If you have debt hanging over you, it’s always on your mind and it may seem impossible to find a solution (aside from hoping for a lotto win!). The good news is that help is available, and it doesn’t require any lucky numbers.
Personal bankruptcy is one available solution, and sometimes it’s the best way forward, though it may be a scary prospect. Contrary to popular belief a bankruptcy does not mean financial ruin forever – it can be the key to a fresh start and a more hopeful financial future.
While it is a serious decision to make, it doesn’t have to be a negative experience. We will work with you to file the bankruptcy, complete your bankruptcy ‘duties’ (things that you must do while in bankruptcy), and obtain your discharge from the bankruptcy.
A bankruptcy is a ‘fluid’ type of proceeding, and can change if your situation changes. One of your duties is to report your income to the trustee each month, and if your average income goes down you may end up paying less than estimated and, conversely, if your income goes up you may be required to pay more.
There are four important factors to understand in a bankruptcy proceeding, and these will determine how a bankruptcy would operate for you.
Surplus income in bankruptcy refers to the portion of your income that exceeds a certain threshold set by the Office of the Superintendent of Bankruptcy. These amounts are referred to as the Superintendent’s Standard, or just the Standard. When you file for bankruptcy, you are required to disclose your income and expenses to the trustee.
The Standard sets out different amounts for different household sizes. If you’re the only income earner in your household, then 50% of the amount that you earn over the Standard is your Surplus Income Payment Obligation. If there is more than one income earner, then there are additional calculations based on what portion of the household income is yours.
Some expenses (most commonly medical costs, childcare, and child/spousal support payments) are subtracted from your income before the calculations are done.
The purpose of the surplus income calculations is to determine your ability to contribute towards your debts during the bankruptcy period.
We can estimate this at the start of the bankruptcy, but as mentioned above, if your actual income goes up or down these payments may change.
Whether assets are protected in bankruptcy or not is determined by provincial legislation – in BC it is governed by the Court Order Enforcement Act. There are various factors that determine whether your assets are ‘realizable’ (whether there is equity in the asset for your creditors). We’ll use a vehicle as an example. In BC, a vehicle up to the value of $5,000.00 is protected from your creditors. If your vehicle is worth $6,000.00 (and there is no loan against it), you can keep it in bankruptcy by ‘repurchasing’ the extra $1,000.00 – you would pay this (a monthly payment plan can be made) to the trustee to be distributed fairly between your creditors, and the vehicle would remain yours. If there is a Family Maintenance Order against you, the vehicle exemption amount is reduced to $2,000.00.
There are special provisions in the Bankruptcy and Insolvency Act for a ‘tax driven bankruptcy’. This is defined as having income tax debt of more than $200,000.00, which represents 75% or more of your total unsecured debt. If your bankruptcy is likely to fall under this definition we will discuss what effect this has on you.
Aside from reporting your income each month so that the LIT can calculate your surplus income payments (if any), some other duties in bankruptcy are attending two financial counselling sessions, making the payments of fees or surplus income, providing the LIT with information to file your tax returns for the year the bankruptcy starts (as well as any previous unfiled years, if applicable), reporting any change in your household or financial situation, and keeping the LIT up to date with your current contact information.
A bankruptcy is a ‘fluid’ type of proceeding, and can change if your situation changes. One of your duties is to report your income to the trustee each month, and if your average income goes down you may end up paying less than estimated and, conversely, if your income goes up you may be required to pay more.
There are four important factors to understand in a bankruptcy proceeding, and these will determine how a bankruptcy would operate for you.
- Have you ever filed a bankruptcy before?
A first bankruptcy is either 9 or 21 months depending on your income, a second bankruptcy is either 24 or 36 months depending on your income, and a third or subsequent bankruptcy is determined by Court Order, but is usually a minimum of 36 months. - Do you have surplus income?
Surplus income in bankruptcy refers to the portion of your income that exceeds a certain threshold set by the Office of the Superintendent of Bankruptcy. These amounts are referred to as the Superintendent’s Standard, or just the Standard. When you file for bankruptcy, you are required to disclose your income and expenses to the trustee.
The Standard sets out different amounts for different household sizes. If you’re the only income earner in your household, then 50% of the amount that you earn over the Standard is your Surplus Income Payment Obligation. If there is more than one income earner, then there are additional calculations based on what portion of the household income is yours.
Some expenses (most commonly medical costs, childcare, and child/spousal support payments) are subtracted from your income before the calculations are done.
The purpose of the surplus income calculations is to determine your ability to contribute towards your debts during the bankruptcy period.
We can estimate this at the start of the bankruptcy, but as mentioned above, if your actual income goes up or down these payments may change. - Do you have unprotected assets?
Whether assets are protected in bankruptcy or not is determined by provincial legislation – in BC it is governed by the Court Order Enforcement Act. There are various factors that determine whether your assets are ‘realizable’ (whether there is equity in the asset for your creditors). We’ll use a vehicle as an example. In BC, a vehicle up to the value of $5,000.00 is protected from your creditors. If your vehicle is worth $6,000.00 (and there is no loan against it), you can keep it in bankruptcy by ‘repurchasing’ the extra $1,000.00 – you would pay this (a monthly payment plan can be made) to the trustee to be distributed fairly between your creditors, and the vehicle would remain yours. If there is a Family Maintenance Order against you, the vehicle exemption amount is reduced to $2,000.00. - Do you have high income tax debts?
