What Is Personal Bankruptcy?
Personal bankruptcy is a term used to describe the legal process in Canada in which an individual overwhelmed by debt can assign his or her assets to a Licensed Insolvency Trustee, like J. Bottom & Associates Ltd., and in exchange is granted relief from current debts. The process is governed by federal law as well as by provincial rules for British Columbia. Creditors in the process are treated equally and fairly, and the debtor is able to get a fresh start financially.
Are there ways to tell if I am in financial trouble in British Columbia?
Poor money management isn’t always the cause of financial problems. Sometimes situations beyond our control happens, such as job loss, divorce, a death of a spouse, health problems, or a change in household income can lead to financial problems.
Watch out for these common financial warning signs:
- Your credit cards are always “maxed out”
- You’re using advances from one credit card to make bill payments
- You’ve missed one or more loan payments
- You’ve missed a mortgage payment
- Collection agents are calling you at home and at work
- Collection agents are threatening you with legal action
Who Can File for Bankruptcy in British Columbia?
There are certain circumstances that must be met for you to file for personal bankruptcy in New Westminster, BC. The law requires that only those individuals who live or do business in Canada and who are insolvent can file bankruptcy. To qualify as insolvent, you must:
- Owe at least $1,000
- Be unable to pay your bills as they are due to creditors, and/or
- Have stopped paying your current debts as they are due, and/or
- Have incurred more debts that your realizable value of assets
What happens when I go bankrupt in British Columbia?
Once you have decided to file for bankruptcy, you must do it through a qualified and licensed British Columbia bankruptcy trustee. It is important to provide the trustee with the needed information to start the bankruptcy. The trustee will prepare the necessary government forms for you and explain what happens when you go bankrupt in British Columbia.
Once all the paperwork has been signed, the trustee will file the documents with the Office of the Superintendent of Bankruptcy—a division of Industry Canada that monitors all bankruptcies in Canada. Within five (5) business days of filing, all of your creditors are notified that you have filed for bankruptcy. They will be directed to the trustee to file their claim for the amount they are owed.
What Happens After I File for Bankruptcy in British Columbia?
After a personal bankruptcy is filed, the law in New Westminster, BC calls for a “stay of proceedings.” This Act will cease any ongoing collection actions and stop additional actions from the beginning. Your wages will no longer be garnished. It is important to note, however, that the “stay of proceedings” only applies to unsecured debts. If there are creditors holding your assets as collateral, such as those companies in control of your home mortgage or car loan, they will still have the right to foreclose on your home or seize the asset if you do not continue to pay your loan. During the “stay of proceedings,” the following will occur:
- Your assets are given to the trustee, except for certain assets that you are allowed to keep
- Your trustee turns those assets into cash value by selling them
- You are required to pay a minimum contribution towards your bankruptcy plus an additional payment, called a surplus income payment, based on your income
- The proceeds from the sale of your assets and your payments are then distributed among your creditors
When Will My Debts Be Extinguished?
Your debts will not be legally extinguished until your discharge from bankruptcy, which usually automatically occurs between 9 and 36 months after you file, depending on a number of factors. The “stay of proceedings” will remain in place until you are officially discharged from bankruptcy or until the Trustee is discharged.
How Long Will I Be Bankrupt for in British Columbia?
- As a first time bankrupt, if you complete all of your duties while bankrupt, and if your trustee or your creditors do not object to your discharge, you are eligible to be discharged from bankruptcy after only nine (9) months (subject to an extension of a further twelve months “surplus income” exists.
- If you have been bankrupt in the past, you are not eligible for an automatic discharge in nine (9) months. Your bankruptcy will be extended for a period of time with a minimum being twenty-four (24) months.
Will There Be Some Debts that I Still Owe After Filing Personal Bankruptcy?
For the most part, filing for personal bankruptcy in New Westminster, BC will allow you a fresh start free from all your debts. However, there are a few items that bankruptcy will not extinguish including:
- Child support payments
- Spousal maintenance
- Debts that you obtained through fraudulent means or misrepresentations
- Fines or penalties that have been imposed by the court
- Student loans in which schooling was completed less than 7 years prior to filing bankruptcy
- Non-declared debts that would defraud creditors
What Assets Am I Able to Keep After a Bankruptcy?
