Many view filing for bankruptcy as a last resort — and it is. Bankruptcy is a pivotal debt relief solution that becomes necessary when you cannot stay on top of your bills due to unemployment, bereavement, and other extreme life events.
Bankruptcy offers debt relief to prevent legal action from being enforced by creditors while ensuring that your obligations are settled at a healthy, manageable pace. Getting out of insolvency through bankruptcy is not merely an easy reset — it requires examining all other alternatives, such as debt consolidation, or a consumer proposal, before making the best decision for your situation. Even then, it’s important to remember that a bankruptcy filing is a legal agreement: you will have ongoing obligations to meet to restore your financial health.
What to Do When Filing for Bankruptcy
Are you on the verge of bankruptcy and considering filing? Here is everything you need to know before filing for bankruptcy in Toronto:
1. You Need to Consult a Licensed Insolvency Trustee
When you fall behind on regular payments, creditors may already think that your financial situation has shifted drastically. However, until you formally declare bankruptcy, you will continue to owe these amounts and remain liable for legal action and enforcement.
To initiate a bankruptcy filing in Ontario, you first need to consult with a Licensed Insolvency Trustee. They are federally regulated professionals tasked with insolvency procedures charged with examining consumers’ financial situations, debt, and potential courses of action. A trustee will review your financial situation with you, discuss your options for debt relief, and walk through the process of declaring bankruptcy.
During your meeting, you will need a list of your debts and obligations, including their respective amounts and creditors. Also, present your, current income, and expenses to provide a clear picture of your financial situation and establish why bankruptcy or an alternative debt relief solution is necessary.
2. Only a Licensed Insolvency Trustee Can File a Bankruptcy
A free consultation or meeting with a trustee can help you learn everything you need to do or prepare for a bankruptcy filing. More importantly, you cannot file one on your own — only a Licensed Insolvency Trustee can administer a bankruptcy filing in Ontario. Make sure to contact your trustee following the meeting and pay any required deposit before moving forward.
3. You Need to Prepare Bankruptcy Documents
You will work with your trustee to prepare necessary documents that describe your financial situation and justify a bankruptcy filing. Make sure to be honest and accurate to be discharged from your debt.
- Personal information such as your name, address, date of birth.
- Assessment Certificate: this document certifies that you have met with a Licensed Insolvency Trustee, have been made aware of all of your debt relief options, and choose to move forward with a bankruptcy filing.
- Monthly Income and Expense Statement: Form 65, which details your monthly budget for living expenses.
- Statement of Affairs: known as Form 79, this lists all of your current assets (i.e. bank accounts, insurance policies, vehicles, and other property) and liabilities with corresponding amounts owing and respective creditors.
- Assignment for the General Benefit of Creditors: the official declaration for declaring bankruptcy in Ontario, which assigns your non-exempt property to the Trustee.
4. Your Trustee Will Communicate With Creditors and Collections Stop
Your Trustee is the only person legally allowed to file bankruptcy paperwork on your behalf through a centralized electronic filing system in Canada. Once your documents are submitted, your Trustee will receive a Certificate of Appointment, which officially marks the beginning of the bankruptcy period. Following this, your creditors will be notified and instructed to communicate with the Trustee.
The Certificate of Appointment also enacts the Stay of Proceedings — this prohibits creditors from engaging in any debt collection, including charging interest, sending collection agents, garnishing wages, and enforcing any legal action to collect the amount owing.
5. Filing for Bankruptcy Does Not Cancel Your Debts
A bankruptcy declaration is not a “get out of jail free card.” Bankruptcy prevents legal action and allows you to follow a set of procedures that allow you to be discharged and move forward debt free.
When you file for bankruptcy, you will be subject to ongoing obligations. These include dealing with your non-exempt assets by the Trustee, with any resulting funds added to the bankruptcy estate. The amount will be distributed to your creditors in full or partial payment of your debt.
An essential step is surrendering your credit cards to the Trustee for cancellation. You will also need to demonstrate healthy financial habits moving forward; this starts with credit counselling sessions where you will learn strategies for managing your finances and avoiding debt in the future.
6. You Need to Make Bankruptcy Payments
The trustee has a cost to administrate your bankruptcy. This amount will be outlined before you file and your amount owing will be paid through monthly payments.There may also be payments determined based on your income which the trustee will also review prior to your filing
These surplus income payments are calculated based on your monthly income and expense statements, which account for your household’s living expenses. For the entire duration of your bankruptcy period, your Trustee will manage all of your contributions to the bankruptcy estate and administer these funds for distribution to your creditors.
Your Trustee will also file your annual tax return. They will file a pre-bankruptcy return for the current year up until the period of bankruptcy declaration, and then a post-bankruptcy return for the remainder of the period. .
7. You Will Be Discharged From Bankruptcy Upon Completion of Your Duties
It may provide you with some relief to know that you won’t remain bankrupt forever. You will be discharged from bankruptcy and released from debts; essentially, you will be able to start fresh.
Note, however, that you can only be discharged from bankruptcy once you have fulfilled your obligations, such that neither your creditors nor the Trustee object. You may qualify for an automatic discharge after nine months if it is your first time declaring bankruptcy and you do not have any surplus income. For second filings, eligibility for automatic release begins after 24 months.
If you are not eligible, the Trustee will have to petition the courts to discharge you, wherein you will undergo a hearing to present the facts of your bankruptcy case. Afterwards, you may be discharged or required to take additional steps as determined by the court before you can apply to the Registrar in Bankruptcy.
8. There Are Alternative Options if You Cannot Fulfill Bankruptcy Obligations
The fact is, you cannot be discharged from bankruptcy unless your obligations are fulfilled, and you have fulfilled your bankruptcy duties. However, if your financial situation continues to deteriorate even after your filing, you can work with your Trustee to make arrangements to complete your bankruptcy duties.
This can be helpful if your income changes such that you cannot afford the monthly surplus income payments to settle your obligations. A Trustee may be able to negotiate an extension of your bankruptcy terms to ensure fulfillment and eventual discharge.
For more information about filing for bankruptcy in Toronto, call Kevin Thatcher & Associates at 1-866-702-9801, or contact us here.