What happens if I declare bankruptcy?

Filing for Bankruptcy is very emotional — and can be stressful — but what I can tell you is that a Licensed Insolvency Trustee can help!

When we initially meet with individuals, they are stressed out, sad, angry and unsure about what they need to do. When you are dealing with so many emotions, it is very difficult to feel confident in the decisions you’re making. As Licensed Insolvency Trustees, we are trained to ensure that an individual fully understands what a Bankruptcy would look like for them, how it will affect their assets, income, and family, and how to move forward once you’re discharged.

When I am working with people, I use the analogy of ‘you are on a bumpy road with no end in sight.’ A Bankruptcy is still a bumpy road, although less bumpy, but most importantly, there is an end to that road. When your financial situation has you feeling stuck, it can feel almost impossible to get out. Most people just need to know there is a plan that will allow them to move forward.

What to expect should you need to file a Bankruptcy.

My biggest ask of people is to not be afraid to ask for help. I commonly hear “I wish I would have done this two years ago.” My answer is always the same: “You got here exactly when you needed to.” Filing for Bankruptcy should not be your first option, so taking time to get to a Bankruptcy is normal. Typically, this means you have tried increasing your income to help pay down the debt or looked at a consolidation loan or selling assets, but it hasn’t worked out, therefore leading you to a Licensed Insolvency Trustee.

Your initial consultation with any of our MNP Ltd. trustees is free of charge and can be done over the phone, in person, or by virtual meeting — whichever is easiest for you. At this consultation, the team provides you with all your options, not just what the trustee can provide. 

You’ll discuss with the trustee all your debts, your family situation, and the level of net income that you have. Once the trustee has gathered all the necessary information, they can advise you what a Bankruptcy would look like for you. At that time, you can ask any questions you have and think about how you would like to proceed.

You will likely never feel comfortable filing a Bankruptcy. This is to be expected. No one likes to file for Bankruptcy.

Once you have made the decision to file a Bankruptcy, you will have to sign several documents to get the process started. This meeting can also be very overwhelming, which is normal, and we will help you through this process. Some people feel very relieved after this meeting, as they no longer have to figure out how they are going to pay everyone and they don’t have the stress of trying to figure out how to move forward.

Once the documents are signed, a Stay of Proceedings goes into affect, which is like getting put into a ‘bubble.’ Creditors can no longer call you or proceed with legal action like garnishing wages, and you are no longer required to make payments on your unsecured debts. If you have a garnishee already in place, the Stay of Proceedings will stop that as well. (There are some specific rules around certain creditors garnishees. Should you have a garnishee in place, ensure you advise your trustee who is garnisheeing you and for what amount.)

For an individual to stay in the ‘bubble,’ there are certain things that the person or persons filing bankruptcy must do:

• Submit monthly income and expenses for the time that they are in the Bankruptcy. This is the beginning of a new budget.
• Attend two counselling sessions. These sessions must be 30 days apart. The main objective of the first counselling session is to help develop a new budget and to work on ways to make budgeting easier for you. The second counselling session focuses on planning for the future by setting some financial goals and understanding the responsible use of credit.
• Get your Licensed Insolvency Trustee to complete your tax returns for the year that you filed Bankruptcy. They are split into a pre-bankruptcy tax return and a post-bankruptcy tax return. Any amounts owing to the Canada Revenue Agency on the pre-bankruptcy tax return will be included in the Bankruptcy. If you owe on your post-bankruptcy tax return, you will be required to pay that amount to the Canada Revenue Agency. If there is a refund on the pre- and/or post- bankruptcy tax return, those refunds go into your Bankruptcy to be distributed amongst your creditors. (Please note that a pre-bankruptcy tax refund can be applied against prior tax amounts owing but a post-bankruptcy tax refund cannot.) Your refunds are sent to the trustee for the year that you file Bankruptcy.
• Pay the required fee. The amount you pay into a Bankruptcy is based on net income, family size, and assets. The amount owing can vary for each situation and can depend on what province you live in. A Licensed Insolvency Trustee will be able to provide you with the cost of a Bankruptcy and explain how your assets will be affected prior to filing a Bankruptcy. These things ay change based on increases or decreases in monthly income. It is very important to keep your trustee informed of any changes in income or assets to ensure that you are aware of how your Bankruptcy would be affected.

What Bankruptcy doesn’t cover

Once you have complied with the above duties and the required time has passed, you are eligible for your discharge from Bankruptcy. That means that you are released from the unsecured debts that existed at the date of Bankruptcy. However, there are certain debts that don’t go away when you file a Bankruptcy:

• Secured debt, such as mortgages or car loans
• Support payments to a former spouse or to children
• Fines or penalties imposed by a court
• Debts arising from fraud
• Student loans, if fewer the seven years have passed since you stopped being a full- or part-time student

Bankruptcy looks very different from person to person. There are many factors to consider, so it’s important to reach out to any of MNP’s Licensed Insolvency Trustees to ensure that you are receiving the correct information based on your situation. We know that it’s scary, but we’re here to help.