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Bankruptcy Questions

What is a bankruptcy?

A bankruptcy is a legal procedure that allows a person to manage an impossible financial situation. The main objective of the bankruptcy legislation is to help a person with crippling debt, free oneself and start anew. To declare bankruptcy, a person must be insolvent, which means: owe creditors at least $1000 with no hope of being able to gradually pay them back.

Will the creditors stop harrassing me?

Yes, they will stop. All procedures and measures for reclamation against a bankrupt are stayed once a bankruptcy is declared.

Who will be informed of my bankruptcy?

In a bankruptcy where there are a large number of assets, a notice is published in the local newspaper notifying the creditors of the date of the first meeting. If the assets are minimal (less than $15,000) the creditors are notified by mail - there is no notice in the newspaper. All documentation related to the declaration of bankruptcy is made public. In these documents, the credit bureau is notified and the bankruptcy is registered and remains in your credit file for seven (7) years. This does not mean you cannot obtain credit during this time. All new loans are evaluated by the lender on your situation at the time of the loan.

What assets am I allowed to keep?

Assets that may not be seized are defined as such in Quebec :
  • Essential furniture in the main residence up to a market value of $6,000;
  • Food, fuel, linen and clothes essential for every day life ;
  • Work related items that ensure one's ability to continue working ;
  • Family papers and portraits, medals and other decorations ;
  • Affects given or willed considered "non-seizable", under certain conditions ;
  • Awards  accorded by the courts with regards to wills, lawsuits, alimony etc ;
  • Contributions by an employer to the company pension plan, all monies declared non-seizable by the law that regulates these plans and all contributions that are and must be made to these plans ;
  • Periodical disability benefits paid pursuant to a sickness or accident insurance policy ;
  • Essential items and equipment for a person with a handicap ;
  • A certain portion of the gross salary and securities, calculated on the number of dependents.
  • Nevertheless, the goods described in paragraphs 1 and 3 (above) may be seized and sold by a creditor.
  • Since July 7  2008, the registered pension plans and the other applicable plans under the acronyms RRSP, RRIF, DPSP are exempt, except for the contributions made during the last twelve (12) months preceding the bankruptcy. However, on the last point, this affects only those plans not protected by provincial law, which is very rare. One can then affirm that almost all pension plans cannot be siezed due to bankruptcy. In closing, there is no ceiling on the amount that can be protected and the RRSP need not be compromised.

What assets will I lose?

In a personal bankruptcy, all assets except for those that are exempt as stated previously, that belonged to the bankrupt on the date of bankruptcy and all assets that are accrued by the bankrupt during the bankruptcy must be submitted to the trustee as payment to the creditors. This includes for example, a building, an automobile, a boat and even a heritage recieved by the bankrupt during the bankruptcy. This even includes lottery wins and anything else the bankrupt accrues during the bankruptcy, plus all surplus income. Tax refunds, on the date of bankruptcy, also go to the trustee as payment to the creditors. Fiscal law requires the banrupt to file two tax returns for each level of government for the year of bankruptcy. The first (pre bankruptcy return), covers the period from Jan 1 to the date of bankruptcy. The second (post bankruptcy return), covers the period from the date of bankruptcy to Dec 31. All pre-bankruptcy tax refunds go to the trustee to pay the creditors. You are also required to do the same for post bankruptcy refunds for the same reason. You are not legally obliged to give up your pre-bankruptcy refunds. However, the trustee and the creditors can ask the courts for an ordinance in this case and this could be added to your " release from bankruptcy" file.

How do I declare bankruptcy?

There are two ways to declare bankruptcy. The first, and by far the most used, is the person's voluntarily assignment of their assets pursuant to the Bankruptcy and Insolvency Act. The second, very seldom used, is when a creditor asks the court to issue an ordinance declaring a person bankrupt. In both cases, a trustee in bankruptcy is required to file the bankruptcy.

What happens to my salary during bankruptcy?

The income of a bankrupt, such as salary or commission, belongs to the bankrupt and the trustee does not generally get involved at this level. There are, however, norms set out by the Superintendent of bankruptcy that advise the trustees on the reasonable sums the bankrupt must pay during the bankruptcy, instructions based on the number of dependents and the personal situation of the latter. For more informations, consult this link

When is my bankruptcy released?

Under the Bankruptcy and Insolvency Act, a person who declares bankruptcy is released after:
  1.  9 months ( or more, at the discretion of the courts), if this is a first bankruptcy, if the bankrupt has followed the rules imposed by the courts and does not have surplus income. For the definition of surplus income, consult this link. For example, a family of 3 is allowed to earn up to $3,062 before declaring surplus income.
  2. 21 months (or more, at the court’s discretion), if this is a first bankruptcy  and if the bankrupt has followed the rules imposed by the court and has a surplus income. (SEE ABOVE);
  3. 24 months (or more, at the court’s discretion) if it is a second bankruptcy , if the bankrupt has followed the rules imposed by the court  and does not have surplus income (SEE ABOVE);
  4. 36 months (or more, at the court’s discretion) if it is a second bankruptcy , if the bankrupt has followed the rules imposed by the courts and  has a surplus income (SEE ABOVE);
  5. Bankrupts with a personal income tax debt of $200,000 and more making up 75% or more of the total non-secured debt of the bankruptcy, are not eligible for a statutary release. The courts will decide on the conditions in this case.

What happens if I have enough revenue to make a proposal?

When a person is able to make a proposal (meaning their revenue exceeds their cost of living), this person should definitely consider making a proposal as opposed to bankruptcy.

What is a consultation and do I have to attend?

You have to attend the consultation sessions as put forth by the law in order to qualify for "automatic release" after nine months. The consultation can be done on an individual basis, with you and your tustee, or if you prefer, in a group with other bankrupts and your trustee.The first consultation must be held between 10 and 60 days after bankruptcy. The second,  no later than 210 days after bankruptcy.

What happens during a bankruptcy?

The bankrupt must keep the trustee informed of his address, assist if required, adhere to all decisions and provide all pertinent information to the trustee. This person must also report all revenue, expenses and any changes in the family to the trustee. Forms for all required information will be provided by the trustee. A meeting of the creditors is not required in a personal bankruptcy unless the Superintendent of bankuptcy or the creditors representing at least 25% of the claims ask. These meetings are then usually held at the tustee's office.

What happens with alimony?

Alimony is not affected by a bankruptcy. These payments must be made on a regular basis. Bankruptcy does not allow for collection of this money. Back payments on alimony are not annuled in a bankruptcy.

What happens with student loans

If bankruptcy occurs more than seven years after termination of schooling, the debt is annuled by the "release from bankruptcy". A "release from bankruptcy" does not annul a student loan if the bankruptcy occurs within seven years of termination of schooling.In this case, the courts can declare a student loan null and void at any time after 7 years, if the person has acted in good faith and yet still is not able to repay their student loan.

What debts are not covered by the “Release from Bankruptcy” NOTABLY!

 
  1. Fines of criminal nature imposed by the courts ;
  2. Money gained under false pretenses;
  3. Back payments for alimony or child support ;
  4. Money accorded by the courts for physical and sexual assault ;
  5. Student loans if bankruptcy is declared within seven years of termination of schooling

How much does a bankruptcy cost ?

The costs for the trustee, the filing and consultation are imposed by the government. The trustee is usually paid through the sale of the assets of the bankrupt. If the debtor has no surplus income, the trustee will make arrangements for payment while keeping the debtor's ability to pay in mind. These costs do not impede anyone from declaring bankruptcy. For more information, visit our page « Cost and duration of your bankruptcy ».  

 


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