What You Should Know
What You Should Know About Personal Bankruptcy and Consumer Proposals
Your bankruptcy does not cancel the responsibility of anyone who has guaranteed or co-signed a loan on your behalf.
- CREDIT RATING
Your bankruptcy is a matter of public record and is available to any interested party (credit reporting agencies for example). To obtain credit after your discharge, you must convince the potential lender that you now have the earning capacity and financial maturity to handle a reasonable level of debt.
Declaring bankruptcy should relieve you of the pressure from your creditors. When you receive phone calls or letters from creditors, you should inform them that you are bankrupt and refer them to your Trustee.
- LEGAL ACTIONS
Legal actions or most garnishments against you stop on the date you declare bankruptcy. Criminal actions, such as court fines and parking tickets, are not affected, nor are actions in matrimonial matters.
Immediately after declaring bankruptcy, you should no longer be required to make payments to your creditors. The Trustee will review your income and expenses and set a budget. You will be expected to remit the surplus income that exceeds the budget to the Trustee for the benefit of your estate. These payments are made according to standards issued by the Superintendent of Bankruptcy. If you fail to make these payments voluntarily, the Court might delay and/or suspend your discharge, and order you to pay accordingly.
You must give up all windfalls, such as lottery winnings, inheritances, etc., occurring during the period of your bankruptcy, to the Trustee for distribution to your creditors.
- INCOME TAX RETURNS
In Bankruptcy All Income Tax and HST/GST returns must be completed and filed, prior to bankruptcy in order to establish the amount owing to Canada Revenue Agency.
Two income tax returns must be completed for the year you declare bankruptcy. The pre-bankruptcy return covers the period from the beginning of the year to the date of your bankruptcy. The post-bankruptcy return covers the period from the date of bankruptcy to the end of the fiscal year. Provide your Trustee with details and documentation to support these returns.
Assessment notice and refunds due to the bankrupt from the previous years, pre and post-bankruptcy returns are estate assets and are mailed directly to the Trustee for the benefit of your creditors.
You will be required to assign all refunds from your prior years, pre-bankruptcy and post-bankruptcy returns to the Trustee for distribution to your creditors.
In Consumer Proposal Your debt to Canada Revenue Agency is covered for the period up to December 31st of the year prior to the date of the Consumer Proposal. It is your responsibility to file all your tax returns and GST/HST returns in the normal manner. Any liability you incur during the year of the Consumer Proposal will be paid by you.
- HOW DOES BANKRUPTCY AFFECT EMPLOYMENT
For the most part, bankruptcy should not affect your employment. There are some special cases. You may have difficulty being bonded, for example.
- DISCHARGE FROM BANKRUPTCY (First Time Bankrupt [Sec. 168.1])
First & Second Time Bankruptcy: Are entitled to an automatic discharge at the expiration of either:
- 9 months (First time no surplus)
- 21 months (First time with surplus)
- 24 months (Second time no surplus)
- 36 months (Second time with surplus)
From the date of their assignment (unless there is an opposition by a creditor, the Superintendent of Bankruptcy, or the Trustee).
Once the discharge is granted, the Order/Certificate releases the bankrupt from all provable claims, except those referred to in Section 178 of the Bankruptcy and Insolvency Act (BIA).
Third Bankruptcy: Automatic discharge does not apply. File will be referred to Court at the end of 36 months.
The bankrupt is required to meet certain criteria to be eligible for this discharge:
- Failure to obtain you counseling;
- Failure to make your required surplus income payments, payment of fees;
- Failure to notify the Trustee of the change of employment, income or address;
- Failure to provide T-4 slips and related documents to complete your personal income tax returns;
- Does not have a CRA Liability of over $200,000;
- No gambling is involved.
- 10) WHO IS NOTIFIED
Trustees must notify your creditors, in writing, of your bankruptcy. Unlike business bankruptcies, consumer bankruptcy notices are not usually in the newspaper.
