will not be able to take legal steps to recover their debts from you (such as seizing property or wage garnishment).
  4. During the process of the bankruptcy you may be required to make monthly payments to the estate and comply with required duties such as submitting monthly Income and Expense reports with appropriate supporting documents, attend two financial counselling sessions and provide relevant tax information so the Licensed Trustee can file your pre- and post-Income Tax returns for the year of your bankruptcy.
  5. Upon the timely completion of the above steps and if there is no objection from your creditors, you will obtain your discharge from bankruptcy. The Licensed Trustee will sign the Certificate of Discharge and all your eligible unsecured debts will be discharged.
  6. When all matters have been completed, the Licensed Trustee will distribute the available estate funds among your creditors after fees and disbursements.

A Consumer Proposal is for individuals that still have a source of income and are able to make payments to creditors, but need to change the arrangement of their payments. A Consumer Proposal can change the length of payment (up to a maximum term of 5 years) and the overall amount the debtor is required to pay. Whereas a bankruptcy can be considered a clean start, as debts to unsecured creditors are typically forgiven. A bankruptcy lowers your credit rating to the lowest score (R9), while a Consumer Proposal has less impact on your rating (R7).

Consumer Proposal VS. Bankruptcy

Consumer Proposals and bankruptcies are both government legislated options which can provide you with relief from significant debt problems. In addition, both debt solutions can only be administered by a Licensed Insolvency Trustee and provide a legal stay of proceedings which require creditors to discontinue harassing collection calls, garnishment or other legal proceedings.

Determining which, if either, option is an appropriate solution in your own unique situation depends on a number of variables. Let’s explore the advantages and disadvantages of both a Consumer Proposal and a bankruptcy.

Consumer Proposal VS Bankruptcy


Our team of Licensed Insolvency Trustees will help you explore the debt relief options available to you and together we will find the solution that best fits your situation. Set up your FREE, no obligation consultation today.

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MNP Debt Blog

 

 

What is a Consumer Proposal?
Lana Gilbertson
Exploring the Differences Between a Consumer Proposal and a Bankruptcy
Nora Edwards
Ontarians Optimistic About Debt Except When it Comes to Unexpected Expenses
David Gowling
Manitoba and Saskatchewan Residents Optimistic About Debt Except When it Comes to Unexpected Expenses
Gord Neudorf

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