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Declaring bankruptcy: frequently asked questions

Article updated on 19/08/2019
Before declaring bankruptcy, you’ll want to ask yourself a lot of different questions. This FAQ gives you answers to the most commonly asked questions. You’ll see that bankruptcy isn’t always a bad thing.

Summary

Declaring bankruptcy: frequently asked questions
  • Deep in debt, and scared to go bankrupt? There are alternatives to bankruptcy. Use our tools and resources to assess your situation.
  • Remember that it’s always best to meet with a certified insolvency and debt restructuring professional who has a license issued by Industry Canada, allowing them to act as a Licensed Insolvency Trustee. After studying your file, the trustee will be able to propose the best solution for you.
  • If the best choice is bankruptcy, remember that there are in fact advantages to taking this route. No matter what the solution is, your Licensed Insolvency Trustee will be there to support you throughout the process.

A few handy definitions

When we talk about bankruptcy, there are financial terms that come up. Here are some terms you’ll come across, and their definition.

Assets

Your money and property. Here are the main categories of assets:

  • Cash assets and investments (bank accounts, savings, stocks and bonds, RRSPs, TFSAs, RESPs, etc.)
  • Personal property (home, vehicle, furniture, jewelry, antiques, art work, etc.)
  • Certain contracts (such as life insurance policies)
  • Some of these assets are safe from seizure by creditors.

Credit rating

A grade given to you by a credit bureau (Equifax or TransUnion). This rating is based on various criteria. But basically, the better you are at repayment, the better your rating will be. To find out more about credit ratings, take a look at this article:

Secured and unsecured debt

If you don’t make your payments, a secured debt gives your creditor the right to seize the asset you gave as collateral when you took out a loan to purchase the asset. For example, if you can no longer make your payments for your car loan, the bank that gave you a loan can seize your car.

In contrast, an unsecured debt refers to debt where the lender does not have a claim on an asset in return for the credit granted. For example, credit cards, personal lines of credit, personal loans, etc.

Insolvency

When someone is no longer able to make their payments for bills and debts when they are due. The person is unable to pay off the total sum of their debts in a reasonable number of years.

Surplus income

This is the amount that your household’s income exceeds the standard cost of living set by the government.

Is bankruptcy the only solution when you’re overindebted?

No, there are alternatives to bankruptcy. Here are a few of them:

What are the benefits of declaring bankruptcy?

There are several advantages to filing for bankruptcy:

  • You’ll be debt-free, and able to return to normal life.
  • Bankruptcy instantly puts a stop to harassment from your creditors. You won’t have to talk to them anymore. That’ll be your trustee’s job. No more stress!
  • It protects some of your assets, such as your furniture, RRSPs, pension fund, and work equipment.
  • In some cases, you can keep your home and vehicle. It protects you against lawsuits and wage garnishment.
  • It prevents cuts to services such as your phone, electricity and gas.

Read this article to find out more about how bankruptcy works.

How can my Licensed Insolvency Trustee help if I declare bankruptcy?

Your trustee is your ally. They are there to help, and to take care of all the details so you don’t have to.

  • You won’t have to talk to creditors anymore. Your trustee will be the one in touch with them.
  • As of the first meeting, your trustee will listen to you, assess your situation and propose solutions.
  • Your trustee is present throughout the process to advise you and help you start over.

What this means: You’ll be able to focus on yourself again, and on building a future for you and your loved ones.

What happens if I declare bankruptcy?

The main steps of bankruptcy:

  • Assessment of the situation
  • A solution proposed by your Licensed Insolvency Trustee
  • Signing the papers
  • Filing the bankruptcy
  • Two follow-up meetings
  • Discharge of debts

If you’ve never filed for bankruptcy before, your bankruptcy will last about 9 months, or 21 if your income is above a reasonable standard of living.

For more information, see our section on declaring bankruptcy.

Will all my debts be settled if I declare bankruptcy?

Bankruptcy means you won’t have to repay your debts, with a couple exceptions. For example, you will have to pay back child support or alimony debt, unemployment or social assistance overpayments, fines, fraudulent debts, etc.

To be discharged of all debts, you need to follow all the required steps of the bankruptcy process.

How much does personal bankruptcy cost? Are there fees?

The cost of bankruptcy including the trustee’s fees is set by the government. The cost can vary depending on the following factors: your income, your seizable assets, whether it’s your first bankruptcy claim or not, etc. Your counsellor will let you know how much it will cost during your free consultation.

How long does bankruptcy last?

