Cost of Bankruptcy
Figuring out the cost of bankruptcy can be tricky, at best. There’s plenty of information to be found on the internet, but the best place to get current and accurate information is from a bankruptcy trustee. Fee schedules are set by the Office of the Superintendent of Bankruptcy (OSB) and are standard across Canada. Your overall cost of bankruptcy can and will vary based on your specific financial situation.
Basic Costs of Bankruptcy
In Canada, according to section S156.1 of the Bankruptcy and Insolvency Act, you can expect to pay at least $1,800 for a basic bankruptcy filing. This fee includes the trustee’s time, services and administration costs. Most trustees recognize that many filers have little or no ability to handle those costs up front. As such, trustees will often enter into an agreement with the filers where they make regular payments throughout the duration of their bankruptcy. These payments are usually around $200 per month but may be more or less depending on the trustee and the filer.
In the case of a first bankruptcy, there is a court filing fee to be paid if the bankruptcy proceeds to a court hearing. The fee is set by the provincial court and can vary, but is typically less than $200. Often, the trustee will pay this fee with funds received from the bankruptcy estate, or property of the debtor.
Most bankruptcies in Canada are administered as Summary Estates. In these types of filings, a trustee’s fees are paid as a percentage of the funds collected during a bankruptcy. This percentage is known as a tariff. In addition to the tariff, the Trustee will be paid $100 for payment distributions to creditors and $85 for each of the two credit counselling sessions that are required by the OSB. The time a trustee spends preparing for and attending court are considered by the judge when deciding on a bankrupt’s discharge, or release from bankruptcy. Even so, a trustee will not be paid based on the hours spent on a case. The court may, however, decide to order the bankrupt to make additional payments prior to discharge.
Additional Costs of Bankruptcy
While the fees associated with bankruptcy are fairly straightforward, the overall costs of your bankruptcy have a lot to do with your own financial situation.
Loss of Assets
While a bankruptcy is an opportunity for a fresh financial start, creditors do have the right to be repaid what they are owed. As part of bankruptcy, a filer will be required to surrender their non-exempt assets to the trustee for liquidation. The funds will ultimately be distributed to creditors for repayment of debts.
Contrary to what many Canadians believe, no one loses everything they own in a bankruptcy filing. Bankruptcy exemptions vary by province. Each province has established its own list of assets considered ‘exempt’ from surrender during a bankruptcy filing along with the ‘allowable equity’ each of those assets can be worth.
For example, Alberta has a home equity allowance of $40,000. Simply put, if the equity in your home is valued at less than $40,000, your home will be exempt from surrender in a bankruptcy. Your trustee will conduct a complete review of your assets and let you know which assets you’ll be able to keep and which will have to be liquidated during a bankruptcy filing.
Whether or not you have ‘surplus income’ is determined by a formula established by the OSB. Each month, you will need to report your income to the trustee. Based on your income and family size, your trustee will determine if you have surplus income. If it’s determined that your income is more than the threshold set by the OSB, you will need to pay a portion of the overage (or surplus income) to the bankruptcy estate.
Lump Sum Payments
If you should receive any lump sum payments during the course of your bankruptcy, you will need to remit these to the bankruptcy estate for repayment to your creditors. These lump sums can include, but aren’t limited to, lottery or gambling winnings, an inheritance, insurance payment or tax refund.
While asset loss, surplus income and lump sum payments aren’t considered fees for filing, they all contribute to the overall cost of your bankruptcy.
What if you can’t afford to file for bankruptcy?
Doing Nothing IS an option
Choosing not to take any action is actually an option. If you cannot pay your unsecured credit debt, creditors can come after you with wage garnishments and property attachment lawsuits. If you have little income and own nothing of substantial value like a home or a late model vehicle, there is nothing your creditors can do to you. However, they can continue to contact you to collect the debt.
Not all Canadians are aware unsecured debt is often sold to third party companies for literally pennies on the dollar. A major credit card issuer can sell $10,000 in bad debt to a debt collector for as little as $100. With such high profit potential, it is no wonder these debt collectors continue with the harassing phone calls and letters.
If you cannot afford to file for bankruptcy and you decide to do nothing, you need to make sure you fully understand your rights when it comes to debt collection. There are laws that protect Canadian consumers from undue harassment. The FCAC (Financial Consumer Agency of Canada) website has helpful information on what creditors can and cannot do to collect debts.
Bankruptcy Assistance Program
If you have limited income and assets, you can choose to try and manage your debt on your own, but you don’t have to. The OSB has developed a program that ensures all Canadian citizens can seek bankruptcy protection, even if they cannot afford to pay. It is called the Bankruptcy Assistance Program (BAP). If you’re eligible, have no commercial debt and have contacted at least two trustees who would not take your case, you can contact the OSB to find a trustee that will work with you.
Typically, these trustees ask for the filing fee – approximately $75 – and the cost of the two counseling sessions – approximately $180 – at the time of filing. Depending on your circumstances, additional payments stretched out over the nine months of the bankruptcy may also be required. Doing nothing will cost you nothing, but there is a significant advantage to filing bankruptcy at the low cost offered by the Bankruptcy Assistance Program. Once you are discharged from bankruptcy, the unsecured debt you owe is forgiven. You are free from creditor collection and can start rebuilding your credit. If you do nothing, the bad debt notation stays on your credit history for approximately 6 years. In addition, depending on the statute of limitations in your province, debt collectors may continue to have the right to take legal action against you should your financial condition improve.
Determining your true cost of bankruptcy can be complex. The best source for this information is a licensed Trustee in Bankruptcy. An initial consultation won’t cost you a dime. The answers you’ll get from your trustee will help you make informed decisions that can make all the difference to your financial health in the long run.