If you are considering filing for bankruptcy in BC, our team at C.E. Craig & Associates Inc are here to help. With offices in Victoria, Nanaimo, Langford, and Surrey, and servicing all of Vancouver Island and the Gulf Islands, we have helped thousands of debtors through the personal bankruptcy process. Here is a 5 step guide to personal bankruptcy in Canada.
Here is a generalized 5-step guide to personal bankruptcy in Canada for most individuals filing for bankruptcy. Individual situations may differ depending on personal issues and considerations.
Step 1: Consultation
Meet with Licensed Insolvency Trustee (LIT)
- Discuss financial situation with LIT Debt Elimination Team at C.E. Craig & Associates, either in person or virtually. We have offices in Victoria, Langford, Nanaimo, Duncan and Surrey where we can meet you to discuss options. (Book a Free Consultation!)
- Review the bankruptcy process or alternative debt elimination solutions like a consumer proposal.
- Only Licensed Insolvency Trustees in Canada can assist debtors with bankruptcy or consumer proposal. Don’t be misled by “debt consultants” who charge a fee for advice on these services.
Step 2: Filing for Bankruptcy
Complete Application Forms and pay initial deposit
- Provide detailed information on assets, liabilities, income, and expenses.
- Initial deposit to C.E. Craig & Associates Inc., to start the process.
- Answer any follow-up questions we may have regarding your application.
Sign Formal Documents
- Meet (in person, or virtual) to review and sign formal documents based on the information you provided in the Application form.
- As your LIT, we will send these signed documents to Office of the Superintendent of Bankruptcy (OSB) who will assign a unique bankruptcy estate number, starting the bankruptcy process.
- We will then send a copy of these formal bankruptcy documents to all creditors informing them of the bankruptcy and their obligations to Stay (Stop) all legal collection proceedings and stop charging interest.
Step 3: Obligations
Counselling Sessions
- First Session (Within 60 days of bankruptcy filing) we will review:
- Budgeting and money managementUnderstanding causes of financial difficultiesSuggestions for developing better financial habits
- Second Session (Between 30 and 60 days before discharge) we will review:
- Review progress on personal financial goalsHelp you plan for the future and avoiding financial pitfalls
- Discuss how to rebuild your credit score and steps to financial stability
Meetings and Examinations
- Meetings with Creditors: Attend any meetings requested by creditors (often rare)
- Examination under Oath: Attend examination if requested by the OSB to answer questions about conduct and financial affairs. This may happen if the OSB or the LIT feel that the debtor has acted in a way that contrives the credit or bankruptcy process.
Surplus Income Payments
For each month you are in bankruptcy, you have to report your earnings to the Trustee; this is necessary to calculate any payment of Surplus Income under the bankruptcy process.
How to Calculate Surplus Income:
- Start with determining your take home monthly income from your family unit.
- Subtract allowable living expenses based on BIA guidelines (Non-Discretionary Expenses): these are allowable living expenses, such as child care/support, medical payments etc.
- Compare your Adjusted Take Home Income (after deducting Non-Discretionary Expenses) to the OSB Guideline Amounts based on the number of people in your family unit. (Amounts available in image below)
- Any amount you earn above the Guideline is consider surplus: 50% of that amount must be paid to the LIT and the other 50% you keep.
- Example Calculation:
- Monthly Income: $3,500
- Deduct Non-Discretionary Expenses (e.g. Childcare) $500
- Guideline Allowance for Family Size: $2,000
- Surplus Income: $3,000 – $500 – $2,000 = $1,000
- Payment to LIT: $1,000 x 50% = $500 per month
For each month you are in bankruptcy you have to report your income. If you have surplus income payable, this amount must be paid to the LIT to complete your duties under the BIA. You cannot finish the bankruptcy process until all surplus owed is paid. If you get to the end of the process and have not paid all of your surplus obligations, you will remain undischarged. We help you to come up with a payment plan that will work for your personal situation. There is no interest added to the surplus you owe, but you cannot complete your bankruptcy until all surplus payment obligations are completed.
Tax Returns
Outstanding Tax Returns: At a minimum, each bankrupt must assist the trustee with filing your personal tax returns in the year of bankruptcy plus the immediately preceding year. Often, it is to your benefit to file other outstanding returns, as a failure to file can affect your pension payments or receiving tax refunds in future years.
Always follow up with your LIT to understand which years are necessary to complete your duties under the BIA and which ones should be filed as part of securing the best financial future for yourself.
- Before Declaring Bankruptcy
- The debtor does not need to file all outstanding tax returns before starting the bankruptcy process.
- During Bankruptcy
- Debtor must file outstanding personal tax returns for the year of bankruptcy (Pre-return from January 1 to the date of bankruptcy) and the immediately preceding tax year (Prior Year).
