Bankruptcy is trading your assets (what you own) and in return your debts (most) are forgiven. You don’t have to give up simple clothing, furniture or a basic vehicle.
Once you decide to become bankrupt the trustee completes the paperwork with you and files it with the federal government. Your creditors are then advised by mail and are to deal with the trustee from then on. For secure debts such as car loans and mortgages, you continue to deal with those creditors under the original agreement you made. If you want to end a secured debt and have that creditors’ loss included in the bankruptcy, you must turn the secured asset over to the trustee when you become bankrupt.
The payments in a bankruptcy consist of the trustee’s basic fee and any requirements to pay surplus income as required by the federal government income rules. If you are receiving GST cheques every 3 months, these will be sent to the trustee until the trustee is discharged. Also, outstanding income tax and those for the year of bankruptcy will be done by the trustee. Any refunds will be sent to the trustee for those years, however income tax debts up to the bankruptcy date are wiped out.
Court actions over debts and garnishments (except for support payments) are stopped.
Most assets, other than basic clothing, furniture or basic vehicle must be turned over to the trustee. The trustee obtains a fair value for your assets and divides the money amongst your creditors. As the creditors just expect a fair amount for your assets, you can often purchase your items back from the trustee (eg. a second car or home equity) if you can afford to, as mentioned above.
Once bankrupt you must perform your duties which include giving the trustee all of your credit cards, attending meetings if the creditors want one, attending an examination in which the government asks basic questions on your situation (meetings are rare and exams happen occasionally) pay Surplus Income as required by the Federal Government and co-operate with the trustee in all other duties.
For someone bankrupt the first time, you are normally out of bankruptcy in 9 months, this is called your discharge. If the Income Rules apply, your discharge will take up to 21 months. A second bankruptcy requires you not be discharged for 24 months, 36 months if there is any surplus income.
While bankrupt, if you receive a windfall (a lottery win, inheritance, etc) the trustee must use these funds to pay off your creditors. If you receive such a windfall after your discharge, as the debts have been wiped out, you would get to keep it all.
Two counselling sessions on money management must be attended to obtain your discharge.
If 1) this is your third bankruptcy, 2) do not do what is required by the trustee or 3) a creditor has an objection, then your file will be sent to the court for the discharge to be decided (instead of the automatic 9 or 24 month process noted above). The courts may decide that you should pay additional funds to the trustee for your creditors or that your discharge be delayed for a period of time or both. However, most 1st time bankrupts are discharged automatically after 9-21 months.
Not all debts are erased in a bankruptcy. You must still pay alimony and support, court fines (parking/ traffic tickets are included in this), debts incurred by fraud and some student loans. Also, if you do not obtain your discharge and the trustee becomes discharged from your file, the creditors’ rights are revived and they can then pursue you again for the debts listed in your bankruptcy.Back