What is bankruptcy?
Bankruptcy is a legal process administered by federally Licensed Insolvency Trustees. A primary purpose of bankruptcy is to provide Canadians, who are unable to pay their debts, a fresh financial start.
Who can administer a bankruptcy?
Only a Licensed Insolvency Trustee, appointed by the federal government, can administer a bankruptcy. Baker Tilly Ottawa Ltd. is a Licensed Insolvency Trustee.
How long does bankruptcy last?
Subject to the amount of income earned, and completing their duties, first-time bankrupts are bankrupt either 9 or 21 months, while second-time bankrupts must be bankrupt either 24 or 36 months. Third or fourth-time bankrupts remain in bankruptcy until the court discharges them, typically, at least as long as second-time bankrupts, 24 or 36 months.
How much does bankruptcy cost?
The cost of bankruptcy is the greater of two amounts: a) the Licensed Insolvency Trustee’s minimum fee, and b) the sum of the statutory amount payable from income earned during the bankruptcy, plus the equity in assets that the bankrupt retains.
Will it impact my credit report and score?
The bankruptcy will appear on your credit report and reduce your credit score. Credit scores are primarily determined by current and more recent events that are reported on your credit report. Therefore, post-discharge, as time passes, the bankruptcy will have a less negative impact on your credit score. For first-time bankrupts, the bankruptcy will be struck from your credit report six years post-discharge; for second, third, and fourth-time bankrupts, 14 years post-discharge.
You may obtain credit post-discharge and, over time, improve your score by being patient and by promptly paying all financial obligations.
Secured credit cards will also benefit you as well as a family member agreeing to act as a co-signer for a modest amount of post-bankruptcy debt. Mortgage financing is often available to discharged bankrupts within a year or two of discharge provided the lender’s other terms can be fulfilled.
Are some assets exempt from bankruptcy?
Yes, many assets are exempt from the law that requires the Licensed Insolvency Trustee to otherwise take possession of them. Exempt assets include: household furnishings and appliances to a value of $14,405; RRSPs, RDSPs and RIFs, with the exception of contributions made in the 12 months preceding bankruptcy; locked in retirement accounts; registered pension plans; term life policies; certain whole life and universal life policies; assets required to earn a living to a maximum value of $14,405; equity in a vehicle to a value of $7,117; and, equity in your principal residence if less than $10,783.
Can I keep my home and car in bankruptcy?
In order to improve their budgets, and to get on a more solid financial footing, many individuals relinquish possession of over-financed houses and cars. The assets are sold by the mortgage holder and the loss is included in the bankruptcy. Others wish to keep their homes and vehicles. This is certainly possible when there is little if any equity in the home or vehicle, the bankrupt is current with their payments and they can afford to keep making the payments. If there is equity in a home or vehicle in excess of the asset exemptions, it may be retained provided you can afford to pay the equity to the Licensed Insolvency Trustee over the term of the bankruptcy.
Will my spouse or partner be impacted by my bankruptcy?
Your spouse or partner will be impacted by your bankruptcy if he or she guaranteed or co-signed your debts. If they did guarantee or co-sign any of your debts they will be held responsible for them, despite your bankruptcy. If you are both unable to pay your respective debts, you may, in most cases, file a joint bankruptcy.
Keep Your Home and Vehicle When You Declare Bankruptcy?
While some individuals don’t want to retain their home or vehicle and are looking for a completely fresh start, others won’t file for bankruptcy if their house and car are at risk of being lost. These are very important questions that we will thoroughly discuss with you.
If you don’t wish to keep your home or vehicle because it is worth less than the amount owed on the mortgage, or you can’t afford it, we will carefully explain to you what to do to ensure the asset is returned to the mortgage holder. We may also take possession of the asset and subsequently release it to the secured creditor. Upon re-possession of the vehicle or home, it will be sold. Any loss incurred will be a claim in your bankruptcy.
- Lenders will typically permit bankrupts to keep a vehicle if the bankrupt is current in his or her payments.
- If the secured vehicle loan value is less than the value of the vehicle such that there is equity in the vehicle, the Licensed Insolvency Trustee (“LIT”) will permit the bankrupt to keep the vehicle provided the equity is equal to or less than the statutory vehicle exemption of $7,117.
- If there is equity in a vehicle in excess of the statutory vehicle exemption of $7,117, this excess amount will have to be paid to the LIT as a condition of keeping the vehicle. If arrangements cannot be made, or are not possible, the LIT must take possession of the vehicle and sell it. Upon the sale, the LIT must remit the exemption amount of $7,117 to the bankrupt.
How Much Does Bankruptcy Cost?
Living in Ottawa, you might be worried about declaring bankruptcy. After all, aren’t you declaring you have no money? Will you be able to afford it?
Don’t worry! We will develop a budget with you that will permit you to pay your ongoing essential monthly expenses and the required monthly payment to us, as Licensed Insolvency Trustee (LIT). How much will the monthly payment be? How much will the bankruptcy cost? The cost of bankruptcy, as determined by the federal Bankruptcy and Insolvency Act (BIA), is the greater of two amounts that we will calculate and discuss with you.
The first amount is the minimum amount we require to administer your bankruptcy. The sum required to pay the various taxes we must remit on your behalf, and the compensation we require to properly complete the many duties and tasks we are required to perform. That said, a typical minimum fee to administer a straightforward bankruptcy of a first-time bankrupt is approximately $2,700, paid at a rate of $300 a month for nine months. Of note, of the $2,700, we must pay over $500 in taxes to the federal government.
The second amount is the sum of the following: A) the statutorily required monthly amount you must pay to us, as an LIT, from your income during the bankruptcy; and B) the equity in non-exempt assets you wish to retain possession of.
Statutorily required payments calculated by reference to your post-bankruptcy income are referred to as Surplus Income payments. The amount of these payments, and the length of time you must make them, are determined by many factors, including; whether you have been bankrupt before, your income, the income of other members of your family unit and permitted deductions from income (statutory deductions, employer-imposed deductions, business expenses of self-employed bankrupts as permitted by the Income Tax Act, child support, spousal support, child care, certain medical expenses and various other prescribed expenses that are not commonly claimed).
Exempt assets include most individuals’ personal and household belongings, equity in a vehicle to $7,117, equity in principle residence if less than $10,783, RRSPs, RDSPs and RIFs with the exception of the prior twelve months’ contributions, and certain life insurance policies.
Non-exempt assets include a non-registered investment, an RESP, a home (if equity is in excess of $10,783), a second vehicle or an RV. It is the equity in these assets that you must pay to the LIT if you wish to retain possession of them. As with the required monthly payments from your income, we will enter into a monthly payment agreement to permit you to keep assets you wish to retain and can afford to buy back.
We rarely, if ever, charge up-front fees. Affordable monthly payments are the norm. We truly want to help you get your finances in order!
As discussed above, determining how much a bankruptcy will cost is a function of many factors. We believe that each individual’s circumstances, goals and aspirations are unique and they must be taken into careful consideration when determining the amount to be paid and the length of time needed to pay it.
If you would like to discuss the estimated cost to file for bankruptcy, please contact our office today to arrange a no-charge initial consultation. During the consultation we will thoroughly review your finances, discuss your options, answer your questions, discuss the estimated cost of filing for bankruptcy, and the length of time you will have to make payments to us, as an LIT.
The best thing to do if you have questions about bankruptcy is to give us a call. These are general bankruptcy FAQ answers, but many more depend on information regarding your individual circumstances. If you would like more information about bankruptcy, please contact us to arrange a no-charge initial consultation.Get Help Now