If you miss a loan or minimum monthly credit card payment, these things could happen to you:

• You could pay a higher rate of interest or more interest. 
• A creditor could demand full repayment immediately instead of smaller payments over time.
• A collection agency could try to collect your debt.
• Your credit rating will drop, and it could cost you more to borrow money in the future. 
• You may face legal action and have your wages garnished and/or assets seized.
• You could have difficulty getting credit in the future.

If you guarantee a loan with something you own (assets), like money or goods of value, those are called “security” or “collateral.” Creditors who have a security interest are called “secured” creditors. 

A secured creditor can take assets you have used for security if you do not make payments on your loan. This may include money or goods you promise to give the creditor if you do not pay the debt.

A common type of security is property, such as your home or vehicle. For example, if you do not pay your mortgage, the lender can get a court’s permission to foreclose on your home. If you miss a vehicle loan payment (default), the creditor may be able to repossess your car without suing first. 

If you have trouble paying your debts, talk with a trustee about bankruptcy or a consumer proposal. Only a trustee can administer or file a bankruptcy or a consumer proposal. Do not be misled by other people’s claims they offer bankruptcy or consumer proposal services. Talk to a trustee before choosing an option. They are authorized to file the required documents.

Trustees will review your financial situation and provide advice on:

• Bankruptcy
• Consumer proposals 
• Consolidation loans
• Credit counselling
• Division 1 proposal  — another formal way to offer to settle your debts with creditors
• Refinancing

Trustees can help make your options clear.

Watch Discussing your options with a Licensed Insolvency Trustee.

Bankruptcy is a legal process that frees, or “discharges," you from debts. This does not include spousal support, child support, court fines, or other forms of exempt debt. It also releases you from most debts owed to the Canada Revenue Agency (CRA), such as income tax debt. 

You do not need to see a lawyer to file bankruptcy, but you need to connect with a trustee.

The Bankruptcy and Insolvency Act is a federal law on bankruptcy procedures and rules. Trustees administer the law, and the Federal Office of the Superintendent of Bankruptcy Canada regulates it.

Where do I start? 

The first step to take when thinking about bankruptcy is to contact a trustee. They will review your financial situation and explain your options. Most trustees offer a free initial consultation. 

Only a Licensed Insolvency Trustee can administer a bankruptcy or a consumer proposal.

To file for bankruptcy, you must:

• Be released, or “discharged,” from any previous bankruptcy;
• Owe at least $1,000 in unsecured debt;
• Live, do business or have outstanding business debts, or have property (personal or real) in Canada; and
• Be unable to make regular payments on your debts as they become due, or the value of all your assets must be less than your total debts.

If you have never been bankrupt before, you will likely be in bankruptcy for either 9 months or 21 months, depending on the number of people who live in your household and your household income. 

If you have filed for bankruptcy before, the process can be longer. The record of your bankruptcy will also stay on your credit report for a longer period of time. It’s best to speak with a trustee to understand how this applies to you. 

When you go bankrupt, the creditor must stop contacting you about payments and take legal action to collect debts. This is called a stay of proceedings”.

Watch 'What to expect if you file for bankruptcy' from the Office of the Superintendent of Bankruptcy Canada.

If you have never been bankrupt, you will likely be in bankruptcy for either nine months or 21 months, depending on the number of people in your household.  If this is your first bankruptcy, it will stay on your Nova Scotia credit report for six years.  

If you have filed for bankruptcy before, the process will be longer. You can expect to be in bankruptcy for either 24 or 36 months. The bankruptcy record will stay on your credit report for 14 years. 

A consumer proposal is a new legal contract between you and lenders who did not take security or collateral, known as “unsecured creditors.” A consumer proposal replaces your original agreement with these lenders. It sets out a debt settlement plan for no more than five years.

You are eligible to make a consumer proposal to your creditors if your debts are less than $250,000. This does not include debts secured using your family home. If your debts are more than $250,000, a trustee may discuss filing a commercial proposal or bankruptcy.  

Like a bankruptcy, a consumer proposal 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. That means if you do not continue making payments to the secured creditor,  that creditor will take possession of and sell that asset.  

