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Learn about Bankruptcy

STUDENT LOANS

If you attended school within the last 7 years, the bankruptcy does not erase this debt. Collection of the debt stops while the trustee works on the file (approximately 2-3 years) but interest continues to accumulate. Any interest free periods come to an end once bankruptcy is filed. We understand that if you were bankrupt and a student loan was not effected that you will be eligible for future student loans. However, plans are to change this so that a credit rating will be used to determine eligibility.

Once you have been out of school for seven years you can ask the courts to include the student loan in your bankruptcy even if you have been discharged.

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SECURED CREDITORS

Bankruptcy and consumer proposals do not deal with secured debts unless you give up the security (these are debts where a creditor has a lien on something you own such as a car or house). Some finance companies take out security on various things you own. It is common for a finance company to take out security on your furniture and other items. Bankruptcy will take care of secured debts if you turn the assets over to the trustee at the time of the bankruptcy. The secured creditor then files the proper paperwork with the trustee and the trustee turns over the item(s) to them. Fortunately, almost all creditors will allow you to continue with secured loans as long as your payments are current.

As well, if you have a secured debt, the trustee must determine if there is any value for the creditors in the secured asset. If so, the trustee must obtain that amount for the creditors by either selling the asset or having someone (usually the bankrupt or a relative) pay the trustee the equity or value of that asset. For example a house or car will be appraised upon a bankruptcy and any equity (the value above the amount of the secured loan(s) or mortgage) must be realized for the creditors by the trustee.

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IMMIGRATION

You cannot sponsor someone to come to Canada while you are bankrupt (usually 9 – 36 months) However, if your financial situation is not good then you probably won’t be able to sponsor someone as you won’t be able to support that person. If you wish to sponsor relatives or are applying for citizenship, you should check with the Federal Government to determine whether bankruptcy will impact your plans. Problems can arise in this area and trustees are not immigration specialists.

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DEBTS NOT ERASED IN BANKRUPTCY

Any debts arising from court fines (including parking tickets), proven fraud, alimony and support, student loans (as noted above) and some over payments for government programs such as Employment Insurance as well as awards regarding personal injuries.

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SURPLUS INCOME

The federal government has rules on how much take home pay a family can have before you must pay additional funds in the bankruptcy. This amount changes depending on family size. Any amount above the government limit is called ‘Surplus Income’ and half of this must be paid to the trustee for your creditors for 9 months. If your average income over the initial months exceed the government income limit for your family size then the payments extend to 21 months (24 months extended to 36 if you were previously bankrupt). You can ask for mediation to settle any disagreement over the amount or how much longer you will have to pay. If this fails the courts will decide the appropriate payment requirement beyond the initial 9 months. Monies not paid under these rules can be collected by a garnishee of the bankrupt’s wages.

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PREFERENCES

Paying a creditor who is related to you shortly before bankruptcy is often seen as not being fair by the other creditors. Thus, unless the creditor took action to force the payment, the trustee must review such payments and demand the money back. If not repaid, the trustee will either request the court to require the money be paid back or turn the pursuit of the payment over to the other creditors.

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SETTLEMENTS

A settlement (giving an asset away and not receiving fair market value) shortly before bankruptcy is seen as being unfair to all creditors. Thus, the trustee must review such settlements and demand the value of the asset back. If not returned, the trustee will either request that the court require the asset be given back or turn the pursuit of the asset over to the creditors.

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RESP’S

These have been found to be the property of the contributor and often are found to be an asset that the trustee must pursue for your creditors.

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EXEMPT ASSETS

Some assets are not available to your creditors in a bankruptcy. In other words, these are things you can normally keep in a bankruptcy. These include a basic vehicle (value of less than $5650), basic clothing (personal items valued less than $5650), basic furniture (furnishing valued at $11,300 or less), RSP contributions made more than a year prior to bankruptcy, tools required to perform your work (up to $11,300), pensions as well as the cash value of some life insurance. If you gave anyone a lien on exempt assets they still have a right to those goods if they are not paid in full. Note: what a bankrupt gets to keep as listed above applies to Ontario. Such exemptions are set by provincial governments and vary by province.

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COURT: NON BANKRUPTCY

If you have a court date set which you are required to attend, the bankruptcy does not erase your requirement to appear. However, your trustee will provide you with the proper papers to take to court to prove you are bankrupt and any debt related cases (other than those for debts not erased: see above) should end quickly.

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COURT: BANKRUPTCY

If your file is sent to court (by the Trustee, creditor or the government) you will have to attend to answer the concerns that resulted in the file being sent to court. The court may then decide to give you your discharge, delay your discharge or require that you pay an amount to the trustee before you will be discharged.

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COMPLAINTS

Complaints about your collection agent should be made, in Ontario, to the Ontario Government, Consumer & Commercial Relations. Complaints about your trustee should be made to the Office of the Superintendent Of Bankruptcy, an agency of the Federal Government. Complaints regarding Student Loan issues should be made to the Federal Government, Human Resources Development Canada. Complaints regarding all government programs may want to be sent to the elected representative for your area.

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CREDIT RATINGS

Usually when someone is thinking of a proposal or bankruptcy, they already have a credit rating problem. A credit rating is really a credit history. Creditors share both the good and bad payment information amongst themselves. Nobody can fix a credit rating such as some advertise. Often a bankruptcy will not make a credit rating worse, but instead will put an end to the debt and start the clock ticking on the time frame to have your credit history cleaned up. Record of a bankruptcy can be kept on your credit rating for up to 7 years in Ontario (this varies by province) for a first time bankrupt. Normally we find that the average of 2 years after bankruptcy is when you can expect to be considered for credit again. These are the decisions of the creditors and will also depend on your income and the stability of your employment. However, most people who need the help of a trustee likely would not be considered for additional credit and could not afford more credit anyway. Thus, when you cannot pay your bills, you can probably forget about your credit rating for the present while remembering you should be eligible for credit in the future.

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