What is personal bankruptcy?
Filing for personal bankruptcy in BC (British Columbia) is a legal process in which you assign your assets to a licensed bankruptcy trustee in exchange for you obtaining relief from your debts. Bankruptcy in British Columbia is governed by federal law (the Bankruptcy & Insolvency Act) and by provincial B.C. bankruptcy rules.
Bankruptcy laws are designed to permit an honest but unfortunate debtor to obtain relief from his or her debts while treating creditors equally and fairly. Through the bankruptcy process, you are able to get a fresh start financially.
Who can file for bankruptcy in British Columbia?
In order to file for bankruptcy in BC, and in Canada in general, you must live or do business in Canada and be insolvent. To be an insolvent person you must owe at least $1,000 and must:
Be unable to pay your debts as they become due, and/or;
Have ceased paying your current obligations as they become due, and/or;
Have more debts than realizable value of assets.
What happens when I file for bankruptcy in B.C.?
Once a bankruptcy has been filed, there is a legal “stay of proceedings” that occurs. This stops any ongoing legal collection actions and prevents any further collection actions from starting. It stops wage garnishments, even those from Canada Revenue Agency for income tax debts. Calls from creditors and collection agencies should stop.
The stay of proceedings generally only deals with unsecured debts. Those creditors holding assets as collateral (e.g. house mortgages and car loans) will still have the right to foreclose or seize the asset if the loan is not paid. However, any shortfall or deficiency to the secured creditor after foreclosing or seizing will also be an unsecured debt and can be eliminated in a bankruptcy proceeding.
When are the debts extinguished?
The “stay of proceedings” remains in place until your discharge from bankruptcy, meaning that your debts are then legally extinguished. For most bankruptcies, discharge occurs automatically after between 9 and 36 months depending on whether you have “surplus income” or have been bankrupt once before and as long as the basic bankruptcy duties are complied with.
A court discharge hearing will be required, if you have been bankrupt more than once before or have large income tax debts.
Do some debts survive personal bankruptcy?
Once the bankrupt has received an absolute discharge, all debts are extinguished with the exception of the following:
- Child support payments and spousal maintenance.
- Fines or penalties imposed by the court.
- Debts obtained by fraudulent means or fraudulent misrepresentations.
- Non-declared debts that would have the effect of defrauding creditors.
- Student loans where schooling was completed less than seven years prior to bankruptcy.
What assets can I keep?
You are permitted to keep some assets in a bankruptcy. These exemptions are set by various federal and provincial laws. For personal bankruptcy in B.C., the following assets are exempt:
- $4,000 worth of household goods.
- $10,000 worth of Tools of the Trade.
- A motor vehicle worth $5,000 (and $2,000 for maintenance debtors).
- Equity in a home valued at $9,000 ($12,000 if living in the Capital Regional District and the Greater Vancouver Regional District).
- All necessary clothing and all required medical aids (of a debtor or a dependent)
- Registered homestead to a value of $2,500.
- Certain insurance investments, where the designated beneficiary is a spouse, child, grandchild, or parent of the person whose life is insured.
- RRSP investments except for amounts invested in the year prior to bankruptcy.
What does it cost to file personal bankruptcy in British Columbia?
British Columbia bankruptcy trustees normally charge a basic amount to be paid toward the cost of administering a bankruptcy. For example, a common fee is $260 to start and eight monthly payments of $200 during the bankruptcy process. This amount can vary depending on the circumstances of each individual. The payment can also be applied toward any surplus income which may be required to be paid to the trustee.
What is Surplus Income?
During the bankruptcy, you are free to earn a salary or carry on self-employment. However, statements of household income and expenses must be submitted to the trustee at the end of each month in order to establish if a “surplus” of income exists.
The surplus is determined by comparing the household income to the standards set by the Office of the Superintendent of Bankruptcy. If you have surplus income, a portion (generally 50%) of the surplus is required to be paid over to the trustee for eventual distribution to unsecured creditors. For details, please see Surplus Income Calculation.
Duties During Bankruptcy
The duties assigned to you during bankruptcy are designed to help you manage your money better and get a fresh start. As long as you perform the duties during your bankruptcy you will be discharged and your debts eliminated.
Below is a summary of duties:
1) Surrender your non-exempt assets and your credit cards
2) Attend 2 credit counselling sessions
3) Each month report your income and certain expenses to your Trustee so they can calculate your surplus income
4) Provide all information necessary to file your tax return
5) Make monthly payments to cover the cost of administering your estate and payments to your creditors if you have surplus income
6) Provide your Trustee with any further financial information they require
To get a better understanding of filing for personal bankruptcy in British Columbia, we suggest you further explore this website or contact our Trustee in Bankruptcy in B.C. for a free in-person consultation about your situation and your options.