Personal-Insolvency Services: FAQ
Will I lose all of my assets during insolvency and a bankruptcy proceeding?
Generally in bankruptcy proceedings, all of your assets are assigned to a trustee for the benefit of creditors. These assets include cash, investments, retirement savings plans, antiques, works of art, valuable collections, personal effects, cars, tools and real estate, subject to the exemptions outlined below. You may know someone who has gone into bankruptcy who didn’t seem to lose anything. That is likely because they do not have anything except assets that are exempt from seizure or assets that are fully encumbered. The amount of personal assets you retain or lose during personal bankruptcy proceedings when someone’s financial state is in duress varies on a case-by-case basis.
You are entitled to retain assets that are exempt from seizure. This means that creditors through a sheriff’s seizure or a trustee cannot take those assets from you.
In the province of BC, for example, you are entitled to keep the following items:
You are allowed to keep personal items up to a resale value (otherwise known as a garage-sale value) of $4,000. In the case of a married couple, that $4,000 limit is per person.
You are entitled, as exempt from seizure, a motor vehicle to a resale value of $5,000. If you happen to be in arrears (i.e., a state in which you owe money that is past due) under the Family Maintenance Enforcement Program, then the $5,000-value limitis reduced to $2,000.
Tools of Trade
Persons in business for themselves, such as mechanics, contractors or accountants, are entitled to retain from seizure during a financial bankruptcy proceeding any tools of trade to a resale value of $10,000. For example, in the case of the mechanic who is in business for himself, a standard service vehicle and basic mechanic tools would not be seized. The accountant would retain computers, etc.
You are entitled to keep equity in your principal residence at the date of bankruptcy to a value of $12,000 in the Metro Vancouver region and the Capital Regional District of Greater Victoria. In the case of a married couple where the home is owned jointly, the equity retained would be $24,000. Outside of Metro Vancouver and Greater Victoria, the equity exempt from seizure is $9,000 individually or $18,000 where the home is owned jointly.
If there is no equity in your car but you owe approximately its value (the same would apply to your residence), then trustee will not deal with the car; it will be released to the secured lender. You may be able to make an agreement with the secured lender whereby if you continue your payments they will not seize your vehicle or commence foreclosure proceedings against your home. This would be negotiated on an individual basis because under most contracts, bankruptcy is a breach of the contract, which would allow for repossession.
Medical devices, pension plans and certain life insurance policies are exempt, as well as RRSPs, with the exception of contributions made within the 12-month period preceding the bankruptcy.
What happens to someone who co-signs a loan for me when I go bankrupt or make a consumer proposal during times of personal financial-debt challenges?
The co-signer, usually a friend or family member, will be called upon to pay the outstanding debt. You cannot exclude a personal debt from financial bankruptcy because it has been co-signed and you are seeking to protect the co-signer. All creditors must be included in your bankruptcy and be treated equally. In most cases, repayment plans involving your co-signer(s) and your creditor(s) that are mutually convenient to everyone involved are sought.
What does a proposal and a personal bankruptcy cost?
The Superintendent of Bankruptcy licenses trustees in financial-bankruptcy proceedings. Although the program is under a federal mandate, it is in no way subsidized by the government. The trustee in a personal bankruptcy is in business to provide a service and to be compensated. Crowe MacKay LLP is prepared to accept monthly payments. We must be assured you have a stable income sufficient to provide for your family’s expenses and our fee. If this is not the case then the costs of the bankruptcy must be paid in advance. This is often paid by a family member or close friend and referred to as a third-party retainer.
The costs of a bankruptcy or proposal for consumers with minimal assets are set out by a tariff under the Bankruptcy and Insolvency Act. Essentially this means that the government sets a prescribed rate.
The prescribed rate for a first-time bankruptcy is $1,900. For those going bankrupt for a second time the cost is $2,050. The prescribed rate for a proposal is a little more complex, but you should expect to pay a small deposit, the amount of which we will negotiate with you.
What is financial counselling and how is it related to my personal-bankruptcy claim?
Individuals who make a consumer proposal or file an assignment in financial bankruptcy are required to attend two counselling sessions. The sessions deal with causes of financial insolvency, personal financial budgeting and dealing with credit and credit-card debt. Each counselling session takes approximately one hour.
Do I have to turn in my credit cards?
Yes, a debtor who files for bankruptcy is required to deliver to the trustee all credit cards issued to them and in their possession or control. If you require a credit card for business travel then you can hold a credit card in another person’s name. Perhaps your spouse can get a credit card with you as an authorized user. Alternatively, your employer may provide you with a credit card.
Must I include all my creditors, even my friends and family members?
Yes, all creditors must be declared in a proposal or personal-bankruptcy claim. The objective of the Bankruptcy and Insolvency Act is that all creditors will be treated equally.
Will I have to attend a creditors’ meeting?
There will be no creditors’ meeting unless sufficient creditors (25% of proven claims) request one. In the vast majority of cases there is no creditors’ meeting. However, if one is requested, you will have to attend.
Are there any financial debts that are not discharged by a bankruptcy claim or proposal submission?
Yes, some personal debts are not discharged. Generally these are debts arising out of fines or dishonesty, debts for maintenance of spousal or child support and student-loan debts. See below for more information on student loans.
How do I get my discharge from bankruptcy?
