Most people work hard and live as responsible citizens. We put money in savings and we live within our means. But, even good and responsible people, given unfortunate circumstances can find themselves needing to file bankruptcy. For example, what if you suffered a death in the family? What if you came down with a long-term illness? What if there was a once-in-a-lifetime crisis like we are currently experiencing with COVID-19? It is easy to see why a person who is experiencing financial problems may decide filing for bankruptcy is the best option for them.
The Law
The Canadian Government enacted the Bankruptcy and Insolvency Act in 1985. The Bankruptcy Act is in place to protect anyone who lives in Canada, that becomes insolvent. It also applies to anyone who has owned or currently owns a business in Canada.
Licensed Insolvency Trustees
In order to file for bankruptcy or to file a consumer proposal, you must contact a Licensed Insolvency Trustee or LIT. A Licensed Insolvency Trustee is an officer of the court, licensed by the Office of the Superintendent of Bankruptcy Canada.
The purpose of the Bankruptcy and Insolvency Act is to govern or oversee insolvency proceedings, including bankruptcy. The debtor is seeking protection and financial relief from his creditors. But, the Bankruptcy Act also serves to protect the lenders and creditors and any stakeholders that are involved.
The LIT oversees the bankruptcy including the standards and processes that everyone involved must follow. The rules are clear, and they must be followed.
Choosing a Licensed Insolvency Trustee
When you begin your search for a Licensed Trustee, keep these things in mind:
- Select an LIT that is close to you because you may need to visit their office on a regular basis.
- Have a meeting with the LIT. How you respond to the LIT is important.
- Confirm that you are working with a LIT and not an unlicensed debt consultant. Ask the trustee to confirm that they were licensed by the Superintendent of Bankruptcy. (only those with these licenses can legally help you with this issue.)
- Make sure you feel comfortable talking to the LIT. It is not a good idea to seek protection with the help of someone that you don’t feel comfortable with.
Other considerations
Bankruptcy can seem overwhelming, but the process is not difficult. When it is complete bankruptcy allows you a fresh start and a chance to rebuild your finances. When your bankruptcy is over, you can expect the following:
- Most if not all unsecured debt will be eliminated. Unsecured debt is debt that is not backed by an asset or collateral.
- Bill collectors can no longer call you (at home or at work)
- If a creditor has garnished your wages, this will stop.
Where to begin
You have already determined the problem. You know you need help and you need it fast. Now is the time to call a Licensed Insolvency Trustee and get the ball rolling.
During your first meeting with an LIT, you will need to bring a list of all of your debts as well as a list of all of your assets. LIT will make sure you understand all the rules and your options that you have. You will also need to bring identification. The LIT will review everything, explain all of your options, and advise you about all of the rules. There are cases where the debtor is in a panic. Once you have everything laid out, the LIT will explain all debt solutions. One alternative to bankruptcy is a consumer proposal or they may advise credit counseling or debt consolidation as a way to organize your bills and relieve your financial stress.
File Bankruptcy
Once you have met with a LIT and decided to file for bankruptcy, the LIT will file the papers with the Office of the Superintendent of Bankruptcy Canada to begin the process. At that very moment, all actions taken against you by creditors must stop. This is called the “stay of proceedings.” If creditors are trying to garnishee your check, they must stop. If the creditors are suing you it stops immediately. Your creditors cannot even call you on the phone and ask for a payment.
What do you do now?
Once you have asked the courts to excuse your debts, they are not going to let you immediately make more debts. Now that you have filed, you surrender everything you have to the trustee. This includes your house, car, credit cards, boats, furnishings, and anything else of value. If you are able to repay some of your debt and you wish to keep your assets, you can talk to the LIT about filing a Consumer Proposal
If you have not filed your taxes, the LIT will file them and get the current to the date of the filing. After the LIT LIT has filed your bankruptcy, they will provide copies to your creditors. This gives them the option to file a claim with the courts.
After the Bankruptcy
You will be given instructions, and you must follow them carefully. One of the requirements included in the bankruptcy process is that you must attend two credit counseling sessions with your LIT to compensate them for their services. In most cases, a first-time bankruptcy is discharged in nine months. One of the requirements included in the bankruptcy process is that you must attend two credit counseling sessions with your LIT. You will also need to make a monthly payment to your LIT to compensate them for their services. In most cases, a first-time bankruptcy is discharged in nine months.
As you can see, the Canadian Government has taken great pains to ensure that there is legal debt forgiveness for its honest citizens who can no longer pay their debts. What a great opportunity for you to begin with a fresh financial start and a new appreciation of the rules that govern our credit systems.