faqs about bankruptcy

How Much Does Bankruptcy Cost? The Cost to File Bankruptcy & Low-Cost Bankruptcy Help

If you’ve been considering personal bankruptcy in Canada but still have questions check out the FAQ below.

What is bankruptcy?

Bankruptcy is a legal process, designed for the honest but unfortunate debtor, to assist an individual to get out of debt so they may have a fresh financial start. For more information on the bankruptcy process please refer to our bankruptcy service page or contact us via our online form.

Who qualifies for bankruptcy?

To qualify for bankruptcy you need to reside or carry on business in Canada and have liabilities of at least $1,000 or more above the total amount of your assets and;

  • Be unable to meet their obligations as they generally become due; or
  • Have ceased making payment obligations in the ordinary course of business, as they generally become due; or
  • The total of all personal property sold at fair market value, would not be sufficient to pay all debts;

It should be noted that just because a person or business meets the above technical requirements to file for bankruptcy, it does not mean bankruptcy is your best or only alternative.

How long does bankruptcy last?

The answer to this question is, it depends. A number of factors are used to determine the answer to this question.

  • Is this a first-time bankruptcy?
  • Is the individual’s monthly net income above the monthly surplus income guidelines?

A first time bankrupt, without surplus income, would be eligible to be discharged from bankruptcy nine months plus a day from the start of the bankruptcy.

A Second time bankrupt, without surplus income, would be eligible to be discharged from bankruptcy twenty-four months plus a day from the start of the bankruptcy.

To discuss your situation or to understand how surplus income could change the above timelines please contact Allan Marshall & Associates Inc

Is Bankruptcy advertised in the local newspaper?

Most personal bankruptcies are NOT advertised in the local newspaper.

All Business bankruptcies are advertised in the local newspaper.

  • If an individual’s bankruptcy was required to be published in the newspaper, Allan Marshall & Associates Inc would advise you of this requirement (prior to you making the decision to file) and discuss other alternatives, such as a proposal to prevent the publication of notice in the newspaper was a concern.

If I file for bankruptcy will it affect my co-signer?

No bankruptcy itself would not affect your co-signor or a joint borrower; however, they would continue to be responsible for the debt as they agreed to pay it if the primary borrower did not.

  • Bankruptcy would not affect the creditor’s right to go after anyone who guaranteed or co-signed a loan. An individual’s bankruptcy would only protect them from their creditors, not other people such as co-signers, joint applicants on loans or guarantors.
  • If you have a joint debt or have co-signed a debt for someone who enters into bankruptcy, the responsibility of the debt would shift to the guarantor and they should contact the lending institution to make payments arrangements, so the debt does not fall into arrears. (This would affect their credit rating).

How should I handle creditor calls and harassment?

Creditors do have certain rights to collect upon their debts; however, you need to know you have rights too.

  • A creditor is allowed to call to enquire about their debts and request a payment plan. They are however restricted on what they can say, how they act, when and where they call. For more information please review your provinces collection agency act or contact Allan Marshall & Associates Inc to discuss your options.
  • Once an individual has filed for protection under the bankruptcy and insolvency act, a stay of proceedings is put into effect to stop all legal and collection proceedings including harassment.
  • All calls received after filing a proposal or bankruptcy should be referred to your trustee.
  • Should creditors continue to call? You should contact your trustee and provide them with the name and number of the creditors calling so the trustee can contact the creditor to have the calls stop.

How much does bankruptcy cost?

There is a basic minimum cost to file for bankruptcy. This cost will differ based on the type of assignment, whether it is a 1st, 2nd or more times you are filing.

  • It will also depend on your level of income based on the superintendent of bankruptcies guideline.
  • Allan Marshall & Associates Inc understands and deals with individuals experiencing financial problems and will clearly explain the costs associated with filing for bankruptcy.
  • Payments are usually broken down into reasonable monthly payments to allow an individual to pay the bankruptcy fee while they are being protected from their creditors.
  • The payments are often far more reasonable then people expect. Contact us today to schedule your free consultation to discuss your options.

Can bankruptcy help with student loan debts?

Yes, bankruptcy can help with student loan debts if you have been out of school for seven years or more.

  • If you have been out of school for 7 or more years student loans are treated like regular unsecured debts.
  • Students, who have only been out of school for 5 years (but less than 7 years) and are experiencing financial hardship, may apply to the Court to request their student loans be discharged along with the rest of their debts.

Does filing for Bankruptcy impact my ability to apply for receive a student loan in the future?