Assigning into bankruptcy or filing a proposal does not discharge your debts; you still owe the money. What you are doing by assigning your assets and liabilities to the trustee is getting a “stay of proceedings,” which means that your creditors can not garnish your salary or seize assets. Instead, your creditos must deal through the trustee and wait for the process to be completed. However, secured creditors, for example, those who finance your vehicle, will have the right of repossession after they satisfy the trustee that they have a valid and enforceable charge against your property. All other financial and personal debts are covered by the bankruptcy filing but you still owe the money amount for which you are in debt. It is not until you receive your discharge that the financial debts are discharged. If you file a proposal you will be discharged when you satisfy the terms of the proposal; that is, when you make the payments you said you would make under the proposal.
A first-time bankrupt debtor with no surplus income (i.e., no income in excess of what is needed to cover basic living expenses) is eligible for an automatic discharge in nine months. A first-time bankrupt debtor with surplus income is required to contribute part of that surplus income to their estate for 21 months after which they are eligible for an automatic discharge.
A second-time bankrupt debtor with no surplus income is eligible for an automatic discharge in 24 months. A second-time bankrupt debtor with surplus income is required to contribute part of thate surplus income to their estate for 36 months after which they are eligible for an automatic discharge.
If no one, including your creditors, the trustee or the Superintendent of Bankruptcy opposes your discharge, then you will receive your automatic discharge and will no longer owe money. If, however, somebody does file an objection to your discharge, then there will be an application to the court for the discharge.
If there is a court application for financial discharge, the court will consider all circumstances including your conduct, family responsibilities and your income. It will also consider your responsibility to creditors and the request from a creditor that you not be discharged. The court will then make one of three orders:
a conditional order is an order from the court whereby you are discharged from your bankruptcy upon satisfying the terms of the order. The conditional bankruptcy order might provide that you should pay a sum of money either in a lump sum or via monthly payments for a set period of time. We can only recommend the terms of such an order but bear in mind that your family obligations will be the first consideration of the court.
the court may suspend the order for a set period of time. This means that you will not be required to make payments but for whatever reason the court believes that you would benefit by remaining in bankruptcy. This could go on for a period of months or a year or more.
this is where the court orders that, in spite of any objections from financial creditors, you are discharged from your bankruptcy. At this point you no longer owe your creditors anything.
Will a bankruptcy claim or proposal submission stop creditors from garnishing my salary?
Yes, as soon as a bankruptcy or proposal is filed, all garnishing orders are stopped. The garnishee creditors are stopped from taking action just like all other creditors and they will deal with the trustee.
Am I required to make financial debt payments during the period of my bankruptcy?
You are required to make payments on a monthly basis only if there is surplus family income. Surplus family income is set out in a schedule prescribed by the Superintendent of Bankruptcy called the “Superintendent’s standards” – which measures low-income cutoffs relative to urban areas and population. The surplus is calculated by taking your net income and deducting any prescribed medical expenses, day-to-day maintenance costs of your living expenses and certain other expenses. To encourage you to improve your income, only half of the surplus is to be paid to the trustee for the benefit of your creditors; you get to keep the other half.
Do I have to report to my trustee on a regular basis?
Yes, you are required to report your monthly income received and your expenses paid by the 15th of the following month during each month of your personal-bankruptcy period. It is from this report that your surplus income, is calculated. Failure to make these reports on a regular basis will jeopardize your chances of getting your bankruptcy discharge.
Superintendent’s Standards 2015
The Superintendent’s Standards (“S”) are derived from the Low Income Cutoffs (LICO) released by Statistics Canada. The Superintendent uses the before-tax LICO for urban areas with 500,000 people and over. The 2015 standards are updated by adding to the 2013 LICO, the 2014 Consumer Price Index (CPI) (1.95%) plus a 1.7% adjustment reflecting the 2015 CPI expectation.
Will my student loans be discharged by my bankruptcy or proposal during periods of personal financial insolvency?
Unless you completed your studies or left the education institution more than seven years from the date of your proposal or bankruptcy, your student loans will survive and you will have to repay them.
What is surplus income?
Surplus income is defined by the Bankruptcy and Insolvency Act as income over and above what the federal government prescribes as the minimum reasonable amount of income to support an individual or family of a particular size.
Do I have to file all my tax returns while I am in bankruptcy?
We encourage you to file all your tax returns while you are bankrupt. During your bankruptcy there will be two tax returns in a given year. Crowe MacKay LLP will file the return from January 1 to the date of your bankruptcy and for the period from the date of your bankruptcy to December 31. Income-tax refunds are an asset of the bankrupt estate and must be turned over to the trustee for the benefit of your creditors. Any amount owing on the post-bankruptcy tax return must be paid by the bankrupt debtor.
Do I get to keep my wages and income while I am bankrupt or will my financial creditors be able to seize them?
Creditors may not seize your wages after a financial proposal or a personal-bankruptcy claim. You are required, however, to pay surplus income to Crowe MacKay LLp while we serve as your bankruptcy trustee to be distributed to your creditors in accordance with the Bankruptcy and Insolvency Act.
If I win a lottery or am named in a will from which I will be receiving funds while I am in bankruptcy, do I get to keep that money?
Any assets that you acquire such as windfalls after your bankruptcy but before you are discharged from bankruptcy are subject to the claims of creditors and they have to be turned over to Crowe MacKay LLP. Any windfalls after your discharge from bankruptcy are yours to keep.
Is bankruptcy worth it?
Crowe MacKay LLP does not advise anyone to file a proposal or to make an assignment into bankruptcy unless it is necessary due to the dire situation of someone’s financial health and their debt load. We are here to help you understand all of your financial options. We want to make a difference in your life and the life of your family. Yes, there is a light at the end of the tunnel.
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