You must go to two budget counselling sessions with the Trustee during the administration of a consumer proposal.  

When you have finished all the payments under the proposal, the Trustee will give you a Certificate of Full Completion, which means that your debts have been fully satisfied and that you are no longer legally responsible for the debts.

Watch 'Submitting a consumer proposal to your creditors’ from the Office of the Superintendent of Bankruptcy Canada.

During the course of the bankruptcy, you must go to two budget counselling sessions.  The Trustee must also file an income tax return for the year bankruptcy happens.  You must give the Trustee your income tax information so the Trustee can file your return in that year.  

If you fail to do any of the things you are required to do during the bankruptcy, the Bankruptcy Court may extend your bankruptcy until you do what is required.

At the first meeting, the trustee will review your assets (items owned) and determine which ones are:

• exempt — protected by law and cannot be used to pay debts;
• secured (financed) —that you are making payments on
• available to sell — may be used to pay your bankruptcy debts.  

Exempt assets include:

• Personal belongings such as clothing, food, and fuel;
• Household furnishings;
• Medical aids;
• Work tools you own, up to $7,500 worth;
• Vehicle worth no more than $6,500;
• Most life insurance policies;
• Pensions;
• RRSPs, except for contributions.

 A Registered Education Savings Plan (RESP) is not exempt in Nova Scotia. However, creditors can only access the RESP portion you would get if cashed early, before its maturity date. This usually does not include any government grants, bonds, or the income that has been earned on the RESP. 

Secured (financed) Assets

You may be able to keep some or all of your secured assets. It is complex, so you should speak with the Trustee about your particular situation.  

Bankruptcy does not usually affect an asset that is financed, such as vehicles or campers. The general rule is that if you wish to keep the asset, you must keep making the payments, or the secured creditor will seize it.  

The rules are a bit different for assets that increase (appreciate) in value (equity), such as real estate (a house or land). The trustee will determine if there is any equity in the asset. They will discuss how to deal with equity during bankruptcy if your goal is to keep the asset (like your house). Generally, this involves you making payments to the trustee during the bankruptcy for any equity so you can keep the asset. However, each situation is unique, so it is best to have a conversation with your Trustee to ensure that this is the right choice for you.

Other Assets

Trustees will discuss assets like investments, potential lawsuit settlements, inheritances, and items you own or have an interest in. You must also tell them about any assets you get during the bankruptcy, as these may also become available to your creditors. Your trustee can deal with your assets in Nova Scotia as well as elsewhere in Canada.

While bankruptcy or a consumer proposal provides much-needed debt relief and a fresh start, there are consequences you may not expect. These could include: 

• A creditor still has the right to pursue a joint debtor, co-guarantor or co-signor. Either process only affects your responsibility and not the person who agreed to debt responsibility.
• A decrease in your credit score makes it more difficult to get credit at reasonable interest rates until the situation improves.
• Having to report your finances to the trustee regularly. Based on these, they may make decisions you hadn’t considered, such as selling a vehicle.
• Affecting your ability to keep or get a security clearance for a job.
• A bankruptcy or a consumer proposal may affect your ability to deal with trust accounts.
• Bankruptcy may affect your ability to sponsor family members to come to Canada.
• If your bankruptcy includes a student loan, you may not be able to get another student loan until at least three years after your discharge from your bankruptcy or completion of your consumer proposal.
• An insurance company may refuse your life insurance.
• Possible increased charges for automobile insurance. 
• If you are a director of a corporation, you must resign if you file for bankruptcy.

 Please consult with your Trustee if you need clarification or additional information. 

Real estate

Most real estate (land, homes, buildings) is mortgaged and may have limited value or equity. As real estate usually gains value (appreciates) over time, it can be worth more than the mortgage. This is called “Equity”.  The Equity will be calculated by the Trustee. The usual practice is to “buy back” the equity in your real estate if you wish to keep it. You should speak with your Trustee for more information on how this could apply to your situation.

Some people do not want to keep their house or land. Depending on the value, a trustee may offer the property for sale or give it to the bank for foreclosure (sale at public auction). 

