What happens after you declare bankruptcy in Canada?

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Declaring bankruptcy in Canada starts with a Licensed Insolvency Trustee (LIT) notifying creditors, halting their demands and legal actions. You’ll complete paperwork and possibly attend a creditor meeting. Your assets are sold, and income shared if necessary. Bankruptcy impacts credit scores, but counseling aids recovery.

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Question

What happens after you declare bankruptcy in Canada? What are the steps and consequences I can expect after declaring bankruptcy in Canada?

From: Anonymous Question, Brampton, Ontario (ON)
Topic: Personal Bankruptcy

Debt Insiders Answer

When you declare bankruptcy in Canada, the first thing you can expect is that a Licensed Insolvency Trustee (LIT) will jump into action. They’ll notify your creditors, which is like putting up a “do not disturb” sign—no more endless calls or letters hounding you for payments. Plus, they’ll stop any legal actions, such as wage garnishments. You’ll also need to fill out some paperwork, namely an ‘Assignment’ and a ‘Statement of Affairs’—basically a snapshot of your financial situation, covering assets, liabilities, income, and expenses.

Soon after, there might be a creditor meeting to hash out the terms of your bankruptcy. Your LIT will be in charge of handling your non-exempt assets, selling them off to pay your creditors. Each month, you’ll need to give them the lowdown on your income and expenses, and if you’re pulling in extra dough, you might have to share some with your creditors too. Tax matters will also be part of the deal; your LIT will help you handle any outstanding tax returns. Two mandatory counseling sessions will be part of the journey, helping you get a better grip on managing money moving forward.

Bankruptcy isn’t all smooth sailing—there are plenty of consequences. Financially, your non-exempt assets get sold off, and there might be extra payments if you’re earning a surplus. Your credit score will definitely take a nosedive, but with tips from counseling, you can start rebuilding it. On the legal side, some debts, like alimony or child support, stick with you. And don’t overlook the social and emotional toll; money troubles can rattle your self-esteem and relationships, although the counseling aims to give you a bit of support there. If you’re keen to learn more about picking up the pieces of your credit score post-bankruptcy, there’s plenty of info out there to guide you.

From: Insider Adam

Office of the Superintendent of Bankruptcy (OSB) Answer

After declaring bankruptcy in Canada, the following steps and consequences can be expected:

1. Appointment of a Trustee: A licensed insolvency trustee (LIT) will be appointed to administer your bankruptcy, handle your assets, and manage payments to creditors (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 25).

2. Asset Liquidation: The trustee will evaluate your assets. Non-exempt assets may be liquidated to pay creditors. However, certain assets, like necessary clothing and basic household items, may be exempt from seizure (Bankruptcy and Insolvency Act, Section 67).

3. Creditors’ Claims: Creditors will be notified of the bankruptcy and must submit their claims to the trustee for any distributions (Bankruptcy and Insolvency Act, Section 86).

4. Payment of Surplus Income: If your income exceeds a specific threshold, you may have to make surplus income payments to the trustee for a defined period, usually 21 months for first-time bankrupts (Bankruptcy and Insolvency Act, Section 68).

5. Financial Counseling: You are required to attend two financial counseling sessions, which educate you on budgeting and financial management (C.R.C., c. 368, Section 8).

6. Duration of Bankruptcy: The typical duration of personal bankruptcy is 9 months for a first-time bankruptcy if there are no surplus income payments. It may extend to 24 months if certain conditions apply (Bankruptcy and Insolvency Act, Section 158).

7. Impact on Credit Rating: Bankruptcy will significantly affect your credit score, remaining on your credit report for 6 to 14 years, depending on the number of bankruptcies (C.R.C., c. 369, Section 17).

8. Discharge from Bankruptcy: After fulfilling all conditions (including making required payments and completing counseling), you can apply for discharge. If successful, you will be released from most debts (Bankruptcy and Insolvency Act, Section 178).

9. Disclosure of Bankruptcy Status: Your bankruptcy will be a matter of public record, and you may need to disclose it in certain situations, such as applications for credit or employment (Bankruptcy and Insolvency Act, Section 178).

These steps and consequences are important to understand as you navigate the bankruptcy process in Canada.

From: OSB Helper

Related Questions

Here are the top 5 most frequently asked questions related to what happens after declaring bankruptcy, based on common queries and concerns in the context of Canadian bankruptcy law:

1. What are the requirements to obtain a bankruptcy discharge?

You must complete all your bankruptcy duties, including making required payments, attending credit counselling sessions, and fulfilling any other obligations set by the trustee or the court[1][4][5].

2. How long does the bankruptcy discharge process take?

The process can take 9 months for first-time bankruptcies without surplus income payments, 21 months for first-time bankruptcies with surplus income payments, 24 months for second-time bankruptcies without surplus income payments, and up to 36 months for second-time bankruptcies with surplus income payments[4].

3. What happens to my debts after I declare bankruptcy?

You stop making debt payments immediately, but you remain legally liable for the debts until you receive your certificate of discharge, which releases you from all obligations to repay debts included in your bankruptcy filing[1][4][5].

4. What is the role of a Licensed Insolvency Trustee in the bankruptcy process?

A Licensed Insolvency Trustee administers the bankruptcy, prepares and files necessary documents, notifies creditors, ensures you complete your duties, and distributes funds to creditors. They also guide you through the process and ensure all requirements are met for your discharge[2][5].

5. Can I be denied a bankruptcy discharge?

Yes, you can be denied a discharge if you fail to complete your bankruptcy duties, commit an offence under the Bankruptcy and Insolvency Act, or if there is opposition from the Office of the Superintendent of Bankruptcy, your trustee, or a creditor[1][4][5].

If you have a question about debt see our debt questions or ask your own debt related question.

References

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