What Happens When You Declare Bankruptcy in Canada? Is a bankruptcy in Victoria, Nanaimo, or Vancouver the same as everywhere else in Canada?
Declaring bankruptcy in Canada is a legal process designed to provide individuals overwhelmed by debt, with a fresh start. The Canadian Bankruptcy legislation is a federal stature and so is consistent from province to province. So thankfully, if you are in Vancouver, or Nanaimo, or Victoria, the process is the same. However, there are some legislative differences between provides, and although small, may stiff affect the debt option that is best for you.
Here are some key concepts when considering personal bankruptcy anywhere in Canada.
Protection from creditors: i.e., Stay of Proceedings.
Once you file for bankruptcy, an automatic Stay of Proceedings is begun. The Stay provides immediate relief from most of your unsecured debts. This means that creditors cannot continue their collection efforts or take legal action against you. (garnishments, seizures etc all have to stop)
Appointing a Licensed Insolvency Trustee (LIT):
When filing for bankruptcy, you will work with a Licensed Insolvency Trustee like C.E. Craig & Associates Inc., who will assess your financial situation, guide you through the process, and act as an intermediary between you and your creditors. A LIT is like a police officer on the corner directing traffic. We help people navigate the process. We don’t make us the rules of the road, we just try to get everyone through the process as orderly and efficiently as possible.
Asset Review: Valuation, Repurchase or Sale:
The value of your assets are reviewed by your LIT prior to the bankruptcy beginning. Basic personal assets are exempt (See Exempt Assets) but the exact value will vary between provinces. Depending on the value of your asses, any non-exempt assets value can be “repurchased” by the bankruptcy person over the bankruptcy period. If your non-exempt assets are of significant value and repurchasing them is not an option, then your LIT will liquidated these assets. The money received by any sale of non-exempt assets is used to repay a portion of your debts.
Debts Discharged:
Once you complete the bankruptcy process, (which generally includes providing proof of your income to your LIT for each month you are bankrupt, payment of Surplus Income if any, attending 2 counselling sessions with our insolvency counsellors) you are eligible for a discharge from the bankruptcy process. A discharge means that all your unsecured debts are discharged with some exceptions. (See Non-Dischargeable Debts in Bankruptcy)
Going through a bankruptcy process is like diving in a swimming pool and doing some laps. After all of your “laps” or duties are completed, you can come out of the bankruptcy pool and have your debts discharged.
How Much Debt Do You Need to File Bankruptcy in Canada?
To declare bankruptcy in Canada you need to have at least $1,000 in unsecured debt and be insolvent. Insolvent is defined generally as not being able to pay your debts as they come due or if you sold all of your assets, you could not pay all of your debt off. There is no maximum amount of debt that can be discharged in bankruptcy, and people can file bankruptcy multiple times. (Although the compliance consequences increase with each filing).
Also, there is a residency requirement in Canada if you wanted to declare bankruptcy in Canada. To declare bankruptcy in Canada you need to be:
(a) resident of Canada or
(b) have carried on business in Canada within the last 12 months, or
(c) have a majority of your assets still held in Canada.
The “residency” requirement was a significant impediment to those living abroad who were attempting to settle their debts. Thankfully, the courts have recently decided that even if you are living abroad and not a current resident of Canada, if you have Canadian debt, you can file for personal bankruptcy.
The decision to file for personal bankruptcy in Canada is primarily based on your inability to repay your debts as they become due. It is essential to assess your financial situation and consult with a Licensed Insolvency Trustee to determine if bankruptcy is the appropriate solution for your circumstances.
Does Bankruptcy Show for Life?
Bankruptcy does not remain on your credit report for life. The length of time it remains on your credit report depends on the specific credit reporting agency guidelines and the province in which you reside. In most cases, a first bankruptcy will be reported for approximately six to seven years after your discharge.
After this period, the bankruptcy notation is removed from your credit report. But it’s important to note that certain credit applications or background checks, i.e. for specific jobs or professional licenses, may still inquire about your past bankruptcy history.
The fact that you have been bankrupt remains part of the public records held by the Office of the Superintendent of Bankruptcy and is searchable in their data base. There is a small fee to search for information in this federally held database.
What Happens to Your Credit Score When You File for Bankruptcy in Canada?
Choosing to file for bankruptcy is never an easy decision to make – but at times it can be the fastest route to rebuilding your credit score over the long term.
Initially filing for bankruptcy will have a significant impact on your credit score. At the start, your credit score will likely decrease, reflecting the bankruptcy filing. However, it’s important to remember that if you’re considering bankruptcy, your credit score may have already been adversely affected by high levels of debt, missed payments, or collection notifications on your account.
Over time, as you work towards rebuilding your credit during and after your bankruptcy, your credit score will gradually improve. To help this rebuilding process, you will need to demonstrate responsible financial behavior such as making on-time payments, managing new credit responsibly, and practicing good financial habits.
There is no quick fix to rebuilding your credit after bankruptcy, but shedding insurmountable debt with a bankruptcy can the key step in getting out of debt in a manageable period of time. Without a bankruptcy, you may never be able to pay off all your debts…ever. A bankruptcy can be a kickstart to rebuilding your credit score.
Conclusion:
Declaring bankruptcy in Canada is a complex decision with both short-term and long-term implications. Our Debt Elimination Mangers at C.E. Craig & Associates Inc. help to answers all the complex questions before you make a choice. We have multiple offices to serve you – Victoria, Nanaimo, Surrey and Langford.
It is crucial to understand the process fully and determine if it is the right path for your financial situation. Remember, seeking professional advice from those licensed to provide bankruptcy services is the first step. Developing a plan for financial recovery can help you rebuild your financial life and move towards a healthier future.
If you find yourself in a challenging financial situation, reach out to C.E. Craig & Associates Inc., Licensed Insolvency Trustee, for your Free Consultation. Our expert guidance and support is tailored to your needs. We are here to assist you on your journey to financial stability.