As each situation is unique, it's important to speak with your Trustee about your particular situation for clarification. 

Vehicles

Most vehicles go down in value (depreciate) over time. If you have a loan for your car and keep up with your car payments, that debt is not part of the bankruptcy.  You must keep taking your normal car payments during the bankruptcy. 

If you own a vehicle outright (“free and clear”), the trustee will determine its value or ask you to get it appraised. Then, it’s decided if the vehicle is exempt from your creditors. This would mean the vehicle is protected in bankruptcy or a consumer proposal.

Tell your Trustee if you no longer want to keep the vehicle. The Trustee can let the secured creditor know it can be seized and sold. If there is still money owing on the loan after the car is sold, that becomes an unsecured debt and is included in your bankruptcy.

Although most people who go to a Trustee already have a lower-than-average credit score, a bankruptcy or a consumer proposal will mean a further decrease.  

If you have only filed one bankruptcy, the bankruptcy will stay on your credit report for 6 years in Nova Scotia.  

If you declare bankruptcy more than once, the bankruptcy will stay on your credit report for 14 years.

A consumer proposal will generally stay on your credit report for 3 years, even if you have filed more than one consumer proposal or have a bankruptcy in the past.  For this reason, some people choose to file a consumer proposal rather than bankruptcy more than once.    

During the budget counselling sessions with the Trustee, the Trustee will explain how to rebuild your credit rating, how to use credit wisely and how to manage your money. Your credit rating should improve after bankruptcy if you demonstrate creditworthiness, including a track record of income.  

The Financial Consumer Agency of Canada has information about credit reports and scores, including how long information stays on your credit report, as do the two credit reporting agencies in Canada, TransUnion and Equifax. 

If your partner does not guarantee or co-sign any of your debts, they will not be affected. This is because a bankruptcy or a consumer proposal only affects your legal responsibility for a debt. Guarantors and co-signors are still responsible for the debt unless they themselves file a bankruptcy or a consumer proposal. This means if your partner is also legally responsible for payments to the debt, their credit will be affected if they do not continue making payments. 

[accordion-bankruptcy title="Is my partner responsible for my debts?"}

Generally, if a partner did not sign to accept responsibility for a debt (co-sign), they are not responsible for the debt to the creditor. Your partner is only responsible for your debts if they own them jointly.  For example, a joint bank account in overdraft, a joint loan, a joint credit card or a credit card where all cardholders are responsible for the debt, regardless of who incurred the charges.

It can be difficult to know who else is responsible for your debt, such as when two people use the same credit card account. If it is unclear, or you are having difficulty determining which card is responsible for which charges, contact the credit card issuer for clarification. 

Many people are surprised that you can apply for and get credit when you are in bankruptcy.  Most Trustees will recommend that you not get credit during a bankruptcy, but no law says that you cannot.   The only condition is that you must tell the creditor you are bankrupt. 

Yes. Bankruptcy does not affect your passport. You will still be able to travel abroad.

The federal law Bankruptcy and Insolvency Act sets out trustee fees for services, such as budget counselling and filing government or court documents.

Your initial consultation with a trustee is usually free.

During your bankruptcy, the Canada Revenue Agency (CRA) sends any GST rebate cheques and/or income tax refunds to the Trustee.  While the CRA will send the GST rebate to the Trustee during the entire period of your bankruptcy, only the potential refund during the year in which you file a bankruptcy is forwarded to the Trustee by the CRA. 

You will also have to make monthly payments to the Trustee.  The amount of these monthly payments depends on your level of income. Your monthly income payments are either based on income standards (See Surplus Income Payments - monthly payments to the Trustee) or are a minimum fee that a Trustee will charge to cover the bankruptcy costs.

Lastly, a Trustee will look at the value of your available assets.

If you have spoken to at least two separate trustees and cannot afford the minimum fees, contact the Office of the Superintendent of Bankruptcy ( 1-877-376-9902) about the Bankruptcy Assistance Program. They may help you find a trustee who will accept minimum fee payments over a longer time.

