How to File Personal Bankruptcy in Ontario, Canada
Why You Shouldn’t Be Afraid of Bankruptcy
Let’s address those concerns with an analogy. Do you remember going to see the doctor when you were a child for your yearly check-up? You dreaded getting jabbed in the finger for a blood sample, but before you knew it, it was done and over with and the sting went away. One can think of the bankruptcy process in the same way – you dread filing for personal bankruptcy and expect it to be painful, but before you know it your debts are gone and you’ve moved on with your life.
The personal bankruptcy process has the objective of rehabilitating the debtor, so that he can 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 personal bankruptcy process is governed by a federal statue called the Bankruptcy and Insolvency Act (“BIA”). Under the BIA, the major steps in the bankruptcy process are:
- Meet with a Licensed Insolvency Trustee to evaluate your financial situation
- File an assignment in bankruptcy with the Office of the Superintendent of Bankruptcy (“OSB”)
- Attend two financial counselling sessions
- 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
Just as you would see a doctor to assess your symptoms when you’re not feeling well, one sees a Licensed Insolvency Trustee when experiencing great financial distress. 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 personal bankruptcy.
Step 2: File an Assignment in Bankruptcy
Once you’ve made a decision to file for personal bankruptcy, the Trustee prepares a legal document called an Assignment in Bankruptcy. By signing the Assignment, you are indicating that you are voluntarily 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 administering the estate
The Assignment is filed with the OSB, a branch of the federal government that monitors bankruptcy and insolvency filings. Once the OSB receives the Assignment, it issues to the Trustee a Certificate of Appointment, appointing him as the trustee of your bankruptcy estate. 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. At that point, your assets vest in the Trustee (i.e., he becomes the legal owner) for the purpose of 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
- 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 are required to keep track of your monthly income and expenses and 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
During your bankruptcy you’ll be required to meet with the Trustee to discuss any potential 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. In addition, the Trustee will provide information to you on money management and ways in which you can rebuild your credit.
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, and judgments arising from fraud or physical/sexual assault, are not discharged), and that you are no longer “bankrupt” for legal purposes.
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
If no one objects to your discharge and you are a first-time bankrupt, a discharge is automatically granted nine to 21 months after filing bankruptcy. Whether you are bankrupt for nine to 21 months will depend if your net monthly income exceeds a certain monthly living allowance established by the OSB. If you are granted an automatic discharge, there is no court hearing and the Trustee sends you a copy of the discharge.
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:
You are no longer responsible for debts incurred prior to bankruptcy (save for the exceptions noted above).
You may be required to pay a certain amount of money to your creditors through the Trustee for a specified period (e.g., $100 per month for 24 months). Your discharge is subject to fulfilling the terms and conditions of the order. An absolute discharge will be granted when the specified conditions are fulfilled.
This could be an absolute discharge but there is a delay before it comes into effect or is reviewed again by the Court.
The Court has the right to refuse a discharge in unusual circumstances.
Second time bankruptcy
If you’ve been bankrupt before, your discharge is automatically granted 24 months to 36 months after filing bankruptcy. Again, whether you are bankrupt for 24 or 36 months will depend if your net monthly income exceeds a certain monthly living allowance established by the OSB.
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
If you want to work with a Trustee who will give you confidence and peace of mind that your personal bankruptcy proceedings are being dealt with in a professional manner, look no further.
Contact Fong and Partners Inc., a member in good standing with the Better Business Bureau with an A+ Rating and one of the 3 Best Rated Trustees in the Greater Toronto Area.