- 11) THE PARTICIPANTS
A person to whom you owe money. Your creditor will be invited to file a claim against your estate.
An individual to administer your Proposal or bankruptcy by taking over your assets, liquidating them and distributing the proceeds to your creditors.
Remember, you are not the Trustee’s client. The Trustee is an officer of the Court. The Trustee will give you advice about the bankruptcy process and make sure that your rights, as well as those of the creditors, are respected.
A federal government official and officer of the Court with specific duties under the Bankruptcy and Insolvency Act. The Official Receiver accepts the filing of the bankruptcy document, interviews you under oath and chairs the first meeting of the creditors.
Superintendent of Bankruptcy
A federally appointed official who oversees the administration of bankruptcies in Canada.
A Court in which a Judge or Registrar will decide on the bankrupt’s application to discharge and other matters.
- 12) READ BEFORE YOU SIGN
You are expected to understand your duties as a bankrupt in the bankruptcy process.
Read the relevant sections of the Bankruptcy and Insolvency Act attached. If you have any questions or concerns, discuss them with your Trustee.
Make sure you understand the legal documents that are part of your bankruptcy file before you sign them. Although the Trustee prepares them from the information you provide, they are your statements. You are responsible for the accuracy of their contents. Review them carefully before you sign. Once these documents have been filed with the Official Receiver, you are legally bankrupt and, at this point, the process is very difficult to reverse. Keep a copy of Notice and documents the Trustee sends to you and documents sent to your creditors.
- 13) PROPOSALS/CONSUMER PROPOSALS
An alternative to declaring bankruptcy is to make a proposal to your creditors. This process usually involves making payments to the Trustee/Administrator on a monthly basis over a period of time. The proposal must be accepted by your creditors. If accepted by your creditors, garnishments and most legal actions are stopped. You will be required to make payments to the Trustee/Administrator for distribution to your creditors. If the proposal is refused by your creditors, or your payments are three months in arrears (in default), the proposal is annulled. If the proposal is in default and/or annulled, the debts are reinstated and creditors can return to their previous methods of collection or commence legal action against you.
Upon completing the terms of your proposal, you will be released from your debts, and a Certificate of Full Performance will be issued to you.
A STEP-BY-STEP GUIDE TO LEGAL PROCESS
Now that you’ve decided, contact a Trustee. These are listed in the Yellow Pages/Internet under “Bankruptcy” or “Trustee” or you can contact your nearest branch of Industry Canada. https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/h_br01993.html Give the Trustee all the information that may be required, for example books, records, documents, title papers, insurance policies, tax records and returns, etc. With your help, the Trustee will prepare the legal documents.
- You declare bankruptcy.
Legally, you are bankrupt on the day the Trustee files your documents with the Official Receiver. If contacted by your creditors, inform them that you are bankrupt and refer them to the Trustee’s office. This should relieve you of any harassment.
- You may be required to meet with the Official Receiver.
The meeting with the Official Receiver can take place at any time during the period of your bankruptcy. If required, you will be advised by the Official Receiver of the time and place of this examination under oath. The Trustee is not present at this meeting.
- You may meet with your creditors.
The creditors have 30 days, from the date of your bankruptcy, to request a meeting of creditors. You are required to attend this meeting, and the Trustee is also present.
First Counselling session you must attend is held within 30 to 60 days from the date of your bankruptcy.
Second Counselling session must be held before the expiration of 210 days from the date of your bankruptcy.
- i) BANKRUPT’S DISCHARGE
- i) Automatic Discharge: In the case of an individual who has never before been bankrupt, is in compliance of his/her duties, whose discharge has not been opposed by a creditor, the Superintendent of Bankruptcy or the Trustee, and has paid surplus income pursuant to Section 69 (if applicable):
- a) On the expiry of 9 months after the date of bankruptcy;
- b) On the expiry of 21 months after the date of bankruptcy where the bankrupt is required to make payments under s.68 (surplus income) of the BIA.
