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Bankrupt

This is the legal status of a person who declares bankruptcy.

Bankruptcy and Insolvency Act (the Act)

This is the federal law which regulates business and consumer proposals and bankruptcies in Canada. It falls under the responsibility of the Office of the Superintendent of Bankruptcy at Industry Canada.

Co-signers

Your bankruptcy does not cancel the responsibility of anyone who has guaranteed or co-signed a loan on your behalf. For example, if your parent co-signed a loan for you, that parent would be liable to pay the loan in full even if you decide to file for bankruptcy.

Bankruptcy Court

This is a court in which a judge or registrar will decide on the bankrupt’s application for discharge and other insolvency matters.

Counseling

Counseling is a process in which we will help you to evaluate your income and expenses with a view to ensuring that you are making the best use of your money. We will point out the pitfalls of various types of borrowing and suggest cost-cutting ideas. We will also provide you with some sound ideas for rebuilding your credit rating.

Creditors

A creditor is a person, institution or business to whom money is owed. Secured creditors are creditors who have taken some measure to protect themselves and hold a mortgage, pledge, lien or similar instrument on, or against, the property of the debtor. If they are not paid, they can enforce their claims by recovering the assets on which they hold the security.

Unsecured creditors are creditors who do not have any security for the debt owing to them.

Creditors’ Meeting

A creditors’ meeting is a process where creditors are given an opportunity to meet with a debtor and the Trustee in order for them to ask questions. It is a formal legal process but is rarely used in the vast majority of bankruptcy and proposal filings.

If you are asked to attend a creditors’ meeting, you are required to attend. You will generally be asked questions relating to:

  • Your assets
  • Your Debts
  • Your family income
  • Assets you may have previously owned
  • Recent disposition of assets
  • Your future prospects
  • Your business, if you were or are self-employed

The meeting is designed to provide an opportunity for a creditor to gather information.

It is not the opportunity for a creditor to harass a bankrupt.

Credit Rating

Your bankruptcy is a matter of public record and is available to any interested party (such as a credit reporting agency). To obtain credit after your discharge you may have to demonstrate to the potential lender that you have sufficient income and the ability to handle a reasonable level of debt.

Debtor

A debtor is a person who receives a loan or an advance of goods and services in exchange for a promise to pay at a later date.

Examination Under Oath

An examination is a very rarely used formal process whereby the Official Receiver poses a series of questions to a bankrupt. The need for an examination is decided by the official receiver and is often random. It is far more likely in cases of repeat bankruptcy, where creditors are alleging dishonesty or if a bankrupt’s debt load is unusually high.

The process is designed to maintain the integrity of the bankruptcy system. Information gathered from the examination will be made available to the Trustee and the Court and is considered by the Court if dishonesty is established. See also “What does an examination with the ‘Official

Guidelines

The Superintendent of Bankruptcy provides a guideline as to what income a person or family requires in order to cover their basic spending requirements such as food, clothing, shelter and transportation costs. The guideline is adjusted annually. The 2016 figures are as follows:

Number of people in the Household Guideline
1 $2,089.00
2 $2,601.00
3 $3,197.00
4 $3,882.00
5 $4,403.00
6 $4,965.00
7 or more $5,528.00

The income of all members of the family is considered. Extraordinary expenses would be added to those figures for expenses such as Child Support/Alimony, Child Care or expenses for a Medical Condition (net of any reimbursements).

If your income is below these guidelines it is generally believed that bankruptcy would be your best option, except in situations of low expenses or perhaps if your debt load is low.

Payments to creditors in a bankruptcy are calculated utilizing these guidelines. Any income you have above the guidelines is called “surplus” and half of this amount must be provided to the Trustee each month during your bankruptcy. The amount is pro-rated for each person in the household who contributes to the total income.

Large amounts of surplus extend the duration of a bankruptcy by 12 months.

The amount which represents one half of the surplus will be the starting point to consider if a proposal to creditors is viable. This amount over a period of 36 – 60 months will often form the basis for a proposal. If this amount represents an adequate percentage of the number of your unsecured debts, a proposal will likely be your best option.

Harassment

One of the objectives of the Act is to relieve you of pressure from your creditors. If you receive phone calls or letters from creditors, tell them that you are bankrupt, or have made a proposal, and refer them to your trustee or administrator.

Income Tax Returns

Two income tax returns must be completed for the calendar year in which you become bankrupt. The pre-bankruptcy return covers the period from the beginning of the year to the date of your bankruptcy. You will be required to provide details and documentation to support this return to your trustee. The post-bankruptcy return covers the period from the date of bankruptcy to the end of the calendar year.

Inspector

Inspectors are appointed by creditors to represent them before the trustee during the administration of proposals and bankruptcies. They are expected to assist the trustee by virtue of their experience and are required to supervise certain aspects of the trustee’s administration.

Legal Action

Although legal actions or most garnishments against you stop on the date you declare bankruptcy or file a proposal, criminal actions and some civil matters, such as actions in matrimonial matters, are not affected by the bankruptcy or proposal. In a proposal, no creditor can, without permission of the court, start or continue any legal action until the proposal is either withdrawn, refused, annulled or until the administrator has been discharged. In the case of a bankruptcy, no creditor may, without permission of the court, start or continue any legal action until the trustee has been discharged.

Statement of Affairs

A “Statement of Affairs” is a document required in Bankruptcies and Proposals which discloses the following details to the creditors and other relevant parties:

  • A complete list of a debtor’s assets, their declared values and whether they are secured by a creditor.
  • A complete list of creditors including names, addresses, and amounts owed along with details of whether they are secured, unsecured or preferred creditors.
  • Personal details about the debtor such as his employment details, marital status, number of dependants, etc.
  • The debtor’s responses to specific questions dealing with recent relevant sales of assets, seizures, etc.

This is a document which must be sworn under oath to be true and correct.

Insolvent Person

A person who is unable to meet financial obligations as they become due is insolvent.

Superintendent of Bankruptcy

The Superintendent of Bankruptcy is a federally appointed official who oversees the administration of the Bankruptcy and Insolvency Act in Canada.

Licensed Insolvency Trustee

A Licensed Insolvency Trustee is a person licensed by the Superintendent of Bankruptcy to administer proposals and bankruptcies. The trustee represents your creditors and is an officer of the court. However, the trustee can give you information and advice about both the proposal and bankruptcy processes and make sure that your rights, as well as those of the creditors, are respected.

Payments

Immediately after becoming bankrupt, you should no longer be required to make payments to your creditors. However, while you are an undischarged bankrupt, you are expected to deposit a portion of your income with your trustee for distribution to your creditors. These payments are made according to guidelines issued by the Superintendent of Bankruptcy. If you fail to make these payments voluntarily, the court may order you to do so, or your discharge may be affected.

Official Receiver

The Official Receiver is a federal government employee in the Office of the Superintendent of Bankruptcy and an officer of the court with specific duties under the Bankruptcy and Insolvency Act. The Official Receiver, among other things, accepts the documents that are filed in proposals and bankruptcies, examines bankrupts under oath and chairs meetings of creditors.

Tax Debtor

An individual is considered to be a tax debtor if they owe over $200,000 of income tax debt representing at least 75% of total unsecured debts.

The calculation of income tax debt includes penalties and interest owing but does not include any liability assessed for unpaid corporate obligations to a person who acted as a director of a company.

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