Debt can be overwhelming and confusing, but it doesn't need to be. Our Licensed Insolvency Trustees have answered the Frequently Asked Questions we've been asked about 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 Insolvency Trustee. The first step when filing for Bankruptcy is to contact a MNP Licensed Insolvency Trustee to discuss your debt options. If filing for Bankruptcy is the right step for you, your Licensed Insolvency Trustee will guide you through the Bankruptcy process.
Licensed Insolvency Trustees, 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 federal government's 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 federal government's Office of the Superintendent of Bankruptcy (OSB). Only a Licensed Insolvency 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 Insolvency Trustee for the benefit of your creditors. Read below to learn what exempt assets exist in your province.
If you declare Bankruptcy in British Columbia, you can keep:
If you declare Bankruptcy in Alberta, you can keep:
If you declare Bankruptcy in Saskatchewan you can keep:
If you declare Bankruptcy in Manitoba, you can keep:
Farm related exemptions are as follows:
If you declare Bankruptcy in Ontario, you can keep:
If you declare Bankruptcy in Quebec, you can keep:
If you declare Bankruptcy in Nova Scotia, you can keep:
If you declare Bankruptcy in Newfoundland and Labrador, you can keep:
If you declare Bankruptcy in New Brunswick, you can keep:
If you declare Bankruptcy in Prince Edward Island, you can keep:
If you declare Bankruptcy in the Yukon, you can keep:
If you declare Bankruptcy in the Northwest Territories, you can keep:
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 any asset repurchase and on your final calculated surplus income, if any. Where the total household income exceeds the standards set by the federal government, then additional payments called ‘surplus income’ must be made to your Licensed Insolvency 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:
For a second time Bankruptcy:
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 Insolvency 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:
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 Insolvency 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 Insolvency 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 Insolvency Trustees 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 you earn after deducting income taxes, payroll deductions, essential medical expenses, alimony, and child support. It does not typically include expenses like rent / mortgage payments, food, utilities, and other similar day-to-day expenses.
The 2022 guidelines for surplus income statements are:
| Number of people in Family |
Net Family Income (monthly) |
|---|---|
| 1 | $2,355 |
| 2 | $2,931 |
| 3 | $3,604 |
| 4 | $4,375 |
| 5 | $4,962 |
| 6 | $5,597 |
| 7+ | $6,231 |
The federal guidelines dictate a household of one person could earn a net monthly income up to $2,355 and have no surplus income payment obligation to the Trustee.
However, if the actual net income was $2,600 per month (to use an example) the difference of $245 per month is considered surplus income. Half of this surplus income (i.e. $122.50) will be payable to the Trustee for the benefit of the bankrupt’s unsecured creditors each month during the 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 Insolvency Trustee twice during your Bankruptcy — once at the point of filing, and again shortly before your expected discharge date.*
The surplus income requirement and how it may affect you will be reviewed in detail during your Free Confidential Consultation.
*Surplus income requirements can be triggered at any point where there is a material increase in income (including wage increase or windfall) during the Bankruptcy period. 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 Insolvency 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 Insolvency 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 Insolvency Trustee, as agreed upon by you and the Licensed Insolvency Trustee. Your Licensed Insolvency Trustee will distribute any funds received through the Bankruptcy to unsecured creditors at the end of the Bankruptcy as required under the Bankruptcy & Insolvency Act. Click here to learn more about how those payments may be determined.
Once you file for Bankruptcy, your Licensed Insolvency Trustee has the duty to notify all of your creditors. Also, Canada Revenue Agency, credit reporting agencies and the federal government's 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 federal government's Office of the Superintendent of Bankruptcy and it will appear on your credit report. When you provide the Licensed Insolvency Trustee with a copy of your most recent pay statement, your employer is not usually notified, unless the Licensed Insolvency Trustee is required to send a notice to your employer in order to stop a garnishee of your wages.
Your Licensed Insolvency 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 Insolvency 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 Insolvency 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 Insolvency 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 Insolvency 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 that may help.
In order to file for Bankruptcy, certain conditions must be met:
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.
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 Insolvency 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 federal government's Office of the Superintendent of Bankruptcy that may help.
The cost of a Licensed Insolvency Trustee administering a Personal Bankruptcy is based on many factors. This will be discussed with you at your confidential meeting with the Licensed Insolvency 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 may be an option.
There are two options for Canadians under our Bankruptcy law. 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.
These terms do not mean the same thing. Bankruptcy is a formal legal process whereby you assign your non-exempt assets to a Licensed Insolvency 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 administration 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.
A Consumer Proposal is for individuals that have sufficient 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 must provide more money to the unsecured creditors. A Bankruptcy lowers your credit rating to the lowest score (R9), while a Consumer Proposal has less impact on your rating (R7).
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.
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