One of the questions on the application file is “Have you declared or filed for Bankruptcy in the last 3 years” ?

  • If the answer is “Yes”, the application will be denied.  The debtor should be out of their bankruptcy for 3 years for the initial application to be accepted.
  • Also, if there is no insolvency proceeding, a potential student would also be denied if they have serious credit abuse; which is defined as having missed payments on 3 debts over $1000, and over 90 days overdue.

However, in both of these scenarios, although the applicant will likely be denied, they can appeal the decision.

How does Bankruptcy affect my credit rating?

The fact of bankruptcy will remain on an individual’s public record for up to 7 years although most credit bureaus remove reference to a first-time bankruptcy after only 6 years.

  • The credit rating associated with bankruptcy is R9 and is the same credit rating used if your debts have been put into collection, your debt is more than 120 days past due and considered as bad debt or you moved and did not provide a new address.

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How long will it take to re-establish credit after bankruptcy?

The ability to reestablish credit will depend on a number of factors. Many of which have nothing to do with having filed for bankruptcy. Some of the items considered with applying for credit are:

  • Do you have a full-time job?
  • How much do you make?
  • What is your debt-equity ratio?
  • What have you done since filing for bankruptcy? Are your utilities up to date or are they in arrears.)
  • What is the loan for? It is often easier to borrow for the purchase of a car, as opposed to an unsecured loan to take a vacation.)
  • Often the best way to look at applying for credit after bankruptcy is to approach it as if you were 18 starting to establish credit for the first time.
  • Although starting over can take some time and effort to get reestablished it is still better than struggling with debts you will never be able to pay off on your own.

When in bankruptcy can I choose to continue to pay family and friends?

No, loans to family and friends do not have any special standing in bankruptcy and will not be treated any better than regular unsecured creditors.

  • While in bankruptcy you are responsible to pay ongoing living expenses and secured creditors in order to receive continued use of the utility or secured asset

Will my employer know if I file for bankruptcy?

Your employer would not be notified by the trustee about your bankruptcy, unless:

  • You owe your employer money. Then they would be notified along with all your other creditors.
  • You are unable to provide your trustee with the required information (pay stubs and T4’s) necessary to file your income tax.

In bankruptcy would I still handle my own money?

Yes, a bankrupt continues to receive their own paycheque, have their own bank account and pay their own monthly bills, subject to any required payments under the bankruptcy and insolvency act.

Can I still have a bank account?

Yes. Even people who are having financial problems may still have a bank account.

  • We do suggest you open an account and keep your money in a bank that you do not owe any money.
  • If you keep your account at the same bank that you owe (For example overdraft, lines of credit and visa) the bank can apply offset and seize any money you have in your accounts and apply it to monies you owe the bank.

Can you file for bankruptcy in Canada when you live abroad?

Yes, as long as you lived or carried on business or have assets in Canada you can file for bankruptcy in Canada.

  • You should contact a trustee in the province where you last resided or carried on business to discuss the requirements.

What happens if I win the lottery while in bankruptcy?

Windfalls such as lottery winnings must be turned over to the trustee to be distributed to your creditors.

  • If you won sufficient funds to pay your creditors in full the surplus funds would be returned to you.

Will I lose my house in bankruptcy?

No, most people that want to keep their homes are able to do so even in bankruptcy.

  • Each situation is different and your home will be discussed when you meet with us at the initial consultation.
  • To be sure you will not lose your house to your creditors, please ensure you keep your mortgage payments current.

Is bankruptcy my only option?

Bankruptcy is only one option to help with financial and debt problems.

  • Although there may be other options, bankruptcy still may be the right option based on an individual’s circumstances.
  • To discuss your options please contact Allan Marshall & Associates Inc for a free consultation to assess and explain all your options.
  • The sooner a financial problem is identified and steps are taken to resolve the problem, the easier it is to deal with.

How is my spouse affected by my bankruptcy?

Technically bankruptcy does not affect your spouse or common-law partner.

  • Your spouse or partner would only be responsible for debts they co-signed, guaranteed or made a joint application for the credit.
  • Your spouse’s assets would not be affected by your bankruptcy. Their assets remain theirs.

If I declare bankruptcy does my spouse have to?

No, your spouse can decide how they need to proceed based on their own finances.

  • Sometimes it makes sense for couples to file and other times it makes sense for only one partner to file a proposal or bankruptcy.
  • The free consultation is useful to explain your options and answer these types of questions.

How does divorce affect bankruptcy?

