Bankruptcy is a formal process that deals with all of your assets and creditors. Generally, you qualify for bankruptcy if you owe at least $1,000 and are unable to pay your debts as they become due. The process is intended to provide you with financial rehabilitation and a new start, as well as an equitable and orderly distribution amongst your creditors.
You can become bankrupt voluntarily by filing an assignment in bankruptcy with a Licensed Insolvency Trustee (the "Trustee"), or involuntarily if one or more of your creditors files a Petition in Court seeking an order placing you into bankruptcy. The bankruptcy process is administered by a Trustee under the provisions of the Bankruptcy and Insolvency Act. Depending upon the value of your assets, your bankruptcy may be administered as a summary bankruptcy or an ordinary bankruptcy. The main difference between the two, from the bankrupt's perspective, is that in a summary bankruptcy there is usually no meeting of creditors and there is no notice of the bankruptcy in the newspaper. Most personal bankruptcies are administered as a summary bankruptcy.
Once you are bankrupt, no unsecured creditor may continue any action, garnishment, proceeding or seizure against you or your assets. If someone has, or is threatening to, seize any of your assets or garnish your wages, you should contact one of our offices or call 1-888-455-6060 immediately to seek advice as to your rights.
In a bankruptcy, the Trustee settles all of your discharged debts by realizing upon non exempt assets and paying the net proceeds of those assets to the creditors. Each province provides a list of exempt assets that the Trustee cannot seize and liquidate. In addition, the Trustee does not generally deal with assets that have a proper lien or mortgage on them unless there is equity over an above the lien or mortgage amount. In most cases, with the consent of the Trustee, you will be able to keep these types of assets provided that you continue to pay the lien or mortgage payments and that you settle the equity amount with the Trustee. While you are bankrupt, you will likely be required to make monthly payments to the Trustee. The treatment of your assets and the amount of the monthly payment is unique to each individual's circumstances and for more specific guidance you should consult with a Trustee.
If you are a first-time bankrupt, you will likely be bankrupt for 9 or 21 months provided that you comply with all of your duties and have not committed any bankruptcy offences. If you are a second-time bankrupt you will be bankrupt for 24 or 36 months. The longer bankruptcy periods (21 and 36 months respectively) are applicable when a bankrupt has surplus income payments to make to the Trustee. If you have been bankrupt more than once previously, have not complied with your duties or have committed one or more bankruptcy offences, you will be bankrupt for a period of time determined by the Court taking into account the recommendations of the Trustee and any submissions by yourself and your creditors.
After you have received an Absolute Discharge from your bankruptcy, you will no longer be responsible for any of the discharged debts. However, the fact that you went bankrupt will appear on your credit rating for 6 years (7 years in PEI) after you have been absolutely discharged (14 years if it is not your first bankruptcy).