There are special provisions in the Bankruptcy and Insolvency Act for a ‘tax driven bankruptcy’. This is defined as having income tax debt of more than $200,000.00, which represents 75% or more of your total unsecured debt. If your bankruptcy is likely to fall under this definition we will discuss what effect this has on you.
Aside from reporting your income each month so that the LIT can calculate your surplus income payments (if any), some other duties in bankruptcy are attending two financial counselling sessions, making the payments of fees or surplus income, providing the LIT with information to file your tax returns for the year the bankruptcy starts (as well as any previous unfiled years, if applicable), reporting any change in your household or financial situation, and keeping the LIT up to date with your current contact information.
When considering if bankruptcy is the right choice for you, you may want to compare it with a consumer proposal. Neither is the ‘better’ choice, but one may be the best choice for you and your situation. Some key differences include:
- A bankruptcy is almost always completed sooner
- A bankruptcy will almost always cost less
- If your income decreases, your bankruptcy may be shorter than anticipated and your payments may be less
- Your creditors do not get to vote on whether to allow you to file bankruptcy, but can oppose your discharge
- If you receive a tax refund for any of the tax years the LIT files it will come into the bankruptcy to be distributed to your creditors (this is not the case in a proposal)
- If you receive an inheritance while in bankruptcy, or any other financial windfall like a lotto win, it will come into the bankruptcy to be distributed to your creditors
Both a bankruptcy and a consumer proposal put a ‘stay of proceedings’ in place against unsecured creditors – any legal action like wage garnishment will stop (except for Family Maintenance amounts – if this applies to you we will discuss the impact during your initial consultation). Both options will give you the financial fresh start you’re looking for.
If you have any questions about personal bankruptcy, don’t hesitate to contact us and book a free consultation, either in person, by phone, or by video.
Our Easy Steps to File Your Personal Bankruptcy
If, after your consultation with us, you decide that a bankruptcy is the right solution for you, the process will be:
01: Fill out the application form that we will send you – please ask if you’re unsure about any of the questions.
02: Gather the supporting documents that we ask for – these will be items like ID, recent tax returns, vehicle registration, income proof, and statements from your creditors. It is our job to verify the information on your application form.
03: We’ll discuss with you how the bankruptcy will proceed – what length it will be and how much you’ll need to pay based on your current income, whether any of your assets are realizable (you’ll have to make additional payments to keep them, or choose to let us sell them), and any other important items that may impact your bankruptcy process.
04: Once we have all the information we need, we’ll prepare the legal documents that you’ll need to sign and book an appointment for you to sign them. This can be in person or by video.
05: We’ll file the documents with the Office of the Superintendent of Bankruptcy and send notice to all your creditors.
06: You’ll complete your duties – mainly reporting your income and expenses each month using the form we’ll give you, making your payments, attending your counselling sessions, and providing us with your tax information so that we can file your taxes for the year the bankruptcy starts.
07: We’ll review your file regularly and let you know if anything is missing – please keep us up to date with your contact information and check your emails!
08: Sometimes, when someone’s income increases or decreases while in bankruptcy, their bankruptcy period might extend or be made shorter – if there are any changes to your bankruptcy length we’ll let you know.
09: We’ll do a final file review close to the end of the bankruptcy period, and follow up on any missing items. It is very important that you provide these items, if any, or you may not receive your discharge from bankruptcy.
10: If everything is up to date and completed, and no creditors oppose your discharge, we’ll recommend that you be discharged from the bankruptcy. Read more here about different types of discharges and other bankruptcy scenarios.
11: You’ll receive a Certificate of Discharge. Congratulations!
01:
Fill out the application form that we will send you – please ask if you’re unsure about any of the questions.
02:
Gather the supporting documents that we ask for – these will be items like ID, recent tax returns, vehicle registration, income proof, and statements from your creditors. It is our job to verify the information on your application form.
03:
We’ll discuss with you how the bankruptcy will proceed – what length it will be and how much you’ll need to pay based on your current income, whether any of your assets are realizable (you’ll have to make additional payments to keep them, or choose to let us sell them), and any other important items that may impact your bankruptcy process.
04:
Once we have all the information we need, we’ll prepare the legal documents that you’ll need to sign and book an appointment for you to sign them. This can be in person or by video.
05:
We’ll file the documents with the Office of the Superintendent of Bankruptcy and send notice to all your creditors.
06:
You’ll complete your duties – mainly reporting your income and expenses each month using the form we’ll give you, making your payments, attending your counselling sessions, and providing us with your tax information so that we can file your taxes for the year the bankruptcy starts.
07:
We’ll review your file regularly and let you know if anything is missing – please keep us up to date with your contact information and check your emails!
08:
Sometimes, when someone’s income increases or decreases while in bankruptcy, their bankruptcy period might extend or be made shorter – if there are any changes to your bankruptcy length we’ll let you know.
09:
We’ll do a final file review close to the end of the bankruptcy period, and follow up on any missing items. It is very important that you provide these items, if any, or you may not receive your discharge from bankruptcy.
10:
If everything is up to date and completed, and no creditors oppose your discharge, we’ll recommend that you be discharged from the bankruptcy. Read more here about different types of discharges and other bankruptcy scenarios.
11:
You’ll receive a Certificate of Discharge. Congratulations!
Contact us to discuss what a bankruptcy would look like for you. We ensure that you are knowledgeable, comfortable and ready to proceed – there will be no high pressure sales tactics, just information and support.
