BankruptcySeptember, 2009 Q - What is bankruptcy? A - Bankruptcy is a legal process that frees you from some and very often all of your debt obligations. While bankruptcy may sound easy and attractive, it is a serious step and you should consider it only as a last resort. If you are in financial trouble, you should talk with a debt counselor about your situation and what options are open to you. You may be eligible to apply for bankruptcy if: - you owe at least $1,000;
- you are not able to make your regular payments when they are due on your loan; or
- the value of your assets is less than your total debts.
During the period of bankruptcy, the trustee will monitor your finances in bankruptcy. The trustee will use some of your assets to repay as much of your debt as possible to your creditors. Some things you own will not be used, for example, usually you keep your clothes, personal effects, household furniture, and tools of your trade, if any, up to a certain dollar value. In some situations, you may be able to keep your vehicle and house. The trustee will explain the effects of bankruptcy in your specific case. Once you have completed the bankruptcy period with no complications, you will be released from your pre-bankruptcy dischargeable debts providing there have been no objections to your release. During the period of bankruptcy you are required to perform certain duties such as attending counselling sessions and keeping the trustee informed of your financial situation. If you fail to carry out these or other duties, the trustee or a creditor may oppose your discharge from bankruptcy. The Bankruptcy and Insolvency Act is a federal law that sets out the procedures and rules for bankruptcy. Q - What happens if I cannot pay my debts? A - If you fail to make your minimum monthly payments on your loans and other debts, they will go into default. This means you may have to pay additional interest, have the credit card company or loan company demand repayment of the entire amount owing, have the debt sent to a collection agency, have your credit rating downgraded, face legal action, and have difficulty getting credit in the future. If you are having trouble meeting your loan or credit card payments you should get some advice from a credit counselor. Q - What is a consumer proposal? A - A consumer proposal is an agreement between you and all your creditors to allow you to settle your debts over a period of time not exceeding five years. Your debts must not exceed $250,000, excluding debts secured by your home. For example, you might make a proposal to your creditors to pay 60 cents on each dollar you owe. It does not affect the rights of secured creditors. An example of a secured creditor is a bank that has given you a loan secured on your home. If your creditors do not accept your consumer proposal or you fail to complete the terms of the proposal they can take legal action against you. You should contact a credit counselor for further information. To find a credit counselor, you can search under credit counseling, bankruptcy, or consumer proposals on-line or in the Yellow Pages of the phone book. Q - What are the drawbacks to declaring bankruptcy? A - There are a number of drawbacks: - You must report your finances on a regular basis to the trustee in bankruptcy, and the trustee may make decisions, which you may not have made yourself, such as selling a vehicle.
- Filing for bankruptcy may make it difficult for you to borrow money at least in the short term and will affect your credit rating.
- Your ability to get credit after your discharge will depend on whether you can convince potential lenders of your financial rehabilitation.
- Your credit rating should improve after bankruptcy if you demonstrate credit worthiness, including a track record of income.
- If you declare bankruptcy that includes a student, you will not be able to get a student loan until at least three years has passed since your discharge from bankruptcy.
