bankruptcy eligibility

Bankruptcy Eligibility: Do I Qualify for Bankruptcy?

Sometimes we field the question: Am I even eligible for bankruptcy?

An honest question. The Bankruptcy and Insolvency Act (BIA) is Federal Law and is available for people from coast to coast to utilize in order to obtain a fresh start with their finances. It is the BIA that sets the requirements to be able to assign into bankruptcy.

The quick answer is that it is very easy to qualify for bankruptcy protection. You don’t need to wait to be missing regularly scheduled payments or for a house foreclosure to complete. Nor do you have to wait to have all of your old personal income tax returns filed. By delaying for these reasons, or others, you are just setting yourself up to experience months of unnecessary stress and sleepless nights.

As per the BIA, in order to make an assignment into bankruptcy, you must be an insolvent person or the legal representative of an insolvent person. So what does that mean? An insolvent person is an inclusive phrase which includes an individual, a partnership, a corporation or the legal representative. In addition, the insolvent person must satisfy three requirements:

1. Not be a bankrupt. This means that you cannot make an assignment into bankruptcy if you are currently in a bankruptcy. Occasionally, when we are initially meeting with people at a no cost initial assessment, it comes up that they filed for bankruptcy many years ago. We have the ability to search the Federal Government’s records to determine if that bankruptcy successfully completed and a discharge was granted. If it wasn’t, then steps have to be taken in order to obtain a discharge from the old bankruptcy before proceeding with a current one.

2. Reside or carry on business in Canada or have property in Canada.

3. Have debts of at least $1,000. A surprisingly low threshold so virtually any Canadian resident with debt can qualify.

This is probably what is at the root of the initial question for most people. In other words, is there enough money owing to warrant a bankruptcy filing? Is it the right choice? We believe that the answer is that it depends. Making an assignment into bankruptcy should be a well thought out decision. We always take the time to discuss other options such as consolidation loans, selling assets, budget changes, and Consumer Proposals before analyzing what a bankruptcy filing would look like. We meet with some people who might owe $5,000 to $10,000 and never have a hope in repaying it due to fast moving interest on the debt and a modest income. In that situation, the debt might as well be as big as Mount Everest. Debt help is needed. A bankruptcy filing could free up room in the budget to pay for food and other essentials. In other cases, there could be hundreds of thousand of dollars in debt and a bankruptcy filing is the obvious choice.

So to answer the original question most people are likely eligible. Is it the right choice? That depends on a variety of factors such as assets, income level, age, and family situation. The only way that an assignment in bankruptcy or a Consumer Proposal can be filed in Canada is through a Licensed Insolvency Trustee (LIT). Most LITs, including our office, offer a free initial assessment where you can obtain the necessary information to make a wise choice.

If your debt is not going down, or if you are experiencing oppressive collection like phone calls from collectors or an income tax garnish, don’t hesitate to contact us to discuss your situation.

While some of these terms may sound intimidating make an appointment and ask questions! In our experience, once you find out the details, debt stress will leave your life. Why not make that first appointment, it’s free!

Derek L. Chase, CPA, CA, LIT

Being able to offer debt help assistance to individuals and corporations on a more intimate basis was a driving force in completing a “second CPA” by becoming licensed by the Federal Government as a Licensed Insolvency Trustee (previously Trustee in Bankruptcy) in 1997. It is extremely satisfying to be able to witness lives change for the positive due to a restructuring of financial affairs.