The commitments of daily life and unexpected events can have negative impacts on your financial situation. When financial problems are not addressed on time, some people find themselves in a situation of over-indebtedness and do not know how to get out of it.
There are different solutions (consumer proposal, debt consolidation, etc.) to eliminate your debt problems and regain control of your life. In this article we explore one possible solution: personal bankruptcy. Before deciding to declare bankruptcy, it is normal to ask yourself several questions. That’s why we’ve put together a list of the most frequently asked questions to help you get all the information you need about personal bankruptcy.
What is bankruptcy?
Bankruptcy is a process governed by the Bankruptcy and Insolvency Act that allows individuals and businesses to put an end to their debt problems in a short period of time. Going bankrupt allows you to free yourself from a large part of your debt by handing over some of your assets.
There are two types of bankruptcy, voluntary and involuntary. Voluntary bankruptcy occurs when you make the decision to file for bankruptcy yourself while involuntary bankruptcy occurs when your creditors force you to do so.
How to qualify for bankruptcy?
To be eligible for bankruptcy, a person must:
- Have debts with a value of $ 1,000 or more.
- Not already be in bankruptcy
- Live or own property in Canada
- Be unable to pay his/her debts on time
- Not be able to pay current bills (balance on credit cards, electricity bills, etc.)
- Have assets that are less than its liabilities, i.e., the value of all the assets is remarkably lower than the value of the debts.
- Reach the loan limit and no longer have access to additional financial assistance from the bank.
If you find yourself in this situation, you should consult with a Licensed Insolvency Trustee to see if bankruptcy is the best solution for you.
How to file for bankruptcy in Quebec
The procedures to file for bankruptcy in Quebec are complex and require time and expertise. That is why it is recommended to consult a Licensed Insolvency Trustee.
Here are the main steps of the bankruptcy process in Quebec:
1. Meeting with the Bankruptcy Trustee
The first step is to meet with a trustee to assess your financial difficulties and analyze your needs. The purpose of this meeting is to determine if personal bankruptcy is the best option for you or if other options are more suitable. It is often possible to avoid bankruptcy by choosing to adopt an alternative option such as a consumer proposal.
2. Filling the necessary documents and forms
Then, with the help of the trustee, you will have to prepare a balance sheet detailing your debts and your assets. You will also need to complete a form to transfer your assets to the trustee and officially begin the bankruptcy process. The trustee is responsible for filing all the necessary documents to the Official Receiver. Once the bankruptcy process has started, your creditors will no longer be able to sue you.
3. Identification of the assets that will be sold
You will determine with your trustee which of your assets will be sold to reimburse your creditors. Some of your property is protected by law, so it will not be seized or sold.
Here’s what you can keep:
- Your household and personal belongings that support you and your family (for a maximum value of $ 7,000).
- Your RRSP or RRIF contributions, except for those paid less than 10 months before the bankruptcy.
- The commuted value of your life insurance policy, only if the beneficiary is your spouse, your direct ascendant or descendant.
- Equipments that are necessary for your profession or your daily life such as a vehicle or a computer.
- Your house only if its equity is up to zero or in the case of an acceptable agreement made with the trustee when the equity is remarkably low.
- A part of your salary (determined by the law).
The trustee will then proceed to sell the unprotected assets. The proceeds from this sale will be distributed to your creditors in the order determined by the bankruptcy and insolvency act.
4. Notice to the creditors
The trustee then sends a notice of bankruptcy to your creditors. This notice contains all the details concerning the value of your property and the nature of your debts. In some cases, your trustee may request a meeting of creditors which you will need to attend.
5. Interrogatory at the Office of the Superintendent of Bankruptcy (OSB)
The office of the Superintendent of Bankruptcy may invite you for an interview where you will be asked questions relating to the causes of your bankruptcy or certain dispositions of your assets.
6. Consultations with a restructuring advisor or a trustee
You will have to attend two types of consultations with a restructuring advisor or 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 to you the causes of your over-indebtedness and will give you advice and solutions. These two consultation meetings are mandatory in order to be entitled to an automatic discharge at the end of the bankruptcy process.
7. Discharge from bankruptcy
The last step will be breaking free from your debts. Getting discharged means that the debts defined in your bankruptcy are erased. You will have to complete and respect all the steps and terms to get to this point of the process. This discharge takes place either automatically or by going through a court hearing.