Q - Do I include my spouse's assets and debts in my bankruptcy? A - If you own assets jointly with your spouse, or another person then they are included in your bankruptcy proposal. Your share of those joint assets may have to be sold to pay off debts if they are assets that can be seized for sale. It is important to ensure that the trustee knows there are joint assets so that he or she can assess how they should be dealt with. Q - Is my spouse or partner responsible to pay off my debts? A - Your spouse, common law or same sex partner is only responsible for your debts if you jointly owe them, for example, you took out joint loans or you have a card on your spouse's or partner's credit card account. Q - What are the costs involved with declaring bankruptcy? A - The Bankruptcy and Insolvency Act sets out the fees a trustee is entitled to charge, as well as fees for such things as counseling and filing documents with the Official Receiver. You should talk to a trustee in bankruptcy about the specific costs involved. Q - If I cannot afford to see a trustee, what can I do? A You should contact a trustee and set up a meeting. Often trustees will offer an initial consultation at little or no charge. At the consultation you can describe your financial situation and the trustee can discuss options with you. The office of the Superintendent of Bankruptcy will help you find an affordable trustee providing you have received quotes from at least two different trustees in bankruptcy. Q - What happens if I cannot pay off my student loans? A - If you fail to make your minimum monthly payments on your student loan, the loan will go into default. This means you may have to pay additional interest, be prevented from applying for a student loan in the future, have your debt sent to a collection agency, potentially have your credit rating downgraded, lose future income tax and GST refunds, face legal action, and lose eligibility for the Federal government's interest relief program. If you are having trouble meeting you student loan payments you should apply for the government interest relief program. You can apply for this program any time during the repayment period. This program is designed to eliminate most if not all the interest on your student loan. The creditor holding your loan will have the application forms for this program. Q - Can I declare bankruptcy on my student loans? A - Yes. You may file for bankruptcy on your student loans at any point, but you cannot be discharged from your student loan until seven years have passed since you were last a full time or part time student. Declaring bankruptcy on your student loans before this seven-year period may not be much help to you, depending on how much other debt you have. Once you have completed the bankruptcy period with no complications, you will be released from your pre-bankruptcy dischargeable debts including your student loan, providing it has been seven years since your last attendance at school and there have been no objections to your release. If it has been less than seven years since your last semester of school and you are having trouble paying your loan, you could apply for bankruptcy on other debts you may have, and once they are discharged you may be able to concentrate on paying off your student loan repayment. Depending on the circumstances, after 5 years have passed you may be able to apply to court to have your student loans discharged under the hardship provisions of the law, but you should talk with a credit counsellor about your specific situation. Depending on your situation you may also want to consider a consumer proposal as an alternative to bankruptcy. You should talk with a credit counselor about your situation. Q - What is a discharge from bankruptcy? A - A discharge is the last step of a bankruptcy. Upon discharge the court will relieve the amount you owe providing you have fulfilled the requirements of bankruptcy and there are no objections by a trustee, creditor, the superintendent of bankruptcy, or the court. Q - My loan has gone to a collection agency, what can I do? A - You have four options if your loan has gone to a collection agency. You can - do nothing, and see what action the agency takes.
- contact a debt counselling office that will help you with your debt problems and consult with you on your best course of action.
- make a proposal to the collection agency to make payments to them that you can afford.
- make a consumer proposal or declare bankruptcy.
Q - Can a collection agency seize my property? A - A collection agency can only seize property if it has a court order, meaning the agency would have to sue you. However, if it is a government loan, for example, a student loan, the government may seize GST and tax refunds. What assets can be seized with a court order depends on your individual circumstances. Provincial laws outline a few basic rules as to what property can or cannot be seized. For example, in Nova Scotia the following property cannot be seized: - Furniture or appliances that do not exceed a certain amount. In most instances, collection agencies are not be interested in seizing used furniture or household appliances anyway.
- An automobile that you need for work if its value does not exceed $6,500, and there is no public transit. If you do not need the car for your work its value cannot exceed $3,000. However, if a financial institution lent you money specifically to buy the car and you fail to make payments on the loan, the car may be seized whatever its value and whether or not you need it for work.
- Tools or items that you use for your employment.
Keep in mind that a collection agency must first sue you in court and get a court order before it can seize any of your goods or money. The collection agency must notify you if they decide to sue you. Q - Where can I get more information? A - For more information visit the Superintendent of Bankruptcy website www.osb.ic.gc.ca. The Superintendent of Bankruptcy
Industry Canada
1050 Barrington Street, 16th Floor
Halifax, NS B3J 3K5
902.426.2900
Credit Counseling To find a credit counselor, you can search under credit counseling, bankruptcy, or consumer proposals on-line or in the Yellow Pages of the phone book. These FAQs were developed with the support of a financial contribution from the Department of Justice Canada. return to top of page
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