Declaring Personal Bankruptcy in BC: The Bankruptcy Process in Canada

You’d be amazed by the number of people who have navigated the Bankruptcy process in Canada and afterward went on to achieve remarkable success. Bankruptcy isn’t a sign of failure—it is a financial tool designed to help you reset your future.

Financial distress can also arise from various factors, many of which are beyond your control. So there is no shame involved when Bankruptcy is the most effective solution. However, before declaring personal Bankruptcy in BC, it is important to understand how the process works so that you make the best choice for your debt situation.

Let’s explore how Bankruptcies work in Canada.

Understanding Insolvency: Are You Eligible for Bankruptcy Protection?

There is no shortage of worries when you are in debt, but one of the most common concerns we hear from clients is whether they are eligible for Bankruptcy protection.

Thankfully, the qualifications are not difficult to meet. There are three requirements for Bankruptcy eligibility:

• You live, carry on business, or have property in Canada.
• You owe at least $1,000.
• You are unable to meet your debts when they are due.

Many people also ask whether filing Bankruptcy is available for a non-citizen or non-resident. The answer is yes, so long as the above conditions apply.

What Can Creditors Take During a Bankruptcy?

The purpose of federal Bankruptcy legislation is to give the honest but unfortunate person a fresh start. But how is that true if Bankruptcy meant you lost everything and had to walk around in a barrel?

Thankfully, you can keep quite a few assets during the Bankruptcy process. The federal government allows each province to set Bankruptcy exemptions. The protections vary from province to province, but BC maintains these core asset exemptions:

• Household goods of $4,000
• Tools of trade worth $10,000
• Equity in a motor vehicle of $5,000 (this lowers if a person is in arrears of their support payments)
• Principal residence equity of $9,000
• Certain life insurance policies
• Necessary clothing and medical aids
• Retirement savings plans, except for contributions in the prior 12 months

Keep in mind that the dollar values listed are not for new assets but for used assets (which tend to hold a much lower value). In addition, if you had an asset worth more than the exempt amount, you don’t automatically lose it. However, you must pay the difference between the asset value and the exemption over time.

People also wonder about their car with a vehicle loan or if the vehicle is collateral on a loan. Will you lose your ride? In our experience, there is more owed on the loan than the worth of the vehicle, so as long as the payments are made, the secured lender is usually happy for the arrangement to continue.

Understanding the Bankruptcy Process

The Bankruptcy process begins by meeting a Licensed Insolvency Trustee (or LIT—that’s us!). At the first consultation, we will assess your situation and provide you with feedback as to your options. Then, if deemed appropriate, we will guide you through the Bankruptcy process.

Since federal law governs the Bankruptcy process, a Vancouver Island Bankruptcy is no different than a Vancouver Bankruptcy. Upon the decision to go ahead, the same general sequence unfolds:

1. Forms are prepared based on an application form.
2. Once signed, we register the forms with the Office of the Superintendent of Bankruptcy, who then generates an estate number and official date.
3. The LIT notifies creditors to stop all collection action.
4. You must submit a report each subsequent month that indicates your monthly income and expenses. Depending on the level of income, a monthly payment is calculated based on average take-home pay and any non-exempt assets.
5. A discharge from Bankruptcy (aka, the finish line) occurs automatically after a set time period, usually between 9 to 21 months, once again depending on your income level. If it is a second Bankruptcy filing, the timeline is longer.
6. The LIT must file your personal tax return for the year the Bankruptcy began and the calendar year prior, if not already filed. If there is a tax refund, CRA will pay those funds into the Bankruptcy for the benefit of the creditors.
7. You must attend two financial counselling sessions regarding future financial skills.
8. At the conclusion, the LIT will issue a Certificate of Discharge that signifies the end of the Bankruptcy period and the formal discharge of the debts.

What Are the Consequences of Bankruptcy?

The consequences of Bankruptcy tend to be more positive than negative. The prospect of no more credit card bills, payday loans, or income tax garnishees is much more attractive than a credit rate drop. In fact, if you have missed payments, your credit rating is probably already low. After the Bankruptcy discharge, it will go up.

Bankruptcy Alternatives

In our opinion, Bankruptcy is the last resort. Before getting to this point, we have a thorough conversation about what options are available. Depending on circumstances and cash flow, these might include:

• Selling redundant assets.
• Getting a debt consolidation loan from a bank or credit union.
• Making arrangements directly with the creditor.
• Filing a Consumer Proposal. This option has become the most popular way to consolidate unsecured debt across Canada. It also must be filed by a Licensed Insolvency Trustee and is also a federally regulated option.

Pro tip: there is no need, nor requirement, to meet with a financial advisor before speaking directly with a Trustee office.

Conclusion

Although no one sets out with the goal of filing for Bankruptcy, it is an important part of an advanced economy. The majority of people we see find tremendous relief and are thankful for the financial fresh start. Most of our clients say they wish they had known about it earlier. Once you find out the facts about declaring personal Bankruptcy in BC, it is not such a scary process.

Please contact one of our convenient offices to set up a free initial consultation where we can discuss your situation.