What’s the Process of Bankruptcy with No Assets?

When financial struggles leave you with limited options, filing for bankruptcy may be the best solution.  But is filing for bankruptcy even necessary if you have no significant assets to try to protect from creditors?  Filing for a personal bankruptcy is not always necessary if you do not have assets to protect, but often it can provide peace of mind by stopping creditor calls, clearing off old negative charges on your credit report, or constantly worrying about mounting interest charges. 

This blog is designed to help individuals in British Columbia understand the benefits of filing for personal bankruptcy even if you no personal assets of significant value. We will discuss what it means to file bankruptcy, summarize what to expect and how a Licensed Insolvency Trustee (LIT) can help you regain financial stability.

What Does It Mean to Go Bankrupt with No Assets?

Filing for bankruptcy with no assets typically applies to individuals who do not own significant property, such as a home, vehicle (beyond exempted limits), or valuable possessions. In British Columbia, (exact exemption amounts differ by province) some personal assets are considered Exempt or protected by provincial exemption laws from creditor seizures.

Exempt Assets are personal items which cannot be seized by creditors before or during a bankruptcy. Exempt Assets in BC include:

• All personal Clothing and medical aids: no maximum dollar value
• Work tools: Max $10,000 value – Tools of the Trade (you can include an additional vehicle/trailer/truck etc. if you require item to earn income)
• Household Furnishings and Appliances: Max $4,000 value
• A vehicle, or vehicle equity: Max: $5,000 value ($2,000 value if the person is behind on child support payments)
• Home equity: Max $12,000 value in Greater Vancouver and Victoria (up to a $9,000 value elsewhere in BC)
• RRSPs up to an unlimited value (except for contributions made in the 12 months prior to bankruptcy)

**All values stated above are garage sale value NOT replacement cost**

Disclosing or Repurchasing An Asset

When filing for personal bankruptcy, your first obligation is to disclose to your creditors the value of any assets you own.  If all your assets are below the exemption values, then your assets are free and clear from your creditor claims.

If you have assets above the exemption amounts, the value of these assets needs to be paid to your trustee for the benefit of your creditors. In bankruptcy, non-exempt assets can be purchased back from the trustee at fair market value. This is sometimes called “repurchasing an asset”.

How it works: 

• The trustee assigns a value to the non-exempt asset.
• The bankrupt pays the trustee the value of the asset.
• The bankrupt individual keeps the asset.

Why it’s done:

• It allows the bankrupt to keep assets they don’t want to lose. 
• It allows the bankrupt to get protection from creditors and manage their debt.

However, we often have debtors who opt to file for personal bankruptcy even if they do not have any assets above the exempt amounts.  This is because individual debtors may still be subject to creditor collection actions (calls, letters, garnishments etc.) which can be overwhelming.

Filing for bankruptcy without assets to repurchase will still mean that the debtor will have reporting obligations under the Bankruptcy and Insolvency Act.  Additionally, all debtors must attend mandatory counseling sessions, submit monthly income and expense reports, and may be required to make surplus income payments to the trustee (more on that below).

Surplus Income

While you may have no assets, your income level still impacts your bankruptcy process. The federal government establishes surplus income thresholds based on household size. If your monthly income exceeds this threshold, you will need to contribute a portion of the surplus to your creditors for a designated period. (See current income threshold)

Income Reporting Periods in a Bankruptcy

Generally, the period a debtor will be required to report their income to the trustee, is based on whether or not the debtor has been bankrupt before and how much the debtor’s family unit is earning during the bankruptcy period.

• First-time bankruptcy WITHOUT Surplus Payable: Debtor reports for 9 months
• First-time bankruptcy with Surplus Payable: Debtor reports income and pays surplus income for 21 months.
• Second-time bankruptcy WITHOUT Surplus Payable: Debtor reports income for 24 months
• Second-time bankruptcy with Surplus Payable: Debtor reports income and pays surplus income for 36 months.
• Bankruptcy MORE than two times – no difference on income level: Debtor reports income for 12 months and then has a mandatory court appearance where the court will set the terms of discharge.

It’s crucial to work closely with your Licensed Insolvency Trustee to calculate whether you fall within these thresholds and what your obligations might be.

How a Licensed Insolvency Trustee Can Help You

Licensed Insolvency Trustees (LITs) are federally regulated professionals who specialize in debt relief solutions, including bankruptcy. When you approach a LIT, they will:

1. Assess Your Financial Situation: The LIT will examine your debts, income, and assets to determine if bankruptcy is the best option.
2. Explain Your Options: outline alternatives such as a consumer especially if you wish to avoid bankruptcy.
3. Guide You Through the Process: Your trustee will handle paperwork, communicate with creditors, and ensure you meet all legal requirements.

Beginning the Bankruptcy Process

If bankruptcy is your chosen path, here’s how to get started:

1. Consult with a Licensed Insolvency Trustee (“LIT”): Contact our helpful staff and trustee at C.E. Craig & Associates Inc., for a free consultation.
2. File the Necessary Paperwork: We will help you prepare and file the bankruptcy documents on your behalf.
3. Complete Required Obligations:
   1. Attending two financial counseling sessions
   1. Submitting monthly income and expense statements
   1. Making any required payments, such as surplus income payments

Your LIT will act as the intermediary between you and your creditors, ensuring the process remains smooth and legally compliant.

Filing for bankruptcy can feel daunting, but it doesn’t have to be. If you have no assets, the process is streamlined, and as a Licensed Insolvency Trustee, we will provide the guidance you need every step of the way. C.E. Craig & Associates Inc., based in British Columbia, with offices in Victoria, Nanaimo, and the lower mainland of Vancouver, we specialize in helping individuals navigate financial challenges with professionalism and care. If you’re considering bankruptcy and want expert advice tailored to your situation, contact C.E. Craig & Associates Inc. today for a free consultation.