- ii) Automatic Discharge: In the case of an individual who has been a bankrupt one time before, is in compliance of his/her duties, whose discharge has not been opposed by a creditor, the Superintendent of Bankruptcy or the Trustee, and has paid surplus income pursuant to Section 68 (if applicable):
- a) On the expiry of 24 months after the date of bankruptcy;
- b) On the expiry of 36 months after the date of bankruptcy where the bankrupt is required to make payments under s.68 (surplus income) of the BIA.
- iii) In the case of an individual who has been a bankrupt on two or more previous occasions the Court will decide the disposition of your discharge.
- a) On the expiry of 36 months after the date of bankruptcy whether or not the bankrupt is required to make payments under s. 68 (surplus income) of the BIA, the Trustee will apply for a Court date.
You may then receive:
- i) a Suspended Discharge
- ii) a Conditional Discharge
- iii) a Conditional and Suspended Discharge
- FEES: The Trustees will arrange for the payment of their fees with the bankrupt or a third party. The Trustee will review the bankrupt’s budget in detail to determine what monthly payments to be made to the Trustee. Legal Aid does not provide for Trustee’s fees and the Trustee is not paid by the government or the Superintendent of Bankruptcy. If your income is too low or you have no earnings, discuss a possible arrangement with the Trustee or contact the Official Receiver for their BAP program.
DUTIES OF BANKRUPTS
Duties of bankrupt
- 158. A bankrupt shall
- (a) make discovery of and deliver all his property that is under his possession or control to the trustee or to any person authorized by the trustee to take possession of it or any part thereof;
- (a.1) in such circumstances as are specified in directives of the Superintendent, deliver to the trustee, for cancellation, all credit cards issued to and in the possession or control of the bankrupt;
- (b) deliver to the trustee all books, records, documents, writings and papers including, without restricting the generality of the foregoing, title papers, insurance policies and tax records and returns and copies thereof in any way relating to his property or affairs;
- (c) at such time and place as may be fixed by the official receiver, attend before the official receiver or before any other official receiver delegated by the official receiver for examination under oath with respect to his conduct, the causes of his bankruptcy and the disposition of his property;
- (d) within five days following the bankruptcy, unless the time is extended by the official receiver, prepare and submit to the trustee in quadruplicate a statement of the bankrupt’s affairs in the prescribed form verified by affidavit and showing the particulars of the bankrupt’s assets and liabilities, the names and addresses of the bankrupt’s creditors, the securities held by them respectively, the dates when the securities were respectively given and such further or other information as may be required, but where the affairs of the bankrupt are so involved or complicated that the bankrupt alone cannot reasonably prepare a proper statement of affairs, the official receiver may, as an expense of the administration of the estate, authorize the employment of a qualified person to assist in the preparation of the statement;
- (e) make or give all the assistance within his power to the trustee in making an inventory of his assets;
- (f) make disclosure to the trustee of all property disposed of within the period beginning on the day that is one year before the date of the initial bankruptcy event or beginning on such other antecedent date as the court may direct, and ending on the date of the bankruptcy, both dates included, and how and to whom and for what consideration any part thereof was disposed of except such part as had been disposed of in the ordinary manner of trade or used for reasonable personal expenses;
- (g) make disclosure to the trustee of all property disposed of by gift or settlement without adequate valuable consideration within the period beginning on the day that is five years before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included;
- (h) attend the first meeting of his creditors unless prevented by sickness or other sufficient cause and submit thereat to examination;
- (i) when required, attend other meetings of his creditors or of the inspectors, or attend on the trustee;
- (j) submit to such other examinations under oath with respect to his property or affairs as required;
- (k) aid to the utmost of his power in the realization of his property and the distribution of the proceeds among his creditors;
- (l) execute any powers of attorney, transfers, deeds and instruments or acts that may be required;
- (m) examine the correctness of all proofs of claims filed, if required by the trustee;
- (n) in case any person has to his knowledge filed a false claim, disclose the fact immediately to the trustee;
- (1) inform the trustee of any material change in the bankrupt’s financial situation;
- (o) generally do all such acts and things in relation to his property and the distribution of the proceeds among his creditors as may be reasonably required by the trustee, or may be prescribed by the General Rules, or may be directed by the court by any special order made with reference to any particular case or made on the occasion of any special application by the trustee, or any creditor or person interested; and
- (p) until his application for discharge has been disposed of and the administration of the estate completed, keep the trustee advised at all times of his place of residence or address.
