Dealing With Debt Through Personal Bankruptcy

When dealing with debt, there are both formal and informal options. Formal options are undertaken via the Bankruptcy and Insolvency Act (BIA). Informal options include contacting your creditors on your own to negotiate a lower payment or lower interest rate, as well as asking your bank to consolidate your debts.

The best solution is a personal decision, one that depends on your unique situation. If you decide to take formal action to deal with your financial difficulties, a good first step is to meet with a Trustee in Bankruptcy to discuss your financial situation. A Trustee in Bankruptcy is an officer of the court licensed by the Office of the Superintendent of Bankruptcy to administer bankruptcy proceedings. The Trustee tries to balance the interests of both you and your creditors. 

During this initial free meeting, the Trustee will review your financial situation and discuss the options available to you. There are alternatives to bankruptcy, such as filing a Consumer Proposal – which a Trustee can help you with. The Consumer Proposal can be thought of as a settlement between you and your creditors to forgive some or all of your debts, in return for an agreed lower payment over an extended period, not exceeding five years.

What does it mean to be bankrupt?

Bankrupt is the legal status of a person (or other entity) that cannot repay its debts to creditors.

Bankruptcy provides immediate protection to individuals experiencing financial troubles by forgiving debts that simply can't be paid. Individuals filing for bankruptcy will be able to get most, if not all, of their debts eliminated. Once bankruptcy proceedings have started, unsecured creditors will not be able to take legal steps to recover their debts. In other words, they will not be able to seize your property or garnish your wages. Hassling telephone calls from bill collectors will also stop.

Can I include a debt owing to the Canada Revenue Agency in my bankruptcy?

Yes. A debt owing to the Canada Revenue Agency (CRA) for personal income taxes and / or HST / GST is a debt that would be covered by your bankruptcy and released by a discharge from bankruptcy. However, where this can change is if the CRA has registered against title to your home prior to the bankruptcy. If the CRA has registered title, then the registered portion of the tax debt is like a second mortgage on the home and will not be removed by a bankruptcy filing.

How long will my bankruptcy last?

Your bankruptcy ends when you receive your discharge. A discharge from bankruptcy is the event that actually cancels or erases some or all of your debts, thereby releasing you from any legal obligation to pay any discharged debts.

Provided the discharge is unopposed, you will be eligible to receive an automatic discharge if this is your first or second bankruptcy, in Canada or elsewhere. Your bankruptcy will last a minimum of 9 months if you have not been bankrupt before and a minimum of 24 months if you have been bankrupt once before. You will be required to attend court for your discharge if you have been bankrupt on three or more occasions.

How much does it cost to declare bankruptcy?

The cost of administering a personal bankruptcy is set by government regulations and will be discussed at your initial meeting with a Trustee.

How do I locate a Trustee?

You can find a list of licensed Trustees in your area by searching the Trustee Registry of the Office of the Superintendent of Bankruptcy website.