- These returns must either be prepared by the debtor, or the debtor must provide the necessary information to the trustee so the trustee can file these returns.
- Post-Bankruptcy Return
- Trustee may file the post-bankruptcy return (from the day after the bankruptcy is declared to December 31 of the calendar year), although this is not a statutory requirement.
NOTE: CRA has a policy that all POST bankruptcy tax refunds will be held by them if there are any outstanding tax returns unfiled. As such, even if there is no statutory obligation of the debtor or the trustee to file all outstanding returns, it is generally in the best interest of the debtor to file these returns. Please ask your LIT for more information on this issue.
Asset Management
Selling or Repurchasing Non-Exempt Assets: Non-exempt assets can be surrendered to the LIT to sell, but in the vast majority of the cases the equity in non-exempt asset can be “repurchased” over the bankruptcy period by monthly payments.
Exempt Assets: These are personal assets that cannot be seized by creditors at any time (even without a bankruptcy) and do not have to be turned over, or repurchased in a bankruptcy.
- Equity in a Principal Residence
- Up to $12,000 in Greater Vancouver and the Capital Regional District
- Up to $9,000 elsewhere in the province
- Household Furnishings and Appliances: Up to $4,000
- Personal Effects: Clothing and medical aids
- Tools of the Trade: Tools, equipment, and books up to $10,000 if necessary for the debtor’s principal occupation
- Motor Vehicle: Equity up to $5,000 (or up to $2,000 if the debtor is behind on family maintenance payments)
- Pension Plans: Registered pension plans are generally exempt
- RRSPs and RRIFs Except for contributions made in the 12 months prior to bankruptcy
- Certain Life Insurance Policies: The cash surrender value of a life insurance policy owned by the debtor are exempt, if the beneficiary is a spouse, child, parent, or grandchild of the insured
- Specified Savings Plans for Disabled Persons: Registered Disability Savings Plan (RDSP) contributions.
Step 4: Discharge
Length of Bankruptcy Process: When can you be Discharge?
- First-Time Bankrupt with No Surplus Income
- Typically discharged after 9 months
- First-Time Bankrupt with Surplus Income
- Typically discharged after 21 months
- Second-Time Bankrupt
- Typically discharged after 24 months (if no surplus income)
- Typically discharged after 36 months (if surplus income)
Discharge Alternatives
- Automatic Absolute Discharge
- The vast majority of debtors are discharged automatically when they have completed their duties set out above.
- All debts will be discharged at this time; except for some limited exceptions such as debts that arose form fraud, alimony or child support obligations, student loan for a period of 7 years etc. – discuss your personal debts with your LIT to determine what if any debts are non-dischargeable in a bankruptcy
- Mediation Process (BIA) – Not all Surplus Income Payments paid to LIT
- If the debtor needs additional time to pay outstanding surplus income obligations, mediation can be arranged via emails between the OSB, debtor, and Trustee.
- Mediation can result in:
- An agreement on a new payment schedule
- An extension of the bankruptcy period to meet payment obligations
- Conditional Discharge – Not all duties completed under BIA, such as outstanding counselling, outstanding tax information, or repurchase of non-exempt assets.
- Debtor will be discharged after meeting specific conditions, such as:
- Payment of additional amounts to the bankruptcy estate
- Completion of additional financial counselling sessions
- Debtor will be discharged after meeting specific conditions, such as:
- Suspended Discharge
- The date of discharge is postponed to a future date to allow the debtor more time to fulfill outstanding obligations.
- Debtor must comply with the set conditions during the suspension period to achieve discharge.
Conclusion of Bankruptcy – Discharge
- Receive discharge certificate from the LIT upon meeting all obligations and conditions
- Obligations are cleared, subject to conditions of discharge and debts are discharged (with some limited exceptions)
Step 5: Rebuilding Credit
Work on rebuilding your credit rating – this can be done even during the bankruptcy process by continuing to use credit wisely. Credit sources that continue to report to the credit bureaus during the bankruptcy process include secured creditors (vehicle loans or mortgages), and cell phone contracts.
Post bankruptcy, there are many secured credit cards or prepaid credit alternative that will assist in rebuilding your credit score.
Don’t apply for multiple sources of new credit, don’t max out your credit, don’t carry a balance on your credit cards from month to month, and it helps your score if you don’t move around too much or move employment too often.
Follow advice from credit counselling sessions – building your credit rating up after bankruptcy will take time. A bankruptcy allows a debtor to shed unmanageable debt to more quickly get back to positive financial health. Struggling with paying only a portion of your debts each month can be a never-ending cycle. Bankruptcy can be the best first step to long term financial health.