Where bankrupt is a corporation
- 159. Where a bankrupt is a corporation, the officer executing the assignment, or such
- (a) officer of the corporation, or
- (b) person who has, or has had, directly or indirectly, control in fact of the corporation
as the official receiver may specify, shall attend before the official receiver for examination and shall perform all of the duties imposed on a bankrupt by section 158, and, in case of failure to do so, the officer or person is punishable as though that officer or person were the bankrupt.
PROPERTY OF THE BANKRUPT
Property of bankrupt
- 67.(1) The property of a bankrupt divisible among his creditors shall not comprise
- (a) property held by the bankrupt in trust for any other person;
- (b) any property that as against the bankrupt is exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides;
- (b.1) goods and services tax credit payments that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b);
- (b.2) prescribed payments relating to the essential needs of an individual that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b); or
- (b.3) without restricting the generality of paragraph (b), property in a registered retirement savings plan or a registered retirement income fund, as those expressions are defined in the Income Tax Act, or in any prescribed plan, other than property contributed to any such plan or fund in the 12 months before the date of bankruptcy,
but it shall comprise
- (c) all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge, including any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year — or the fiscal year of the bankrupt if it is different from the calendar year — in which the bankrupt became a bankrupt, except the portion that
- (i) is not subject to the operation of this Act, or
- (ii) in the case of a bankrupt who is the judgment debtor named in a garnishee summons served on Her Majesty under the Family Orders and Agreements Enforcement Assistance Act, is garnishable money that is payable to the bankrupt and is to be paid under the garnishee summons, and
- (d) such powers in or over or in respect of the property as might have been exercised by the bankrupt for his own benefit.
(2) Subject to subsection (3), notwithstanding any provision in federal or provincial legislation that has the effect of deeming property to be held in trust for Her Majesty, property of a bankrupt shall not be regarded as held in trust for Her Majesty for the purpose of paragraph (1)(a) unless it would be so regarded in the absence of that statutory provision.
(3) Subsection (2) does not apply in respect of amounts deemed to be held in trust under subsection 227(4) or (4.1) of the Income Tax Act, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the Employment Insurance Act (each of which is in this subsection referred to as a “federal provision”) nor in respect of amounts deemed to be held in trust under any law of a province that creates a deemed trust the sole purpose of which is to ensure remittance to Her Majesty in right of the province of amounts deducted or withheld under a law of the province where
- (a) that law of the province imposes a tax similar in nature to the tax imposed under the Income Tax Act and the amounts deducted or withheld under that law of the province are of the same nature as the amounts referred to in subsection 227(4) or (4.1) of the Income Tax Act, or
- (b) the province is a “province providing a comprehensive pension plan” as defined in subsection 3(1) of the Canada Pension Plan, that law of the province establishes a “provincial pension plan” as defined in that subsection and the amounts deducted or withheld under that law of the province are of the same nature as amounts referred to in subsection 23(3) or (4) of the Canada Pension Plan,
and for the purpose of this subsection, any provision of a law of a province that creates a deemed trust is, notwithstanding any Act of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor, however secured, as the corresponding federal provision.
What You Should Know
Debt repayment has become a top priority for Canadians in 2023. According to a recent poll by CIBC, 18% of respondents said they would prioritize