What is Bankruptcy?

Bankruptcy is a process governed by the Bankruptcy and Insolvency Act that allows individuals and businesses to resolve their debt problems within a short period. Declaring bankruptcy enables you to be relieved of a significant portion of your debts by surrendering certain assets.

There are two types of bankruptcy: voluntary and forced. Voluntary bankruptcy occurs when you make the decision to file for bankruptcy yourself, whereas forced bankruptcy occurs when your creditors compel you to do so.

Conditions for Filing for Bankruptcy in Quebec

Several conditions must be met to file for bankruptcy in Quebec. To be eligible for bankruptcy, an individual must:

• Have debts totaling $1000 or more
• Not already be in a state of bankruptcy
• Reside or own assets in Canada
• Be unable to pay their debts within the stipulated timeframe
• Be unable to pay current bills (credit card balances, electricity bills, etc.)
• Have assets that are less than their liabilities, meaning the value of all your possessions is less than the value of your debts.
• Have reached your borrowing limit and your bank is no longer providing additional financial assistance.

If you find yourself in this situation, be sure to consult a Licensed Insolvency Trustee promptly to determine if personal bankruptcy is the best solution for you.

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How to File for Bankruptcy in Quebec?

The procedures for filing for bankruptcy in Quebec are complex and require time and expertise. Therefore, it is advisable to consult a Licensed Insolvency Trustee.  

Here are the main steps in the bankruptcy process in Quebec:

1. Meeting with the Trustee

The first step involves meeting with a trustee to jointly assess your financial difficulties and analyze your needs. The goal of this meeting is to determine if personal bankruptcy is the best option for you or if other alternatives are more suitable. It is often possible to avoid bankruptcy by choosing an alternative option such as a consumer proposal.

2. The Forms

Next, with the assistance of the trustee, you will prepare a statement detailing your debts and assets. You will also need to complete a form to surrender your assets to the trustee and officially begin the bankruptcy process. The trustee is responsible for filing all documents with the official receiver. Once the bankruptcy process is initiated, your creditors will no longer be able to pursue you.

3. Identification of Assets to be Sold

You will work with your trustee to determine which of your assets will be sold to repay your creditors. Some of your assets are protected by law and will therefore not be seized or sold.

Here is what you can keep:

• Household and personal belongings essential for your and your family's needs, up to a value of $7,000.
• Your contributions to an RRSP or RRIF, excluding those made less than 10 months prior to the bankruptcy.
• The cash surrender value of a life insurance policy, provided the beneficiary is your spouse, direct ascendant, or direct descendant.
• Tools or items necessary for your profession or daily life, such as a vehicle or a computer.
• Your residence, provided its net equity is zero, or if an acceptable agreement is reached with the trustee should the net equity be reasonably low.
• A portion of your salary as determined by law.

The trustee will then proceed with the sale of unprotected assets. The proceeds from this sale will be distributed to your creditors in the order prescribed by the Bankruptcy and Insolvency Act.

4. Notice to Creditors

The trustee then sends a notice of bankruptcy to your creditors. This notice includes all details regarding the value of your assets and the nature of your debts. In some cases, your trustee may call a meeting of creditors, which you will be required to attend.

5. Examination at the Office of the Superintendent of Bankruptcy

The Office of the Superintendent of Bankruptcy may invite you for an examination where you will be asked questions regarding the causes of your bankruptcy or certain dispositions of your assets.

6. Consultations with a Financial Restructuring Advisor or a Trustee

You are required to attend two types of consultations with a financial restructuring advisor or a trustee. During the first consultation, you will receive advice on how to organize a budget.

During the second consultation, your trustee or advisor will explain the causes of your over-indebtedness and provide you with advice and solutions. These two consultation meetings are mandatory to be eligible for an automatic discharge at the end of the bankruptcy process.

7. Discharge from Bankruptcy

The final step is the discharge of your debts, meaning that the debts defined in your bankruptcy are cleared. You simply need to complete and adhere to all steps and conditions. This discharge occurs either automatically or by appearing before a discharge hearing.