You may be eligible for the Bankruptcy Assistance Program if all of the following are true:

• Have contacted two licensed insolvency trustees and are unable to work out a payment plan; 
• Have not recently been involved in commercial activities, like running a business or selling products;
• Do not need to make surplus income payments;
• Do not have assets that need selling or can be sold;
• Are not in jail. 

Having initial consultation meetings with Trustees is recommended in this situation. Trustees usually offer a free initial consultation. At that time, you and the Trustee will review your finances and discuss your options. The Trustee will let you know if you will need surplus income payments or have assets that they would need to sell.  Whether you need to make surplus income payments depends on the size of your family and your income. Only a Trustee can tell you if you need to make surplus income payments, so it is critical to speak with them. 

A bankruptcy or consumer proposal can stop:

• A garnishment of your wages, including by CRA.
• Enforcement of a creditor’s judgment. The exception is a properly registered judgment where the CRA is the creditor. This secured debt cannot be released by bankruptcy or a consumer proposal.  
• Any lawsuits against you by your creditors.

Bankruptcy or a consumer proposal will not stop a foreclosure. However, you will be protected if the secured creditor does not get all their money once your property is sold. This is commonly called a mortgage deficiency. It becomes an unsecured debt in the bankruptcy or consumer proposal. 

There are strict rules about foreclosure and the effects of bankruptcy, so it's important to speak with your trustee about your particular situation.

Seven-year rule

You will be eligible to be released from your obligation to repay your government student loans if you file for bankruptcy seven or more years after the date you are no longer a part-time or full-time student.  If it has been less than seven years since your PSED, and you do not qualify for a repayment assistance program with the National Student Loan Centre, you will still be required to make student loan payments.  

Before filing a bankruptcy or a consumer proposal, you should contact the National Student Loans Centre to confirm your period study end date and whether you qualify for repayment assistance programs. 

Hardship - 5-year rule

If your student loan is most of your debt, then a bankruptcy or consumer proposal may not give you the debt relief that you need. 

If you still have difficulty making payments on the student loan after bankruptcy or a consumer proposal, you may apply to the Bankruptcy Court to ask to have the student loan released when five years have passed since your PSED.  This is called the hardship exception to the seven-year rule.

If you apply to the Bankruptcy Court to release the student loan any time after five years, you will have to prove that:

• You have difficulties, and will have ongoing difficulties, making the payments on the student loan (called financial hardship);
• You have acted in good faith with your repayment obligations. To determine this, the court will look at:
  • how you used student loan money
  • commitment to finishing school
  • efforts to repay the loans
  • whether you used available repayment assistance programs, like the National Student Loan Centres.

The bankruptcy court has a package explaining the hardship application process requesting the student loan released.  Contact the Bankruptcy Court at (902) 424-6908.

You can get more information about student loans and bankruptcy from a Licensed Insolvency Trustee and the Office of the Superintendent of Bankruptcy Canada. 

Surplus income is the amount of money your household makes that is more than the government’s income table, called “Standards” - the amount the government says a family with your income and number of dependents should need to live. The Trustee must follow the Standards to calculate how much your monthly surplus income is above the Standard for your household size. If you file for bankruptcy and your family income is above the Standards, you will need to make surplus income payments. 

The Trustee calculates the monthly payments at the beginning of the bankruptcy. Your entire family’s income is used to calculate your surplus income. This includes your spouse’s or partner’s income, as well as any other adult who is contributing towards household expenses. Funds above this are called “surplus income” and must be paid monthly to the trustee. 

Your Trustee then uses that money to repay your creditors. 

If your household income is below the Standard, the Trustee will charge you a minimum monthly fee to cover their fees. You will most likely be in bankruptcy for a shorter time than if you are above the Standard.

How much money you can keep depends on how many people live in your family and in your home. The trustee will also ask if you have certain expenses that would lower the required monthly payments. Examples include child support, spousal support, and medical expenses.

During bankruptcy, you must submit monthly income and expense reports to the Trustee so they can ensure you are making the right monthly payments based on the Standard. It also makes you more aware of how you spend money! 

