What is bankruptcy?
Bankruptcy is a process designed to allow a debtor to recover from an otherwise unmanageable debt load. There are a number of steps involved in a bankruptcy. Winnipeg residents, and all Canadians filing for bankruptcy, can be assured that it is not a difficult process, but there are some requirements that must be fulfilled.
What are the requirements for filing for bankruptcy?
In order to file for bankruptcy, you must be a Canadian resident or have assets in Canada. You must owe at least $1,000 and be insolvent. That is, you must be unable to pay your debts as they come due, or the value of your property must be less than your debts.
What happens when you file for bankruptcy?
When you file an Assignment in Bankruptcy, first and foremost, you obtain immediate creditor protection. None of your creditors can start or continue any action against you. A Stay of Proceedings is put in place as soon as an assignment in bankruptcy is filed.
At the date of bankruptcy any assets that you own (e.g. vehicle, house, investments) become property of the Trustee subject to certain exceptions. Assets that are exempt from seizure (i.e. can’t be taken by the Trustee) include RRSPs, a vehicle, if required for work up to the value of $3,000, and other assets listed in the Manitoba Executions Act. Your primary residence is also exempt, up to the value of $3,000 if owned in joint tenancy. See the Manitoba Judgments Act for a complete list of real property exemptions.
How is my income affected when I file for bankruptcy?
When Winnipeg residents (and all other Canadians) file for bankruptcy, the Licensed Winnipeg Insolvency Trustee must review the personal earnings of the debtor. There is an Income Standard set by the office of the Superintendent of Bankruptcy for various family sizes. Income is compared to the Standard and 50% of family income in excess of the standard must be paid to the bankrupt estate. The Standard is the government of Canada low income cutoff. Click on this link to see the Standards for Surplus Income based on family size and examples of the calculation. There are also certain expenses that are deductible from income (non-discretionary expenses), such as child support and prescription drug expenses.
Will my tax refund be affected if I file for bankruptcy?
If you file for bankruptcy, your income tax refund will be affected. The date of the bankruptcy creates a new income tax year end for Winnipeg residents, and all other Canadians. Any tax refunds that you would become entitled to in the year of bankruptcy will flow to your bankrupt estate. There are two tax periods in the year of bankruptcy. The period from January 1st to the date of bankruptcy, known as the Pre-Bankruptcy period, and from the date of bankruptcy to the end of the year, known as the Post-Bankruptcy Period.
Are there any additional obligations throughout the bankruptcy period?
How Long Will I Be Bankrupt?
People who are going bankrupt for the first time and who do not have surplus income according to guidelines set out by the Superintendent of Bankruptcy may be discharged from their bankruptcy after nine months. If a person filing for bankruptcy has surplus income according to guidelines set out by the Superintendent of Bankruptcy, the bankruptcy can be extended for an additional year to a total of 21 months.
If the bankrupt individual’s creditors object to the discharge, a court may review the matter at the end of the nine-month or 21-month period.
Who Can Object to a Discharge and Why Would This Happen?
- A creditor
- The bankrupt individual’s Licensed Insolvency Trustee
- The Superintendent of Bankruptcy
An insolvency Winnipeg trustee will only object to a discharge if the bankrupt individual fails to comply with the obligations that are required during their bankruptcy. LITs are Officers of the Court; as such, they are required to object to a discharge from bankruptcy if the bankrupt individual has failed to meet their obligations, including submitting monthly income and expense statements, and providing tax information to enable the filing of taxes. Bankrupts who do not attend the mandatory counseling sessions are not eligible for an automatic discharge. If you plan on filing for bankruptcy, these obligations will be carefully explained to you before you sign your Assignment in Bankruptcy. You will also be notified during your bankruptcy if any of these obligations goes unfulfilled.
How Will Bankruptcy Affect my Spouse?
In most cases, your bankruptcy will not directly affect your spouse. Consumer bankruptcy filings are personal to the individuals who file them – if you have incurred debts, these debts are your responsibility alone. Creditors are not able to seek restitution from your spouse for debts that you have incurred, and your spouse’s credit rating should not be affected by your bankruptcy filing.
However, if your spouse guaranteed or co-signed for your credit cards or loans, they will be equally responsible for those debts. In this scenario, if you file for bankruptcy and are discharged from your debts, your spouse will remain responsible for the payments unless they too file for bankruptcy.
Your spouse will also not benefit from your bankruptcy. They will still be responsible for their personal debts after yours have been discharged.
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When we first contacted Bruce Caplan, we didn’t know what to expect. We had never had debt problems before and we had experienced very high levels of stress, anxiety and depression. Bruce talked us through various options and he recommended a consumer proposal. It was shortly after our meeting with Bruce that he contacted us and let us know we had a resolution. We highly recommend Bruce Caplan for debt solutions. He made it easy for us.
Bruce and Vera-Lynne