Should I file for Bankruptcy?
The good things about bankruptcy are that:
- It creates a stay of proceedings –unsecured creditors are prevented from pursuing the bankrupt. Garnishments stop.
- Two mandatory counselling sessions and the required monthly financial reporting will provide you with greater skills. You should establish much better confidence regarding your future.
- Unsecured debts to the Crown such as income taxes, GST / HST, and MSP are all included.
- Generally, the required payments are reasonable and affordable.
- It provides a fresh start.
Bankruptcy has consequences:
- You will be released from your debts when you receive your discharge from bankruptcy. There are exceptions – some types of debts survive – secured debts and the types of debts listed in section 178 (e.g. student loans, debts from fraud or embezzlement) that must be paid when the bankruptcy is over, plus interest.
- It is intrusive – it requires complete disclosure, monthly reporting, payments, possible loss of assets, attendance at meetings, and whatever the trustee reasonably requires. Co-borrowers and guarantors will still be responsible to pay those “common debts” in full.
- The cost can be unknown because required payments can change if income changes or if windfalls occur.
- It is uncertain how long bankruptcy will last because occasionally there are court hearings or, if income increases, more required payments.
- There can be criminal proceedings against bankrupt persons if they do not disclose to us all debts, assets and transfers of assets prior to bankruptcy.
- You must provide us all your credit cards, regardless whether there is any balance owing.
- You must provide information we need to prepare income tax returns.
- If a mortgage has been granted on real estate, it is possible that every debt to the mortgage lender and to its credit card arm could be secured debts under the mortgage agreement. Refer to the mortgage document.
- The credit bureau will report a 1st bankruptcy for 6 years after a bankrupt’s discharge. It will report a 2nd bankruptcy for 14 years.
- Income tax loss-carry-forwards are lost.
- You cannot sponsor someone for immigration purposes until you are discharged.
- Occasionally, a bankruptcy must be disclosed – future credit applications, bonding applications, certain types of employment. If you are self-employed then while you are bankrupt you must inform all parties you are doing business with that you are bankrupt.
- A new student loan is not available until you are discharged.
The financial cost of bankruptcy is in two types: (a) property / assets and (b) payments required from income earned while bankrupt.
Assets you can keep:
You can keep certain of your assets known as exemptions but every other asset or entitlement is “property” that goes to us. The exemptions – what can be kept, are:
- Medical devices
- Household furniture and appliances in BC to a (“garage-sale”) value of $4,000
- RRIFs, RRSPs, DPSPs, RSPs, but sometimes contributions made to the plan within the last 12 months can be seized
- For the self-employed person, tools of trade provided they are worth less than $10,000
- Equity in a principal residence to $12,000 (if in Greater Vancouver Regional District)
- One motor vehicle provided that your equity is less than $5,000
- Cash surrender value of life insurance policies in most situations
Assets you "lose":
Bankruptcy trustees often obtain monies from the following types of property, and you are consenting that we may receive these from you too:
- Cash on hand – we will require you to pay a minimum amount at the time of document signing. Also required are any funds you may have that exceeds your reasonable need.
- Income tax refunds, GST and HST (which may extend beyond the date of your discharge), and BC Climate Action Tax Credits.
- Motor vehicles.
- Trustees need the value from jewellery, timeshares, stocks / shares, Canada Savings bonds, lawsuits the bankrupt can undertake, excess equity in real estate, collections, artifacts, online accounts (including gaming balances), domain names, accounts receivable, airline / travel / entertainment tickets, registered education savings plans, cash surrender value of life insurance policies, claims against other persons or insurance companies, artwork, club memberships, and more.
- Lottery winnings and entitlements to inheritances arising before your discharge and other lump sums such as Child Tax Benefit arrears.
What you must pay from your income:
The Superintendent of Bankruptcy issues standards regarding the payments required to be made by a bankrupt based upon whether the bankrupt has surplus, according to a formula. The standards are in a fairly easy-to-read document known as “Directive No. 11R2-2010 Surplus Income” issued March 8, 2010 and are available from us upon request.
According to these standards, if you have surplus income during your bankruptcy then you must pay:
- if this is a 1st bankruptcy, 21 months of surplus income;
- if this is a 2nd bankruptcy, 36 months of surplus income; and
- if this is a 3rd bankruptcy, the court will decide.
If the following financial circumstances change during the bankruptcy, then the required payments may also change. The monthly amount is established by us based on:
- your net income;
- the net income of others in your family unit;
- the number of persons in your family unit; and
- expenses known as non-discretionary expenses – child support, child care, etc.
We will calculate the amount you will have to pay and we will ensure you are well-informed of this as well as your options.
You must pay to us amounts whether “voluntary” as a cost of the bankruptcy proceedings, or the requirement to pay this surplus amount.
Bankruptcy trustee’s require a minimum amount to cover the costs of their administration. Our minimum fee is $2,000, which can often be paid over many months.
Bankruptcy and Income Taxes
Pursuant to section 128 of the Income Tax Act, bankruptcy creates a year-end for tax purposes. In 2011 there will be two income tax returns – “pre-bankruptcy return” and a “post-bankruptcy return”. If there are refunds, they will be paid to us for the benefit of your creditors.
We will prepare and file the “pre” covering the period January 1 to the date of bankruptcy as well as any return that may be outstanding for 2010. We will probably also file the “post” from the date of bankruptcy to December 31, 2011. The 2011 tax returns and Notices of Assessment will say “Pre-Bankruptcy” or “Post-Bankruptcy”. To prepare the returns us will need T4s, pay stubs, social insurance numbers, names and birth dates of children, receipts for certain deductions claimed, spousal information, etc.
If you are self-employed, then:
- Each month you will prepare a statement of business income and expenses on forms we will provide.
- If you are a GST or HST registrant, you will re-register by telephoning 1-800-959-5525 to get another number.
- You will make income tax instalments throughout your bankruptcy. We can help you estimate the tax debts.
- You will prepare and file GST and HST returns to the date of your bankruptcy.
Your Discharge (Why should you go Bankrupt?)
A person goes bankrupt to receive a discharge – a release from their debts. It is receiving a discharge that provides the fresh start – the bankruptcy is over except for certain duties that may continue regarding taxes and assets.
Many individuals becoming bankrupt for the first time receive their absolute discharge automatically in 9 months. It will be longer than 9 months if:
- You have surplus income;
- You have been bankrupt previously; or
- Your discharge is opposed, in which case the Court will hear and decide on the terms of your discharge.
Your discharge will be imposed, requiring a court hearing if:
- You don’t pay the required monies.
- You don’t attend two financial counselling sessions.
- On a timely basis, you don’t provide all monthly reports of receipts and disbursements for each and every month of your bankruptcy.
- You don’t provide reasonable assistance we may need.
Bankruptcy seems cumbersome but it is often simple, and the best alternative
If you are thinking that bankruptcy may be right for you, to give you a fresh start - please download and complete our application for assistance before your first appointment. Give us a call to make an appointment once its completed.
Declare Personal Bankruptcy in Surrey
Declare Personal Bankruptcy in Burnaby