The amount of your surplus income payment can change if your income changes. Therefore, it is very important to file these monthly reports on time.

Watch Bankruptcy and surplus income payments from the Office of the Superintendent of Bankruptcy Canada.

A discharge from bankruptcy means you are released from your legal responsibility to repay your debts. A discharge commonly means the end of your bankruptcy. However, some debts are not discharged. (See Debts that are not discharged in a Bankruptcy or Consumer Proposal)

Most people get an Automatic Discharge from their debts without a court hearing. Other times, the Bankruptcy Court has to decide on your discharge status. The most common situations where the court has to decide are: 

1. You have not completed all the bankruptcy requirements, such as Budget Counselling;
2. A creditor or the Office of the Superintendent of Bankruptcy objecting to your release from bankruptcy; 
3. You have an extraordinarily high debt to the Canada Revenue Agency, which makes up most of your debt, or
4. You have been bankrupt at least twice before.

At a court hearing for your discharge, the court will hear from the Trustee, you and anyone who opposes your discharge.

The court may decide to:

• Order an Absolute Order of Discharge (Conditional Order of Discharge) if you fulfill certain conditions;  
• Put off your discharge for a period of time (Suspended Absolute Order of Discharge); or 
• Refuse to grant you a discharge (Refused Order of Discharge), usually where there has been a clear abuse of the bankruptcy process.

It is important to get either your Automatic Discharge or an Absolute Order of Discharge from the court. If you do not and the Trustee closes the administration of the file and gets their discharge, your creditors can start to collect the debts again. 

Watch "Understanding the bankruptcy discharge" from the Office of the Superintendent of Bankruptcy Canada. 

 Some debts are not discharged in a bankruptcy or released in a consumer proposal. This means you will still owe them after your bankruptcy or consumer proposal is over. 

 In a consumer proposal, if a creditor agrees that their debts will be released after the terms are completed and votes for the proposal, then that debt is released when the proposal is completed. However, this does not happen often. 

While the creditor cannot ask you to make payments on the debt during the bankruptcy/consumer proposal, you will still be responsible for the debt when you are discharged. The most common debts that are not discharged include:

• Government student loans, including loans under the Apprenticeship Act, where your Period Study End Date (PSED) is less than seven years from when you file the bankruptcy or the consumer proposal.  The Student Loans section explains the hardship exception that says you may apply to bankruptcy court if five years have passed since your PSED, regardless of when you filed the bankruptcy or consumer proposal. You have to prove both good faith and ongoing financial hardship. 
• Spousal and Child Support if there is a written agreement or a court order.
• Questionable debts, where there was fraud, misrepresentation, or you misappropriated funds while managing someone else’s money (fiduciary role).
• Court-ordered fines, penalties, or restitution.

Speak with your Trustee if you have questions about a particular debt and whether a bankruptcy or a consumer proposal will release you from that debt. 

 For more information and help, contact:

• Office of the Superintendent of Bankruptcy - regulates bankruptcies, oversees and licenses trustees in bankruptcy (licensed insolvency trustees), and has helpful general information for debtors and creditors
  Website  www.osb.ic.gc.ca
  Industry Canada
  Phone: 1 877 376-9902 (toll-free)
• A Licensed Insolvency Trustee.  Trustees are listed in the Yellow Pages under 'Bankruptcies,' or search for 'licensed insolvency trustee' online.  You can also get a listing of local Licensed Insolvency Trustees from the Office of the Superintendent of Bankruptcy at 1-877-376-9902 (toll-free) or osb.ic.gc.ca
• A credit counselling agency.  Credit counsellors cannot administer bankruptcies or consumer proposals but can help you in many ways, such as a debt management plan, budgeting, wise credit use, and general money management. The Financial Consumer Agency of Canada  - has a fact sheet about how to find a reputable Credit Counselling service: www.fcac-acfc.gc.ca.
• Financial Consumer Agency of Canada - fcac-acfc.gc.ca, or call 1 866 461-3222.  Lots of consumer information on many money-related topics.
• The Financial Consumer Agency of Canada also has a Financial Toolkit to help manage your finances.