If you separating from a spouse, you will now possibly be on your own for bill payments. Try to cut back on spending, as you may now be down to one income (if your spouse was contributing). Open a new bank account that you can control. However, if you share two names on accounts, bills and credit cards, you are BOTH responsible for these even if you are separated.

Will my wages still be garnished after I file for bankruptcy?

Most garnishees are stopped by bankruptcy.

  • Certain garnishments continue such as alimony and child support.
  • Other garnishments such as Revenue Canada for income tax will STOP as soon as you file for bankruptcy protection.

Can I be an officer or director of a company while I am bankrupt?

Many provinces have laws that prevent an individual who has filed for bankruptcy from remaining the officer and/or director of a business while they are in bankruptcy. This is something you should discuss with your corporate lawyer.

Will bankruptcy release me from Income tax and other government debts?

Yes, Personal Income tax debts, GST and director’s liability for a corporation’s government debts may all be discharged through bankruptcy.

How can I stop creditors from harassing me?

Generally, you have a few options

  • Get your account current and keep it that way.
  • Negotiate a settlement or new payment terms with creditors.
  • File a proposal
  • File for bankruptcy

Will I lose my vehicle if I file for bankruptcy?

In most cases, a bankrupt is able to keep their vehicle. Vehicles typically fall into two categories:

  • Vehicles that still have money owing on them.
    • To keep these vehicles the bankrupt will need the car payment to be up to date when they go into bankruptcy and keep future payments up to date or the bank or financing company will seize the vehicle. If the payments are up to date the bank cannot seize the vehicle or call the loan. The bankrupt can, however, at the beginning of the bankruptcy, choose to voluntarily return the vehicle and include the car loan in the bankruptcy.
  • Vehicles that are owned outright.
    • A vehicle that is owned outright may still be retained by an individual filing for bankruptcy if the vehicle is needed for work and/or medical reasons and is worth less than a specified dollar value. The specified dollar values are called exemption limits and are different for each province.

Please refer to the section on bankruptcy for more information on exemptions.

How are RRSP’s treated in bankruptcy?

RRSP’s are exempt assets.

  • RRSP’s are yours to keep and are protected from your creditors with the exception of any new contributions in the twelve months leading up to bankruptcy.

What happens to Income tax refunds, GST cheques and Child Tax Credits received from Revenue Canada when someone is in bankruptcy?

Income tax refunds – Tax refunds for tax years prior to bankruptcy or the year of bankruptcy would be forwarded by the government to your trustee. These refunds form property of the estate and would be available for distribution as a dividend to unsecured creditors.

  • GST Cheques – GST will automatically be sent to your trustee while you remain in bankruptcy. Future GST cheques will be sent directly to the individual, by the government if you qualify to receive them, once you have been released from bankruptcy.
  • Child Tax Benefit / Universal Child Tax Benefit – These cheques will continue to be sent directly to the bankrupt as a part of their income.

If I file for bankruptcy will I lose my ATV, Motorcycle, RV, Snowmobile or other recreational equipment?

If the items described above are fully paid for, they would vest with your trustee for the benefit of creditors. However, arrangements can be made to allow you to keep these items. This should be discussed with your trustee at your free initial consultation.

  • If these items are financed or not yet paid for, you may be able to keep them as long as the payments are up to date and remain current with the secured creditor.

How can I stop the government from garnishing my wages?

You have four basic options.

  • Pay the debt owed to Revenue Canada in full.
  • Negotiate a new payment arrangement with Revenue Canada.
  • File a proposal to settle the debt with Revenue Canada.
  • File for bankruptcy.

Why am I still receiving calls and/or correspondence from creditors after I filed for bankruptcy?

Upon filing, we notify all creditors, listed on your statement of affairs. In 99% of the cases, all calls and letters from creditors should stop within a week of filing for bankruptcy. (We have to allow some time for creditors to receive notice and update their records.)

  • If after one week from the date of filing you continue to receive calls or letters we ask that you notify our office so we can contact that specific creditor again
  • In the case of phone calls, we ask you to notify us of the name, phone number, and company of the person calling so we can contact them directly.

About Author

Mark Marshall - Saint John Licensed Insolvency Trustee

Mark Marshall BBA, C.I.R.P, L.I.T

Mark has been working in the Insolvency field since graduating from the University of New Brunswick with a degree in Business Administration (BBA). In 2012 Mark received his Chartered Insolvency & Restructuring Professional (CIRP) designation and attained his license as a Licensed Insolvency Trustee (LIT) in 2013.