What do you do if you find yourself in debt over your head?
Well, one option is to declare bankruptcy. This means that you owe money to creditors, but you don’t have the means to pay it back and you have decided to enter a legal process which will help relieve that debt.
Bankruptcy is governed by the Bankruptcy and Insolvency Act of Canada.
The important thing to understand is that bankruptcy is a process. You have to file for bankruptcy and follow all the process and obligations imposed upon you as a “bankrupt.”
Before declaring bankruptcy, you are considered a debtor — a person who cannot pay their debts as they come due. Whereas, a “bankrupt” is a person who is a debtor and has filed for bankruptcy.
A person qualifies to be a bankrupt if he or she owes at least $1,000.
Bankruptcy doesn’t have to be voluntary. There are two ways a person can find themselves a bankrupt:
- A person goes voluntarily into bankruptcy and files an assignment in bankruptcy; or
- A person’s creditors can ask the court to make a bankruptcy order against a person.
To file for bankruptcy, as a debtor, you have to do the following:
Finding a trustee
There is a trustee registry you can consult if you are trying to find a trustee to help you file bankruptcy. A trustee is a person that is licensed by the Office of the Superintendent of Bankruptcy to help manage the bankruptcy process.
Think of meeting a trustee as meeting with an accountant — the trustee will evaluate your financial situation and talk about your situation. Bankruptcy is usually the final option to try to settle your debt. There are some informal and formal things you can try to settle your debts and your trustee will discuss that with you.
To be clear, just because you have consulted a trustee, doesn’t mean you must file for bankruptcy. You can consult a trustee just to talk about your debt situation and it may not come to bankruptcy, depending on what the trustee recommends.
Filing for bankruptcy
Your trustee will help you file for bankruptcy. That involves filing out various forms. Your trustee will then file these forms with the OSB. Once you sign the paperwork, your bankruptcy, and the process, will officially begin.
Obligations when filing for bankruptcy
Filing for bankruptcy means you have obligations to disclose your financial information to your trustee.
That financial information includes:
- All your assets and liabilities: this includes property and debs;
- All property that was sold, transferred or disposed of in the last years;
- Go to the first creditor’s meeting;
- Attend two counselling sessions;
- You must relinquish all your credit cards to the trustee;
- Help the trustee in administering your estate;
- Attend an examination of the OSB (if required);
- Advise the trustee of any address changes.
You should be aware that while bankruptcy does resolve your debt, your credit history will suffer and your trustee will have to sell your assets to satisfy your creditors.
It’s highly advisable to consult with a licensed trustee before making any decision on your debt.