An automatic debt release takes place between 9 months and 21 months after the date of your bankruptcy. You will be entitled to it if:
- This is your first bankruptcy
- No one is against your bankruptcy discharge
- You attended the consultations required by the law
If this is your second bankruptcy, automatic discharge is still possible but after a period of time going from 24 months to 36 months counting from the date of your bankruptcy.
If you are going to have to go through a discharge hearing for a judgment by the court, depending on your situation you may be judged for:
- Absolute discharge: You are freed from your debts and you have nothing else to pay
- Provisional discharge: You are only discharged under certain terms (payments over a given period of time )
- Suspension of discharge: You will not be discharged until further notice
- Refusal of discharge: the court refuses to discharge you from your debts (which is very rare)
What is the role of the trustee?
The role of the Licensed Insolvency Trustee is to manage the bankruptcy process from A to Z. He assesses your financial situation and your needs based on your level of debt, your assets, your family situation and your budget.
Based on his analysis, he determines whether personal bankruptcy is the best solution or whether other options are more advantageous for you. If bankruptcy is the right option for you, he will work with you to determine which assets you should sell and which ones you can keep.
The trustee also offers counseling sessions to educate you on good budget management, credit and consumption. The trustee also follows your financial situation until your release. He is responsible for keeping track of your budget, your income and your financial situation.
What are the advantages of declaring bankruptcy in Quebec?
Declaring bankruptcy allows you to regain your peace of mind. It has several advantages such as:
- It puts an end to the harassing calls from your creditors after you file for bankruptcy.
- You will no longer have wage garnishments
- It eliminates most of your debt
- You will have training to help you manage your finances and to avoid falling back into this situation.
- You can start over. Bankruptcy will allow you to rebuild your credit rating.
How long does a bankruptcy last?
Several factors can influence the duration of a bankruptcy in Quebec. It is determined by whether it is a first or second bankruptcy and by excess income. Excess income is the part of your earnings during bankruptcy that exceeds the income you need to maintain a reasonable standard of living.
In the case of a first bankruptcy:
- Without excess income = 9 months
- With excess income = 21 months
In the case of a second bankruptcy:
- Without excess income = 24 months
- With excess income = 36 months
The trustee will explain the criteria to you and will calculate your excess income for you.
What are the dischargeable and non-dischargeable debts?
Bankruptcy does not free you from all your debts. Some debts are nondischargeable.
Dischargeable debt
- Personal loans
- Accumulated bills
- Charges for late professional services
- Debts linked to taxes
- Unpaid balances on credit cards
- Debts to collection agencies
- Debt on lines of credit
- Student loans, only if 7 years have passed between graduation and the date of bankruptcy.
Non-dischargeable debts
- Alimony debts
- Debts due to fraud, embezzlement or breach of trust.
- Fines, penalties and infractions.
- Compensation to be paid in a civil case.
- Student loans with exceptions.
- Debt from deceptive statements, which is when a person lies about their employment income to get a personal loan.
How Long Do Bankruptcies Stay On Your Credit Report?
Filing bankruptcy has a huge impact on your credit report. It allows banks and lenders to determine the value of the risk they are taking in lending you money.
Bankruptcy stays on your credit report for 6 years after your discharge date (in the event of a first bankruptcy). For a second bankruptcy, it remains on your credit report for 14 years after the date of your discharge.
The Bankruptcy and Insolvency Act allows a person to obtain new credit when they are released from bankruptcy so you won’t have to wait until bankruptcy is removed from your credit report to apply for new credit. You should rather wait between 2 to 3 years after the date of your bankruptcy discharge.
Here are some tips to help you get loans after filing for bankruptcy:
- Adopt good financial habits
- Borrow a reasonable amount of money and pay it back on short notice.
- Make your payments regularly to improve your credit rating.
How much does bankruptcy cost in Quebec?
During your bankruptcy, there are monthly payments that you will have to make to your Licensed Insolvency Trustee. These payments vary depending on your financial capacity. The amount payable varies from file to file depending on several factors such as income, seizable assets, etc.
For a first-time bankruptcy, the monthly payments vary between $ 150 and $ 200 for the duration of the bankruptcy. When you have people who are financially dependent on you, the amount is reduced. If you have special expenses like health care costs or child support costs, it will influence your monthly payments.
If you have specific questions regarding your situation, do not hesitate to contact us.