From Nova Scotia to British Columbia Canadians by the thousands are looking to bankruptcy Canada laws as a way to get out from under crushing debt. While some spend time learning all they can about what is involved with personal bankruptcy in Canada, others jump in with little advance preparation. Here are 7 things you definitely need to know before you file:
- Bankruptcy Canada filings are managed by a licensed bankruptcy trustee.
- Bankruptcy may cost more than you think.
- You may lose some of your assets in a bankruptcy Canada filing.
- If you have previously filed for bankruptcy, you might stay in bankruptcy for 3 years before discharge.
- Bankruptcy can remain on your credit report for up to14 years for repeat filers.
- Bankruptcy will stop all collection activities against the filer, including wage garnishments and lawsuits.
- There are legal alternatives to bankruptcy which will protect your assets.
First, to file for bankruptcy in Canada you will need to hire a licensed bankruptcy trustee, not a lawyer specializing in bankruptcy as our American cousins do. The difference is this: a bankruptcy lawyer in the US represents the debtor while in Canada the bankruptcy trustee is required by law to act in the best interests of both the debtor and the creditors. Some Canadians who file for bankruptcy mistakenly believe that since they pay the trustee’s fee the trustee should do everything possible to protect the filer. However, our bankruptcy laws are designed to be fair and equitable to both debtors and creditors, allowing debtors to get a fresh start and creditors to recoup some of their losses based on the debtor’s ability to pay. A licensed bankruptcy trustee in effect acts as a “middleman” in this process.
Second, another surprise to some Canadians is that bankruptcy often costs more than the trustee’s fee and court filing costs. Higher income filers and filers with significant assets are expected to contribute some of what they earn and possibly some of what they own into a bankruptcy estate. Funds in the estate are distributed to creditors with valid claims during the bankruptcy.
Third, bankruptcy Canada laws have exemption allowances for a variety of asset classes which lets bankruptcy filers keep much, but not necessarily all, of what they own. These allowances vary a great deal across Provinces with Alberta allowing filers with less than $40,000 equity in their homes to keep them. In Ontario, there is no exemption allowance for home equity at all, so filers there must either “buy back” their homes from the bankruptcy estate by depositing the equity value of the home or they will lose it.
Fourth, if you have previously filed for bankruptcy the “second time around” it is going to be more painful than the first. If your income is high enough to require making payments into the bankruptcy estate you could remain in bankruptcy for 3 years before discharge. Repeat filers would do well to discuss alternatives to bankruptcy with a trustee.
Fifth, a bankruptcy filing will negatively impact your credit rating from 6 years for first time filers not required to make surplus payments into the estate to 14 years for repeat filers who must make payments. To determine how long a bankruptcy will remain with your credit rating; meet with a bankruptcy trustee in your Province.
Sixth, if your wages are being garnished and you are receiving harassing calls and letters from debt collectors, all this will stop once you file for personal bankruptcy. You will be legally protected from all forms of collection activity, including lawsuits.
Finally, many Canadians are unaware there is a legally binding alternative to bankruptcy called the Consumer Proposal. About 15 years ago bankruptcy Canada laws were amended to include this approach which allows filers with significant income and assets to protect them against seizure and garnishment. Working with a trustee, a debtor proposes to pay back a portion of the total debt owed.
For specific information about bankruptcy Canada filings in your area, meet with a trustee as soon as you can.