You may be concerned about the number of items you will have to surrender when you file bankruptcy, but the law allows you to keep a few of your assets, labeling them as exempt. These assets are exempt when you file personal bankruptcy in New Westminster, BC:
- $12,000 of the equity in your home, provided that you live the in Greater Vancouver Regional District or Victoria
- $9,000 of the equity in your home if you reside in any other area of the province
- $4,000 worth of household items
- $5,000 of the equity in your vehicle (except in cases where you are behind on child care payments, in which case this amount is lowered to $2,000 to allow Maintenance Orders to be enforced)
- $10,000 worth of tools of the trade (or tools used for your job)
- Any necessary clothing
- Required medical aids (for yourself of any dependents)
As your Trustee, we will be free to sell the remainder of your assets in order to pay your creditors. This includes such assets as:
- RRSPs that have not been locked-in
- Recreational equipment, and
- Any other of your assets which may have market value.
In addition, any outstanding tax refunds that have not yet been paid when you declare bankruptcy will be made available to us as your Trustee to pay your creditors.
According to income tax law, as a person who has declared bankruptcy, you will be obliged to file two different tax returns for the year you become bankrupt. As your Trustee, these tax returns will be prepared by us in our offices.
The first, pre-bankruptcy tax return will cover the period from 1 January up until the date of the bankruptcy.
The second, post-bankruptcy tax return will provide information for the period following your declaration of bankruptcy up to 31 December. All tax rebates can be used by us as your Trustee to pay your creditors.
To find out more about your rights and the assets you are entitled to keep when you file for bankruptcy please contact our expert bankruptcy counselors at J. Bottom & Associates.
We have had more than 40 years of experience helping people through the difficult bankruptcy process and our focus is always to act in your best interests so that you can leave your debts behind and work towards creating a more solvent and stable financial future.
Our initial consultation is free of charge and without obligation. So if you would like us to take an objective look at your financial situation and discuss with you ways in which you could resolve your debts, please don’t hesitate to:
Does Filing for Bankruptcy in British Columbia Affect My Spouse?
- In most cases, your debts are your debts, and nobody else’s. Only you are responsible for them. Your husband or wife or common-law spouse is normally not responsible for any of your debts.
- An assumption that your spouse is automatically responsible for your debts generally comes from collection agents, who while collecting debts will tell you that if you don’t pay, they will go after your spouse for payment. This may be a scare tactic; they can pursue only you for your debts. Your bankruptcy does not affect your spouse unless the debts are mutual.
- The only time a bill collector can come after your spouse is if the spouse co-signed or guaranteed your debt. For instance, if you took out a loan, and had your spouse co-sign for it if you do not pay, that bank could pursue your spouse.
- It is very common for a spouse to get a supplementary credit card for their partner. Even if the spouse never signed the credit card application form, if they have a card with their name on it, and if they have used the card, they are responsible for the whole debt.
- It is possible for your spouse to be indirectly affected by your bankruptcy, in the sense that you might not be able to qualify as a co-signor in the future.
- In case of separation, even if your separation agreement says you will each take care of half the debt if one person doesn’t pay his/her half, the creditor could pursue the other person for the total amount. You do not each owe half of the debt. It is a 100% split if either of you does not pay.
- If you feel that your concerns and questions about what happens with the spouse in bankruptcy are not addressed in enough detail and would like more information on the matter, please contact our bankruptcy trustee in British Columbia today and arrange for a free, no-obligation, consultation.
What Are My Duties During Bankruptcy?
Filing for bankruptcy is not simply a free pass to start over, but instead requires certain duties to be carried out by the debtor. These duties are meant to help you better manage your money, so you don’t find yourself in this position again. You must perform the following duties in order for your bankruptcy to be discharged and your debts eliminated:
- Surrender any non-exempt assets and credit cards
- Attend 2 credit counselling classes
- Report your income and specified expenses to the trustee each month so they can calculate your surplus income
- Provide the necessary information to file your tax return
- Make monthly payments toward the cost of administering your estate as well as make payments to creditors if you have surplus income
- Provide the trustee with other financial information as required
How long does bankruptcy stay on my credit report in British Columbia?
How long bankruptcy stays on your credit report in British Columbia will depend on the credit bureau that is reporting. Normally the notice will remain on your credit report for at least six years after your discharge.
