Personal Bankruptcy in Ontario
What is Personal Bankruptcy?
Personal Bankruptcy is a legal process that allows debtors who are in difficult financial circumstances to be discharged from many debts.
Bankruptcy in Ontario is regulated by the Bankruptcy and Insolvency Act and must be filed through a Licensed Insolvency Trustee (LIT).
The LIT ensures that both the debtor and creditors receive fair treatment.
Approximately 100,000 Canadians turn to bankruptcy and consumer proposals each year to help them resolve their debt problems.
The process of claiming bankruptcy can appear daunting, but a trustee can help you take positive strides toward clearing away overwhelming debt.
Personal Bankruptcy Vs. Consumer Proposal
Both bankruptcy and consumer proposals are governed by the Bankruptcy and Insolvency Act, and both require a Licensed Insolvency Trustee for filing.
Both exist to provide you with protection from courts and debtors in the event you are unable to pay your debts in full.
When filing for bankruptcy, all collection activity on the covered debts is stopped.
Creditors are generally forced to accept an amount less than what you actually owe them.
A consumer proposal differs in that your trustee will offer your creditors a specific amount of money to settle your debts.
If the creditors who own the majority of your debt agree the amount offered, you must repay the agreed upon amount over a set length of time.
Reasons for Filing Bankruptcy
When faced with crushing financial hardship, filing bankruptcy can offer significant relief.
Bankruptcy is in place for individuals who, after providing for basic costs of living, don’t have enough money to pay down debt.
In this situation, declaring bankruptcy can eliminate much or all of that debt and provide you with a clean financial slate.
No two bankruptcy filings are alike, but there are some common reasons to file for bankruptcy:
- Your income has changed;
- The stress of mounting debt is affecting your health and wellness;
- Your bank and creditors will no longer extend loans or further financial assistance;
- Debt is accumulating faster than you are able to pay it off;
- You rely on credit for everyday expenses because you have used your income trying to pay down debt.
Before deciding whether bankruptcy is right for you, make sure your concerns are addressed and all questions are answered.
There are fees involved, but bankruptcy is relatively inexpensive, especially when compared to accumulated debt.
Advantages of Bankruptcy
- It eliminates most unsecured debts, such as credit cards and loans;
- Bankruptcy offers legal protection from creditors;
- It will protect your wages from being garnished;
- The process stops collection actions against you;
- It offers credit counseling to help you navigate your financial recovery;
- Bankruptcy helps you to be debt-free, usually within two years of filing.
Disadvantages of Bankruptcy
- Your credit score and credit history will reduce to the lowest level for a minimum of six years from the time your bankruptcy is completed;
- You may be required to surrender some of your personal assets;
- There may be additional costs as your bankruptcy proceeds;
- You will have to provide your trustee with detailed financial information, including income, expenses, and income tax.
Bankruptcy is not a cure-all, but it can offer enough relief for you find more stable financial footing.
If your debt level has become insurmountable, the advantages of claiming bankruptcy outweigh the disadvantages.
Qualifying for Bankruptcy
Not everyone can file for personal bankruptcy to escape their debt.
There are a handful of criteria that must be met in order for you to declare bankruptcy in Ontario.
- You must be a legal resident;
- You must have at least $1000 in accumulated debt;
- Must be financially unable to pay your bills when they are due.
If you meet these general criteria, you are qualified to declare bankruptcy in Ontario.
However, you will still need to decide whether bankruptcy is your best course of action.
If you do meet the criteria and decide to declare bankruptcy, your Licensed Insolvency Trustee will prepare the documents and file them with the government.
There is not an approval process.
Once the documents are filed, you will be considered bankrupt.
Steps to Filing Bankruptcy
If you are considering bankruptcy to help reduce or eliminate your debt, your first step will be to consult with a Licensed Insolvency Trustee.
The LIT will perform a government-required assessment of your overall financial situation and determine if bankruptcy is your best course.