An automatic discharge of debts occurs between 9 and 21 months after the date of your bankruptcy. You will be eligible for this if:

• This is your first bankruptcy
• No one opposes your discharge
• You have participated in the consultations required by law

If this is your second bankruptcy, an automatic discharge is still possible. However, the discharge will occur 24 to 36 months after the date of your bankruptcy.

If you appear before a discharge hearing for a court judgment, depending on your situation, you may be judged for:

• An absolute discharge: You are discharged from your debts and have nothing further to pay.
• A conditional discharge: You are only discharged under certain conditions (payments over a specified period).
• A suspended discharge: You will only be discharged at a future date.
• A refused discharge: The court refuses to release you from your debts (which is rare).

What is the trustee's role?

The role of the Licensed Insolvency Trustee is to manage the bankruptcy process from start to finish. They assess your financial situation and needs based on your debt level, assets, family situation, and budget.

Based on their analysis, they determine if personal bankruptcy is the best solution or if other options are more beneficial for you. If bankruptcy is the right option for you, they will work with you to determine which assets you must sell and which you can keep.

They also offer counseling sessions to educate you on proper budget management, credit, and consumption. The trustee also monitors your situation until your discharge. Their responsibility includes tracking your budget, income, and financial situation.

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Benefits of Filing for Bankruptcy

Filing for bankruptcy allows you to regain your peace of mind. It offers several advantages, such as:

• It puts an end to harassing calls from your creditors.
• You will no longer face wage garnishments.
• The elimination of most of your debts.
• You will receive training to learn how to manage your finances effectively and avoid falling back into this situation.
• You can start over with a clean slate. Bankruptcy allows you to rebuild your credit rating.

How long does a bankruptcy last?

Several factors influence the duration of a bankruptcy in Quebec. Its duration is determined by whether it is a first or second bankruptcy and by your surplus income. Surplus income refers to the portion of your earnings during bankruptcy that exceeds the amount needed to maintain a reasonable standard of living.

For a first bankruptcy:

• Without surplus income = 9 months
• With surplus income = 21 months

For a second bankruptcy:

• Without surplus income = 24 months
• With surplus income = 36 months

The trustee will be able to explain the criteria further and calculate your surplus income.

Which Debts Are Affected by Bankruptcy?

Bankruptcy does not release you from all your debts. Certain debts are not dischargeable. Here is a list of debts included and not included in bankruptcy.

Dischargeable Debts

• Personal loans
• Accumulated bills
• Overdue professional service fees
• Tax-related debts
• Unpaid credit card balances
• Debts owed to collection agencies
• Debts on lines of credit
• Student loans (if a 7-year period has passed between the end of studies and the date of bankruptcy).

Non-dischargeable debts:

• Alimony or child support debts
• Debts arising from fraud, embezzlement, or breach of trust.
• Fines, penalties, and infractions.
• Damages payable in a civil case.
• Student loans with exceptions.
• Debts resulting from false declarations, meaning when an individual misrepresents their employment income to obtain a personal loan.

How long does bankruptcy remain on my credit report?

Filing for bankruptcy significantly impacts your credit report, as it allows banks and lenders to assess the risk involved in lending you money.

Bankruptcy remains on your credit report for 6 years after your discharge date in the case of a first bankruptcy. For a second bankruptcy, it remains on your credit report for 14 years after your discharge date.

The Bankruptcy and Insolvency Act allows an individual to obtain new credit once they are discharged from bankruptcy. Therefore, you do not have to wait until the bankruptcy is removed from your report to apply for new credit. Instead, you should wait between 2 to 3 years after your bankruptcy discharge date.

Here are some tips for borrowing after declaring bankruptcy:

• Adopt sound financial habits
• Borrow a reasonable amount of money and repay it within a relatively short period.
• Make your payments regularly to improve your credit score.

How much does bankruptcy cost in Quebec?

During your bankruptcy, you will be required to make monthly payments to your Licensed Insolvency Trustee. These payments vary based on your financial capacity. The amount payable differs from one case to another, depending on several factors such as income, realizable assets, and so forth.

For a first bankruptcy, monthly payments typically range from $150 to $200 for the duration of the bankruptcy. If you have financial dependents, this amount may be reduced. Special expenses, such as healthcare costs or alimony payments, will also influence your monthly payments.
Should you have specific questions regarding your situation, please do not hesitate to contact us.

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