By: Kurtis Parcells
What is bankruptcy and do I qualify?
Bankruptcy is a legal process that provides debt relief and is governed by the Bankruptcy and Insolvency Act. A debtor surrenders their assets, and in exchange, their debts are eliminated.
To file bankruptcy you must be insolvent, which means you:
- Owe at least $1,000 in unsecured debt,
- Are unable to pay your debts as they come due or you owe more in debts than the value of the assets you own, and
- You must either reside, do business, or have property in Canada.[1]
Bankruptcy basics
Will all my debts be eliminated by declaring bankruptcy?
Not all types of debts will be eliminated, most notably secured debts. A secured debt is a debt that is guaranteed – the creditor has a security interest in the asset and can realize on the collateral in the event of default. So, your car debt and mortgage will not be eliminated in a bankruptcy filing.[2]
What happens to my debts when I declare?
As soon as you declare bankruptcy you will stop making payments on your existing unsecured debt and an automatic stay of proceedings will prevent your unsecured creditors from engaging in any collection actions (wage garnishment, collection agency calls).
Will I have to give up all my assets?
It’s a common misconception that bankruptcy requires you to surrender all your assets. In fact, most personal assets are exempt from seizure. Generally, you are entitled to keep your RRSPs, most personal belongings, and your car (assuming it’s worth less than the prescribed limit).
How much does bankruptcy cost?
Filing bankruptcy may be a financial fresh start, but it’s not free. In addition to surrendering your assets, there is a required $1,800 administrative fee and a variable surplus income payment. The government sets monthly income thresholds that represent a reasonable standard of living based on family size and every dollar of income earned over this threshold is subject to a 50% surplus payment – so the more you earn, the more you pay.[3]
Is bankruptcy right for me?
Bankruptcy is by no means a one size fits all solution – it is just one option available to Canadians struggling with debt.
For example, a consumer proposal is a popular and often a preferable alternative. Instead of exchanging your assets for the elimination of your debt, a proposal is a legal settlement that allows you to keep your all assets and repay your creditors a percentage of what you owe in exchange for full debt forgiveness.
In all likelihood, the best debt relief option for your situation won’t be obvious.
If you are struggling with debt you should first meet with a Licensed Insolvency Trustee to explore your options and determine the best course of action.
Disclaimer: The information provided in this response is for general informational purposes only and is not intended to be legal advice. The content provided does not create a legal client relationship, and nothing in this response should be considered as a substitute for professional legal advice. The information is based on general principles of law and may not reflect the most current legal developments or interpretations in your jurisdiction. Laws and regulations vary by jurisdiction, and the application and impact of laws can vary widely based on the specific facts and circumstances involved. You should consult with a qualified legal professional for advice regarding your specific situation.
[1] https://laws-lois.justice.gc.ca/eng/acts/b-3/page-1.html
[2] Ibid.
[3] https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br03249.html#appA