How to File Personal Bankruptcy in Ontario, Canada

Personal bankruptcy is a legal process which provides debt relief. But it also conjures up images of losing your home, no hope of rebuilding credit, and other unpleasant thoughts.

The personal bankruptcy process allows a debtor to become a productive member of society without the burden of crushing debt. The bankruptcy system also ensures that all creditors are treated fairly and get an appropriate share of any debtor assets. Therefore, you should be aware that the bankruptcy system exists to work for you as well as your creditors.

The Personal Bankruptcy Process

The process of declaring bankruptcy is governed by a federal statue called the Bankruptcy and Insolvency Act (“BIA”). Under the BIA, the major steps in the bankruptcy process are:

1. Meet with a Licensed Insolvency Trustee to evaluate your financial situation
2. File an assignment in bankruptcy with the Office of the Superintendent of Bankruptcy (“OSB”)
3. Attend two financial counselling sessions
4. Meet with the trustee to discuss your discharge

Each of these steps will be discussed below.

Step 1: Meet with a Licensed Insolvency Trustee to evaluate your financial situation

The Trustee’s evaluation includes a review of your assets, debts and household budget (i.e., income and living expenses). Upon completing the evaluation, the Trustee will give you options in dealing with your debt, including the option of declaring bankruptcy.

Step 2: File an Assignment in Bankruptcy

Once you’ve made a decision to declare bankruptcy, the Trustee prepares a legal document called an Assignment in Bankruptcy. By signing the Assignment, you are indicating that you are filing for bankruptcy.

At the time you sign the Assignment, the Trustee will explain that you have duties as a bankrupt individual. These duties are to:

• • Disclose all of your assets and liabilities to the Trustee
  • Advise the Trustee of any property disposed of in the past year
  • Surrender all credit cards to the trustee
  • Attend an examination at the OSB, if required
  • Attend the first meeting of creditors (if a meeting is requested by the creditors)
  • Advise the Trustee in writing of any address changes; and
  • Generally assist the Trustee in managing the estate

The Assignment is filed with the OSB, a branch of the federal government that monitors bankruptcy and insolvency filings.

There are three things that happen once the Trustee is appointed:

1. Once the Certificate of Appointment is issued to the Trustee, you are legally bankrupt. Your assets become the property of the Trustee for the  purpose of their liquidation and distribution to your creditors.

In the majority of situations, you won’t lose your assets, as Ontario law allows a bankrupt person to retain:

• • Household furnishings and appliances up to $14,180
  • your principal residence’s equity is exempt IF the equity in your home does not exceed $10,783. If the equity does exceed $10,783 then it would have to be realized upon by the Trustee
  • All necessary clothing
  • Tools of the trade up to $14,505
  • A vehicle valued up to $7,117
  • Pensions
  • Other special exemptions for farmers
  • Certain life insurance policies
  • Registered retirement savings plans (RRSPs), registered retirement income funds (RRIF) and registered disability savings plans (RDSP) except for any contributions made to these plans within the 12-month period prior to the date of bankruptcy

The Trustee for the benefit of your creditors may sell other assets you have. However, in most cases arrangements can be made to allow you to keep assets that would normally be sold.

2. Wage assignments and garnishments are stopped, as well as most other legal proceedings against you.

3. You may be required to pay a portion of your monthly income to the Trustee. This is called surplus income.  How much you have to pay is determined by the Trustee based on guidelines set out annually by the OSB. These guidelines take into account the amount of your household income and the number of dependents.

Step 3: Attend two financial counselling sessions

You’ll have to attend two credit counselling sessions to learn personal financial management. You’ll also discuss any non-financial issues that led to your filing for bankruptcy. For example, gambling, substance abuse, and marital breakdown are common problems in society that inevitably lead to financial hardship.

Step 4: Meet with the Trustee to discuss your discharge

An important event in the bankruptcy process is obtaining your discharge from bankruptcy. Being discharged from bankruptcy essentially means that you are free of your debts with certain exceptions :

• student loans
• alimony/child support
• fines for breaking the law
• judgments arising from fraud or physical/sexual assault

Your creditors, the Trustee or the OSB have a right to oppose your discharge. Common reasons for opposing a bankrupt’s discharge are:

• • Failure to attend financial counselling sessions with the Trustee
  • Failure to make required payments to the Trustee
  • Failure to disclose all assets to the Trustee
  • Questionable transactions entered into by the debtor before or during the bankruptcy

What if no one objects to your discharge and you are a first-time bankrupt? In that case, a discharge is automatically granted 9 or 21 months after filing bankruptcy.

Whether you are bankrupt for 9 months or 21 months will depend on whether you have surplus income.

If your discharge is opposed, the Trustee sends a discharge application to the Court. The Trustee will advise you if you are required to appear in Court for the discharge hearing. At the hearing, the Trustee’s report informs the Court of the circumstances surrounding your bankruptcy. The Court will then issue one of the following orders:

Absolute Discharge

You are no longer responsible for unsecured debts incurred prior to bankruptcy (save for the exceptions noted above).

Conditional Discharge

Your discharge is subject to fulfilling the terms and conditions of an order, such as paying more money into your bankruptcy.  An absolute discharge will be granted when the specified conditions are fulfilled.

Suspended Discharge

You will be discharged after a delay of a certain number of months before it comes into effect.

Discharge Refused

The Court has the right to refuse a discharge in unusual circumstances.

The Personal Bankruptcy Process In 5 Steps – Infographic

Here is a visual summary of the personal bankruptcy process. If you share it, please reference Fong and Partners Inc. with a link back to our website at https://startingovertoronto.com/personal-bankruptcy/.

Our Promise To You