McLay – Bankruptcy Frequently Asked Questions

By: Mclay  09-12-2011
Keywords: bankruptcy, Credit Counselling, Debt Problems

Ask yourself the following questions.

  •  Are you making only minimum payments on you credit cards?
  • Are you having difficulty paying your monthly bills regularly and on time?
  • Are you using your overdraft most months?
  • Are you using credit because you don't have money for everyday expenses?
  • Are you uncertain how much you owe in total?
  • Do arguments about money cause problems in your family?
  • Are you charging more each month than you pay on credit?
  • Are you over your borrowing limit on your credit cards, overdraft, or line of credit?
  • Are credit collectors calling you?
  • Are you considering consolidating your debts?

If you answered "yes" to any of these questions, you may be heading for debt problems, or you already have them. McLay will assess your situation to help you successfully resolve your debt problems and determine if bankruptcy is your best solution. 

Bankruptcy is a legal process that is available to a person to cope with a financial crisis. One of the main purposes of bankruptcy legislation is to allow a person, who is burdened with debt, an opportunity for freedom from debt and to start again. To go into bankruptcy it is necessary for a person to be insolvent.

To be insolvent means to
Owe at least $1,000, and to not be able to meet your debts as they are due to be paid.

There are alternatives that should be considered before filing for bankruptcy. Depending on the severity of the debt problems, some or all of these alternatives may not be practical. Only once the pros and cons of each alternative are considered and you are certain that the alternative will solve all the debt problems, should you commit to taking action. If the alternative chosen does not work, the alternative will simply delay making the proper decision and may make the financial circumstances worse.

The alternatives include:

  • Proposal to Creditors
  • Consolidation Loan
  • Home Equity Loan
  • Credit Counselling
  • Negotiations with Major Creditor(s)
  • Debt Reduction Program
  • Assistance from Family and Friends

Excess income is a key factor to the potential success for any of these alternatives. Therefore completing an accurate household budget to determine if you have any excess income, after payment of all household living expenses, is an important step before considering. Please refer to the McLay Budget Tool page (link to budget tool page) for a budget form that will assist you.

Trustee fees, government filing fees and counselling fees are set by the Bankruptcy and Insolvency Act. The trustee normally is paid out of the funds arising from the liquidation of the bankrupt's assets. If the bankrupt has no assets available, then the trustee will require a retainer or payments over time to pay the Trustee fees, government filing fees and counselling fees. In the simplest cases this amounts to $1,700 including HST and counselling costs. Our firm has a payment plan that allows you to pay the costs over time.

Yes, they will! By law, all actions against a bankrupt individual must cease once the documents are filed. This does not apply to secured creditors such as banks holding a lien on a car.

Income earned after the start of a bankruptcy belongs to the bankrupt person. There are standards supplied by the Superintendent of Bankruptcy that require the trustee to collect funds, for the benefit of creditors, from excess earnings over what is determined to be a reasonable amount for the number of people in the household and the bankrupt's personal situation.

  • Value of Furniture and Household Effects- $11,300.
  • Value of a Vehicle- $5,650.
  • Value of Tools of Trade- $11,300.
  • Value of Personal Effects (includes clothing, jewellery, personal items, etc.)- $5,650.
  • RRSPs are exempt except for funds that have been contributed in the year preceding bankruptcy.

In specific circumstances Registered Pension Plans, Cash Surrender Value of Life Insurance and some other assets may be exempt.

You can keep your house and/or other secured assets. If your mortgage payments are not in arrears, the mortgage holder cannot terminate or amend a security agreement by reason only of the your bankruptcy or insolvency. To keep your house you must continue to make your mortgage payments and the Trustee must assess if there is any equity in the house. If equity exists, you need to make arrangements to buy back the equity with the Trustee. Of course you must be certain you can afford to keep your house because if you default on your mortgage in the future, the mortgage holder will seize your house and you will be responsible for any shortfall.

In the vast majority of consumer bankruptcies there is no advertisement in the newspaper. All creditors are notified by mail of the bankruptcy following the filing of bankruptcy.

Bankruptcy filings are public documents and the general public has access to the information, but only through the Office of the Superintendent of Bankruptcy.

The credit rating services like Equifax and Trans Union obtain this information and report it in their systems for a period of time. This does not mean that you cannot obtain credit after you complete the bankruptcy process, as granting of credit is the decision of the potential creditor and you can take action to rebuild your credit rating after your discharge.

