When Should I Consider Personal Bankruptcy?
Whatever your situation and your financial difficulties, Groupe Serpone has the experience and expertise necessary to find the right solution for your debt problems and help you regain your peace of mind.
Get a free consultation with one of our experts to explore the different options available to you. Your Licensed Insolvency Trustee (LIT) will explain each solution in detail as well as its advantages and disadvantages so that you can make an informed decision.
What exactly is a personal bankruptcy?
Personal bankruptcy is a legal process that aims to make a debtor pay off his debts by selling his assets in accordance with the Bankruptcy and Insolvency Act (BIA). In other words, you voluntarily place all your seizable assets in the hands of a liquidator in order to pay your creditors with the proceeds of these assets. This is necessary for individuals with substantial debt and no disposable income to sustain the payment structure of a personal proposal.
If you owe more than what you have, this procedure allows you to pay off the majority of your debts. If, however, you have more equity than debt, there are other alternatives (consumer proposal, debt consolidation, etc.) to consider with your Licensed Insolvency Trustee.
In Quebec, the Office of the Superintendent of Bankruptcy Canada (OSB) is responsible for the administration of the Bankruptcy and Insolvency Act. It is the body that is responsible for giving the licenses to insolvency trustees and regulating their activities.
Conditions necessary to file for bankruptcy in Quebec
If you want to file for bankruptcy in Quebec, you must be insolvent and meet the following conditions:
- Have debts exceeding $ 1,000;
- Not currently be in bankruptcy;
- Own property or reside in Canada; and
- Find yourself in one of these situations:
- You are unable to meet your financial obligations and therefore pay your debts on time; or
- The value of your assets is less than the value of your debts; or
- You have stopped paying your regular bills (credit cards, electricity, telecommunications, etc.)
If you meet the above conditions, do not hesitate to make an appointment with a bankruptcy trustee to determine if personal bankruptcy is the best solution for you.
When Should I Consider Personal Bankruptcy?
Personal bankruptcy is always a last resort option. You should file for bankruptcy if you cannot meet or maintain personal proposal payments. Filing for bankruptcy means the liquidation of your assets for the benefit of your creditors.
What is the importance of a personalized assessment with a trustee?
As you may have noticed, there are several different solutions to over-indebtedness problems. It is important to consult a bankruptcy trustee in order to carry out an in-depth assessment of your situation. This way you can determine the solution that best suits your needs and your financial reality.
Many people are struggling financially and there is no one-size-fits-all solution that works for everyone. It all depends on a series of factors and variables that should be analyzed by an insolvency expert.
What are the consequences of bankruptcy?
Personal bankruptcy involves the liquidation of the debtor’s assets for the benefit of creditors. This is necessary when a person has significant debt and does not have an income to maintain the payment structure of a consumer proposal. In some cases, bankruptcy can result in the loss of real estate, jewelry, cars, antiques and other types of property.
Your bankruptcy can also affect other people financially. For example, if your parents co-signed a car loan for you, they could be held responsible for some of that debt if you ever file for bankruptcy.
It is also important to know that bankruptcy damages your credit report. Bankruptcy negatively affects your credit for a few years and may affect your borrowing capacity in the future. When bankruptcy appears on your credit report, creditors may refuse to extend credit to you or may decide to offer you higher interest rates and less favorable terms.
Impact of bankruptcy on your credit rating
A first bankruptcy usually affects your credit rating for 6 to 7 years, while a second bankruptcy remains on your file for 14 years. Fortunately, you can rebuild your credit after bankruptcy, especially if it is your first bankruptcy. Moreover, your trustee will give you advice on how to better manage your finances.
The Main Difference Between a Personal Bankruptcy and a Personal Proposal?
The main difference is that assets can be kept when a personal proposal has been filed and accepted by your creditors. A proposal is spread over a maximum of 5 years whereas a first-time bankruptcy is finalized within 9 months, in most cases.
Why declare bankruptcy?
Bankruptcy is all about getting off to a good start. It eliminates most of your debts (even tax debts) and you no longer have to pay your creditors. It protects you against many of the proceedings that may be taken against you by your creditors, such as legal action or foreclosure.
When you declare bankruptcy (or when you make a consumer proposal) the creditors immediately stop all lawsuits and all forms of harassment against you. Plus, it keeps you safe from power cuts and lets you keep your furniture (and in some cases, your home and car).
How long does bankruptcy last?
If this is your first bankruptcy, the process can take anywhere from 9 to 21 months. If no one objects to your bankruptcy, your discharge will take place 9 months after the opening of your file. However, if you have excess income, the release will take place 21 months later.
If this is your second bankruptcy in Quebec, the process lasts a minimum of 24 to 36 months. For a third (or more) bankruptcy, a court hearing will take place 12 months after the opening of your case. During this hearing, the duration of the bankruptcy will be established. The duration is generally 12 to 36 months.
What debts are not released through bankruptcy?
The main non-dischargeable debts are:
- Child support arrears
- Penal fines (e.g., traffic tickets)
- Debts or liabilities arising out of fraud, misrepresentation, etc.
What about student loans?
If the student loan is guaranteed by the government, or if the debtor declares personal bankruptcy while still a student or within seven years after graduating, the Order of Discharge does not release the bankrupt from student loan debt.
Are my RRSPs seizable?
In almost all situations, RRSPs are exempt from seizures. In some cases, the contributions made to your RRSP during the 12 months preceding your personal bankruptcy are seizable.
- Essential goods (furniture, clothing, dishes)
- Goods needed for a business (the tools of a mechanic or an electrician)
- Amounts of money received as compensation for physical injury (eg. CSST)
- A large portion of the funds from the employer/employee pension where the amount was transferred to a locked-in RRSP;
- Tax benefits for children
- Some RRSPs held with insurance companies or trusts
- The portion of salary that is essential to provide for family needs
- Money or property received by a will that includes a provision for exemption from seizures
- Money or property received by a will that has no provision for exemption from seizures
- Life insurance policies (depending beneficiaries)
- Some RRSPs
- Surplus personal property such as sports equipment, art, recreational vehicles, and vehicles that are not necessary for the work of the bankrupt
- Concerning buildings, the trustee must obtain an assessment of the building and evaluate whether there is any equity for the benefit of the creditors. If there is equity, the trustee will try to sell the building and can come to an agreement with the bankrupt regarding how much time will be given before the bankrupt must vacate the residence
- If there is no equity, the trustee must notify creditors holding mortgages on the property that the trustee is not interested in the asset and that the creditors can repossess it or have it sold;
- The portion of salary in excess of the needs of the family as established by the grid of the Superintendent of Bankruptcy must be delivered to the trustee on a monthly basis throughout the bankruptcy process.
Duties of the Bankrupt
The bankrupt is subject to the obligations listed in section 158 BIA, which can be summarized as follows:
- Reveal and deliver all the property to the trustee
- Deliver all credit cards to the trustee
- Attend the creditors’ meeting and other meetings that the official receiver or trustee may determine
- Provide a statement of affairs to the trustee showing all assets and liabilities to the best of the bankrupt’s knowledge
- Inform the trustee of any changes in address, telephone, etc.
- Provide the trustee with a list of all creditors, their addresses, the nature of the debt, the amount due and all the evidence relating to the debts
- Stop paying creditors during the bankruptcy
Debt solutions for individuals
Groupe Serpone has helped thousands of people free themselves from their debts. Our bankruptcy trustees take the time to analyze your needs and your financial situation to determine the ideal solution for you:
Personal bankruptcy is a process you cannot do alone. Do not hesitate to contact us if you have any questions or if you would like more information about our services.