What Are The Legal Implications Of Filing For Bankruptcy

2018-04-26   minute read

Mary Plahouras Rob Shier


The primary purpose of the Bankruptcy and Insolvency Act (BIA) is to allow honest but unfortunate debtors relief from their debts and the chance to make a financial fresh start. In many cases it is the only realistic and effective option to stop collection calls and legal threats and ultimately discharge unsecured debt. 

Person calculating their bills and money

The primary purpose of the Bankruptcy and Insolvency Act (BIA) is to allow honest but unfortunate debtors relief from their debts and the chance to make a financial fresh start. In many cases it is the only realistic and effective option to stop collection calls and legal threats and ultimately discharge unsecured debt. 

While it doesn't affect any fundamental rights or freedoms such as the ability to vote, obtain government identification or travel — bankruptcy does have a broad range of legal implications you need to know about. These will vary depending on each person's unique circumstances, but we hope the following summary will reduce uncertainty, help you decide if bankruptcy is the right path for you and make your experience smoother if you decide to move forward.

Stay of Proceedings

With certain exceptions, a personal bankruptcy filing will trigger an automatic stay of proceedings on any collections and court actions (current or pending) by your unsecured creditors. This has the added benefit of halting any writs of execution, asset seizures or sales, and may also terminate wage garnishment in some circumstances.

Surrendering Non-Exempt Assets

Your bankruptcy filing will require you to surrender your property to your Licensed Insolvency Trustee (LIT) for the general benefit of your creditors.

Aside from assets which are exempt, this requirement applies to everything you own, anywhere in the world. Your LIT can further explain how exemptions would apply for you based on the federal and provincial legislation in the province you reside and where your property is located. 

Surplus Income Payments

Depending on your income level, bankruptcy legislation may require you to contribute surplus income payments to your bankruptcy estate. This generally applies to higher income individuals and emphasizes a higher level of obligation for those with greater means.

For high income individuals with surplus income:

  • First time bankrupt individuals will contribute payments over a 21-month period.
  • For second and successive bankruptcies, individuals will make payments for 36 months.

If you do not agree with the value of your surplus income contributions, your LIT may file a mediation request with the Office of the Superintendent of Bankruptcy (OSB). If you, your LIT and an OSB employee cannot reach a consensus on the matter, your LIT will need to escalate your objection to the courts.

Importantly, should you reach a mediation agreement but fail to comply with the terms, your LIT will again need to refer your case to the courts to achieve a resolution.

Duties of the Bankrupt

Section 158 of the BIA outlines compliance requirements for all bankrupt individuals. To qualify for your eventual discharge from bankruptcy, you will need to have satisfied the following:

  • Disclosing and delivering all non-exempt property to your LIT.
  • Delivering all credit cards in your possession to the LIT for cancellation (subject to certain exceptions).
  • Attending two mandatory financial counselling sessions.
  • Reporting your monthly household income and expenses to your LIT so they can determine if there is a surplus income obligation
  • Making all required surplus income payments (if applicable).
  • Attending a meeting of creditors or an examination by the OSB (if required).
  • Keeping your LIT advised at all time of your place of residence until your application for discharge has been disposed of and the administration of your bankruptcy estate has been completed.

Failure to comply with the above or any other duties imposed under the BIA would force your LIT to oppose your discharge from bankruptcy and bring your file before the courts.

Opposition to Bankruptcy Discharge

A creditor, the OSB or your LIT may oppose your discharge from bankruptcy on certain grounds, including alleged misconduct or failure to perform your statutory duties as a bankrupt individual. The individual or organization disputing your discharge must cite their grounds in a formal opposition which will trigger a court hearing.

Under Subsection 172.1(3) of the BIA, courts have the power to:

  • Grant an absolute order of discharge to the bankrupt
  • Impose a conditional order of discharge on the bankrupt
  • Suspend the bankrupt's discharge for a period time
  • Adjourn the hearing of the bankrupt's application for discharge to a future date
  • Refuse the bankrupt's discharge. 

The Court may also suspend a bankruptcy discharge and add further requirements to any future request. These conditions may be concurrent with any suspension or served consecutively thereafter. 

For example, the Court may order you to pay a certain amount to the LIT for the general benefit of your creditors and suspend your discharge until you satisfy that condition. -

Once your LIT determines you have complied with the order, they will reapply to the courts for your bankruptcy discharge.

Annulling an Assignment in Bankruptcy

Once you have filed an assignment in bankruptcy under the BIA, the only means of annulling it is by court order. However, if you have yet to receive a discharge from your bankruptcy, there is a way to avoid this. You may opt instead to make a proposal.

Provided your creditors accept your proposal prior to your discharge from bankruptcy, it will effectively cancel the bankruptcy process. 

Credit Bureau Report

Equifax and TransUnion will keep information on your credit file for the maximum period allowed by provincial laws.

If you are a first-time bankrupt in the province of Ontario, Equifax will keep a record of your bankruptcy on your credit file for six years from the date of your discharge. For second or multiple bankruptcies, a record of your bankruptcy will remain on your credit file for a period of 14 years from the date of your discharge for each bankruptcy filed.

Similarly, TransUnion will keep a record of first-time bankruptcies for a period of seven years from the date of discharge and 14 years for subsequent bankruptcies.

Free Confidential Consultation

If you're considering bankruptcy but worry about the legal implications a Licensed Insolvency Trustee can help. During a Free Confidential Consultation, they will review your financial situation and explain the process involved. They will provide you with options and help you make an informed decision based on your unique circumstances. They will help you find a Life-Changing Debt solution that works and achieve the financial fresh start you deserve.

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