There are three scenarios:

  • If it’s your first bankruptcy, your debt will be eliminated after 9 months (21 if you have surplus income).
  • If it’s your second bankruptcy, it will last 24 or 36 months.
  • However, if you have already filed for bankruptcy more than twice, or if you have more than $200,000 in tax debt representing more than 75% of the total of your debts, then automatic discharge by a trustee won’t be possible. Your counsellor will have to file a request for discharge with the courts.

How does declaring bankruptcy affect my credit rating?

It can vary from one credit bureau to the next. But in general, your credit rating will be affected:

  • When filing bankruptcy for the first time, for 6 years following discharge.
  • When filing bankruptcy for the second time, for 14 years following discharge.

But don’t worry. You will still be able to start rebuilding your credit well beforehand. You’ll find out how from our experts.

If you’ve opted for a consumer proposal, your credit rating will be affected for 3 years after you finish paying off the amount promised to creditors.

Will I be able to borrow money again after declaring bankruptcy?

Yes, absolutely! Declaring bankruptcy gives you the opportunity to rebuild your credit. This generally takes two to three years. Our counsellors will guide you along the way. Here are a couple tips:

  • Adopt healthy financial habits.
  • Borrow a sum of money and repay it within a short period of time (less than three years). Interesting fact: You can take the money you’ve borrowed and place it in a savings account (e.g. a GIC, RRSP, etc.). In addition to rebuilding your credit and paying back your loan, you’ll have money set aside for future projects.

If you make regular payments, your credit rating will go back up. And if you put in the effort, you might even be able to buy a house!

Will I be able to have a credit card after I go bankrupt?

Yes, after your bankruptcy, you will be able to apply for a new credit card. At first, you will be entitled only to secured credit cards. Your financial institution will ask you to make a deposit that will guarantee the credit limit.

What happens after my bankruptcy?

At the end of the bankruptcy process, you’ll receive a discharge certificate. This document officially confirms that you have been relieved of your debts.

Is bankruptcy the right choice for me?

We’ve placed various tools and resources at your disposal to help you see if bankruptcy is the best solution for you. Take a look!

Create your budget

Get a first diagnosis of your finances.

Debt ratio

Determine your ability to repay your debts with this debt ratio calculator.

Are you in over your head?

Here are the warning signs of being overindebted.

Being too far in debt is not temporary

Are you in debt? Careful! When you’re too far in debt, it’s not something that will get better on its own!

There are alternatives to bankruptcy. Contact us today to get help and find a solution that works for you.

Can I keep my home if I file for bankruptcy?

Yes, in most cases you will be able to keep your home. Most people believe that filing for bankruptcy means you lose everything you own, but that’s not actually true!

Can I keep my car if I file for bankruptcy?

Yes, in most cases, you will be able to keep your car. It’s a common misconception that you automatically lose all your assets when you declare bankruptcy.

Will I lose my RRSPs and my pension?

All your RRSPs and pension funds are safe, except for contributions over the 12 months previous to bankruptcy. Most people believe that filing bankruptcy means you lose everything you own, but that’s not actually true!

Will my creditors keep contacting me?

No! Once your bankruptcy is official, your counsellor will handle all communication with creditors. No more stress!

Will my wages be garnished?

No! Bankruptcy protects you against lawsuits. No one can garnish your wages.

Is it anonymous? Who will know that I’ve gone bankrupt?

In most cases, bankruptcy stays confidential. Your bankruptcy will be recorded in the government’s public records, but it’s rare that anyone searches them. You also have to pay to search the records.

Will my spouse be affected? Or my kids?

If your spouse did not take on and co-sign the debt with you, they won’t be affected. However, if you have any joint debts then your spouse will become the one responsible for them. As for your kids, no. Your family allowance cannot be seized.

Will bankruptcy stop seizures already underway?

Yes, declaring bankruptcy gives you legal protection against seizures. All seizures and legal proceedings will be stopped. There are only two exceptions:

  • Secured creditors (for example the mortgage on your home)
  • Wage garnishment for support-payment arrears

Can my creditors can sue me?

No, bankruptcy will protect you from seizure.

Will I have to go to court?

No, bankruptcy stops legal proceedings that creditors have initiated against you.

Will I still have to pay child support and alimony if I file for bankruptcy?

Yes, you will still have to pay child support and alimony.

If my ex-spouse declares bankruptcy, will I still receive my child support and alimony payments?

Yes, you will continue to receive any child support or alimony owed to you. Bankruptcy does not excuse missed payments.

Will I be able to leave the country?

Yes, bankruptcy doesn’t prevent you from travelling overseas.

What happens if I’ve co-signed a loan and I file for bankruptcy?

The person who co-signed with you will have to assume responsibility for paying the entirety of the debt. Read the article to find out more.