It is common for those people who have not been bankrupt before to receive an automatic discharge nine months after they file bankruptcy.

If the creditors, the Superintendent of Bankruptcy or the Trustee oppose the discharge, or if it is not the first bankruptcy for the person, the discharge is heard before a Registrar or a Judge. The discharge is usually granted, but may be subject to certain terms. These discharges are called conditional and/or suspended. Once the terms have been satisfied, an absolute discharge will be granted.

It is the discharge that cancels the bankrupt's debts, with a few specific exceptions.

If you owe alimony, support or maintenance payments they are not affected by bankruptcy. These payments must be paid. A bankruptcy does not stop any actions for collection. If you owe arrears of alimony, support or maintenance, they are provable claims in a bankruptcy and will be paid as a preferred claim for amounts incurred in the year before bankruptcy. The amount not paid can still be collected from the bankrupt.

When an incorporated company fails to pay its debts, the directors may be liable for specific debts. Also debts that are personally guaranteed can be collected from the individuals who guaranteed them. The directors are liable for specific debts when laws specify that they are director liabilities. These specific debts include the following:

  • Wages of employees
  • Source Deductions
  • GST
  • HST
  • Provincial Sales Tax

In some cases creditors obtain personal guarantees of company debts, most commonly from the individuals that own the company. This is common with banks, landlords and large trade creditors. The guarantees allow the creditors to collect the debt from guarantor if the company fails to pay.

Government debts, including income tax arrears, are included in a bankruptcy. Certain government agencies can register as secured creditors against your assets after taking appropriate steps. If you have been notified that they may be taking this action you should contact us immediately.

If you file bankruptcy more than seven years after you finishing your studies, the student debt will be included in a bankruptcy. Bankruptcy does not release a student loan if the bankruptcy occurs within seven years after finishing studies. On application by a discharged bankrupt, the Court can order the discharge from a student loan at any time after five years, if the person has acted in good faith and will continue to experience financial difficulty in paying the student loan.

Certain types of debt are not erased by the bankrupt's discharge. They are:

  • Fines imposed by a Court.
  • Debts owing relating to stolen property.
  • Debts from fraud, embezzlement, misappropriation, etc.
  • Alimony, support and/or maintenance payments (arrears and future payments).
  • Award of damages by a court for intentionally inflicting bodily harm or sexual assault or wrongful death.
  • Student loans if bankruptcy is filed before the ten year anniversary of the finish of studies.

Trouble opening a bank account? Try this!
Access to Basic Banking Services for Low-Income Individuals

TORONTO, Feb. 14, 1997 /CNW/ - The Canadian Bankers Association (CBA) is pleased to announce revised bank policies that will provide low-income individuals with improved access to basic banking services- Working with L'Association cooperative d'economie familiale du Centre de montreal (ACEF-Centre) and the National Anti-Poverty Organization (NAPO), the banks have come to better understand the banking needs of low-income individuals.

"People with low incomes have difficulty obtaining the usual types and the number of pieces of identification usually required by banks," explained Raymond Protti, the CBA's President and CEO. "They require access to their funds immediately, want low-cost banking options, and have a right to be treated with fairness and respect. The banks recognize and are committed to being sensitive to those needs."

The following advances and commitments have been made by the banks:

  • The CBA has issued a list of identification documents, which will usually be accepted by banks for opening accounts and, in most cases, cashing cheques.
  • Banks will require only two, not three, pieces of signed identification. Photo identification is desirable but no longer mandatory.
  • Banks will accept sponsorships or personal references from branch staff or responsible customers known to the branch.
  • Banks do not require a minimum deposit to open a bank account.
  • Employment is not required to open a bank account.
  • Banks will explain clearly to customers their hold policies for deposited funds.
  • Direct deposit of government funds will ensure immediate access to those funds for recipients.
  • Staff will be reminded of the need to treat all customers with fairness and respect.

"This is only the beginning of the banks' progress on the access issue. We are approaching government issuers of social assistance benefits to help provide better identification documents and to offer their clients direct deposit. In addition, banks will continue to work with community groups, nationally and locally, to develop educational programs to sensitize staff to the needs of their communities and to help customers become more knowledgeable about and comfortable with using banking services," noted Mr. Protti.

The information in this article was current at 06 Dec 2011

Keywords: bankruptcy, Bankruptcy Legislation, Consolidation Loan, Credit Counselling, Debt Problems,

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