There are two large credit bureaus in British Columbia:
Equifax is the largest credit bureau and they keep a record of a bankruptcy on your credit report for six years from the date of discharge. In the case that you go bankrupt a second time, both bankruptcies will stay on your credit report for 14 years. A proposal is removed from your credit report three years after the final payment
Trans Union is the other large credit bureau in British Columbia. The Trans Union website indicates that bankruptcies remain on your credit file for six to seven years from the date of discharge or fourteen years from the filing date. The length of time will depend on provincial legislation, which in British Columbia will typically mean six years.
Bankruptcy does not mean you will be unable to borrow for six or seven years:
If you are gainfully employed and in some circumstance have a security deposit or down payment, your credit could be repaired even faster. Saving money can change how long bankruptcy stays on your credit report in British Columbia. Many people are able to buy a house or car in less than seven years following their bankruptcy.
How can I rebuild my credit after my bankruptcy in British Columbia is done?
Several factors will determine how quickly you rebuild credit after your bankruptcy in British Columbia is done and, in turn, your ability to borrow money.
First, if you are currently an undischarged bankrupt, it will be nearly impossible to get a loan. However, if you have been discharged from bankruptcy, a lender may consider your application. It will be more difficult to borrow in this case than if you were never bankrupt. Lenders will also look at how long you have lived at your current address, your work history, your monthly income, and whether you have any security for the loan. They may require a co-signor.
Here are several suggestions for repairing your credit after bankruptcy:
- First, begin to save money. During the time you were bankrupt you were making a contribution to your bankruptcy estate, by paying the trustee each month. Since you are now accustomed to living without that money, start putting that money in separate bank savings account each month.
- Next, once you have built up some cash in the bank for emergencies, you could consider using some of your savings to get a secured credit card. For example, if you give the credit card company $1,000 as a security deposit, they will probably give you a Visa card with a $1,000 limit. Your credit card works just like a regular credit card, and it even shows up on your credit report. This is a crucial step to repairing your credit.
- Third, as you continue to save money each month, (and pay off your new credit card in full every month), you could invest your next say $700 of savings in an RRSP. With a secured credit card and money already invested in an RRSP, it is possible that your bank will lend you an additional $500 to invest in your RRSP. You now have $1,200 in your RRSP, and your tax refund may increase by $500 because of your RRSP contribution. You can use your tax refund to repay your RRSP loan!
- Now your credit report shows a credit card in good standing, an RRSP loan that you have paid in full, and you have $1,200 in an RRSP. You are well on your way to repairing your credit.
Finally, continue saving, and once you have another $1,000 or $1,500 you can likely use that money as the down payment on a car.
You can’t repair your credit right away, but if you continue to save money, and follow the steps listed above, you can gradually rebuild your credit after your bankruptcy in British Columbia in done.
What Does It Cost to File Personal Bankruptcy in British Columbia?
- You will be required to make a contribution to your bankruptcy estate to cover the government filing fees, mailing costs, court fees, and other administrative costs of a bankruptcy.
- You are required to pay a portion of your “surplus income does as defined by the government, into your estate. If you and your family earn over a certain amount each month, you lose a portion of your earnings over that limit. The trustee can then estimate the amount of “surplus income” payments you will need to make while bankrupt.
- You will lose all of your non-exempt assets (http://www.bankruptcy-british-columbia.com/bColumbia_exemptions.htm)
- You will lose any tax refunds and GST credits you would otherwise receive during the bankruptcy period.
- You will lose any windfalls you receive or become entitled to during the bankruptcy period. For example, if you inherit money while bankrupt, or win the lottery, that money must be surrendered to the trustee.
- The amount you will pay while bankrupt will depend on your monthly take-home pay, your family size, and your assets.
What bankruptcy questions should I ask my British Columbia bankruptcy trustee before filing for bankruptcy?
Most people are a bit embarrassed or anxious when they first meet a trustee, and they often forget what questions they want to ask. Writing the questions down, and bringing them with you and we will ensure that all of your questions are answered.
How do I Get Started With My Personal Bankruptcy?
If you’re feeling overwhelmed or buried under a mountain of debt, you don’t have to face the problem alone. Though filing for personal bankruptcy in New Westminster, BC should be a last resort to your financial problem, it is sometimes the only option, and our team at J. Bottom & Associates Ltd. is here to help. Call us today to learn more about your options.