What don't I keep?
In a bankruptcy, assets in excess of your allowed personal exemption, such as, real estate, automobiles and boats that are the property of the bankrupt as at the date of bankruptcy and anything that the bankrupt acquires during the bankruptcy vests in the trustee for the benefit of the creditors of the bankrupt. This would include inheritances received or to which the bankrupt might become entitled, by the death of someone during the time of the bankruptcy. It also includes such things as lottery winnings and anything that the bankrupt might accumulate, such as assets bought with any surplus income.
Tax refunds outstanding, as at the date of the bankruptcy, also vest in the trustee for the benefit of the creditors. Income Tax law requires a bankrupt to file two tax returns for the year of the bankruptcy. The first (pre bankruptcy tax return) covers the period January 1st through to the date of bankruptcy. The second (post bankruptcy tax return) covers the period starting with the date of the bankruptcy and ending December 31st. Pre bankruptcy tax rebates vest in the trustee for the benefit of the creditors.
You will be asked to volunteer any refunds, receivable from your post bankruptcy return, to the trustee for distribution to the creditors. While you are not legally obliged to give up these funds, the trustee or creditors may apply for a Court Order in this respect or it may be reported to the Court at the time of your discharge.
What if I have the cash flow to make a proposal?
If a person has the ability to make a proposal (i.e. his or her income exceeds living expenses), then he or she should consider making a proposal.
If any person files for bankruptcy when he or she has the ability to make a proposal, it is the Trustee's duty to oppose the bankrupt's discharge.In this case, the bankrupt may be in bankruptcy up to an additional 12 months beyond the usual 9 months.The bankrupt will be required to make payments in each of these months.
What is counselling and do I have to take it?
You must take counselling in order to be eligible for an "automatic nine month discharge". The counselling can be one-on-one, with yourself and your trustee, or if you prefer, it can be in a group consisting of other bankrupts and your trustee. The first counselling session must be held between 10 and 60 days following bankruptcy; the second counselling session must be held no later than 210 days following the date of bankruptcy. The cost for this is $85, plus GST, for each individual counselling session.
What happens during the bankruptcy?
The bankrupt must keep the trustee informed as to where the bankrupt is living and also must respond to the trustee's requests and assist him as required and provide whatever information is requested. The bankrupt must also provide the trustee with reports as to earnings and living expenses and any change in the bankrupt's family situation. The trustee will provide the bankrupt with appropriate forms to be filled in that will provide the trustee with the necessary information.A meeting of creditors is not required unless requested by the Superintendent of Bankruptcy or creditors with an aggregate of at least 25% of the proven claims.These meetings are usually held at the office of the trustee.
What about alimony and maintenance?
Alimony or maintenance payments are not affected by bankruptcy. These payments must be kept up to date. A bankruptcy does not stop any actions for collection. Alimony and maintenance are provable claims and will be paid as a preferred claim for amounts incurred in the year before bankruptcy.
What about student loans?
If the date of bankruptcy is more than ten years after the finish of studies, the debt will be wiped out upon the bankrupt's discharge.
A discharge from bankruptcy does not release a student loan if the bankruptcy occurs within ten years after finishing studies.A Court can order the discharge from a student loan at any time after ten years of ceasing to be a student, and after being discharged from bankruptcy, if the person has acted in good faith and the person will continue to experience financial difficulty in paying the student loan.
What about Canada Revenue Agency (CRA) debt?
CRA's position is that they, after taking appropriate steps, can register as a secured creditor against real property (real estate) or personal property (furniture or a vehicle, etc.) of a debtor.
What does CRA have to do in order to effect a secured claim?
Ninety days after an assessment, if there is no appeal lodged, CRA can make application to the Federal Court to have a judgement issued.CRA then must register a secured claim under the person's name under the Personal Property Security Registry.CRA, if real property is involved, will also register under Land Titles.
What do you do if you think that CRA is going to register a secured position against you?
If the debt is large enough, you should see an insolvency lawyer or a Trustee immediately.A search of the Personal Property Security Registry or land titles will reveal whether CRA has filed a secured claim against you.You may want to consider filing for bankruptcy or consider filing a proposal under the Bankruptcy and Insolvency Act
N.B. CRA has advised that:
(a) they will honour provincial exemptions;
(b) they started registering their security position on or about May 1, 1999.
What debts are not erased in a bankruptcy?
Certain kinds of debt are not erased by the bankrupt's discharge. They are:
- Fines imposed by a Court;
- Money owing for things stolen;
- Things obtained by misrepresentation;
- Alimony or maintenance payments.
- Award of damages by a court for intentionally inflicting bodily harm or sexual assault.
- Student loans if bankruptcy is filed prior to or within ten years after the finish of studies.