The LIT will go over all of your debt options and offer a full explanation of the bankruptcy process so you can make an informed decision.
They will also look at your income and expenses, assets, and overall debt level to help decide if bankruptcy can help you.
Once you have determined that bankruptcy can offer the relief you need, there are five basic steps to claiming personal bankruptcy in Ontario:
- Sign the paperwork to declare bankruptcy;
- Your trustee files your signed documents with the government, beginning your protection from creditors;
- Complete your bankruptcy duties;
- Obtain the Certificate of Discharge which eliminates your debt.
The trustee will help you every step of the way, from completing bankruptcy forms to obtaining the certificate.
Once the trustee files your bankruptcy paperwork with the Official Receiver, you are considered legally bankrupt.
In order to file for bankruptcy in Ontario, there are at least two forms that you will have to sign.
Your trustee will prepare them using the information you provide.
However, you alone are responsible for the accuracy of your statements, so make sure you have a thorough understanding of all legal documents before signing.
Assignment – In the bankruptcy assignment, you essentially state that you agree to hand over all of your non-exempt property (usually bankrupts keep all their property) to the Licensed Bankruptcy Trustee for the benefit of your creditors.
Statement of Affairs -This is a list of your income, expenses, assets, and liabilities. You will also be required to give information about your employment, family, and asset disposition.
Once your trustee files these documents with the Official Receiver, the process can only be reversed with a court order.
What Happens After Filing for Bankruptcy?
Once your paperwork is filed with the government, bankruptcy takes effect immediately.
Your wages can no longer be garnished, debtors cannot take legal action against you, and collectors will stop calling.
However, there are a few more steps you must take to complete the bankruptcy process.
Completion of Duties
Once your forms have been filed and you are legally bankrupt, you must perform specific bankruptcy duties that will have been outlined by your trustee.
These are required in order to complete your bankruptcy and obtain your discharge.
In general, these duties require you to do the following:
- Make your bankruptcy payments;
- Attend two credit counseling sessions;
- Notify your trustee of any material changes to your financial situation;
- Provide information about your monthly personal budget.
Personal Bankruptcy Discharge
Simply put, a bankruptcy discharge is the final step of bankruptcy.
Once you have fulfilled all of your duties and met all requirements, your trustee will request a bankruptcy discharge from the court.
Once you are discharged from bankruptcy, you are completely released from all of your obligations.
The bankruptcy is complete.
If you are claiming bankruptcy for the first time, you will likely receive an automatic discharge nine months after your initial filing.
There are cases in which your discharge may not be automatic, or may even be extended beyond the nine months.
Your trustee can explain these to you in full.
There are several reasons why your bankruptcy discharge might be delayed, including not following through on your duties and obligations.
Being an “undischarged bankrupt” will leave you in a precarious legal position.
It can be costly, and your financial affairs will be placed on hold.
You’ll want to avoid it at all costs.
Your trustee can offer further information on how to avoid an undischarged bankruptcy.
Bankruptcy Fees & Additional Costs
Filing for personal bankruptcy is not free.
However, fees are usually relatively low, and assistance is available if you are not able to afford them.
In some cases, there may be additional payments that will increase the cost of claiming bankruptcy.
For example, depending on your income and overall financial picture, you might be required to pay additional money toward your debts before obtaining a discharge.
Also, if you receive lump sums of money during bankruptcy, you will likely be required to further pay down your debt.
Your trustee will help you anticipate and navigate these costs.
Schedule a Free Assessment
For some people facing overwhelming debt, bankruptcy is the best path to a fresh start.
However, there are other debt options that might work better to give you some relief from your debt.
We offer a free, no-obligation initial debt assessment to help you get started.
Our experienced Licensed Bankruptcy Trustees are here to answer your questions, discuss all of your debt options, and help determine if personal bankruptcy can help you.
Contact us today and get on the path to being free of debt.