- What assets can I keep?
- What does bankruptcy cost? Does it depend on my income?
- How long does bankruptcy take?
- What about income tax debt?
- Who will know if I go bankrupt?
- What debts survive bankruptcy?
- What happens to my credit cards?
In British Columbia, your exempt assets (assets that can’t be seized) are as follows:
- equity in your home up to $12,000 in the Metro Vancouver area and $9,000 elsewhere in the province (Abbotsford, Chilliwack, and so on)
- household furnishings and appliances up to $4,000
- tools of the trade up to $10,000
- all necessary clothing and medical aids
- $5,000 in equity from a motor vehicle or $2,000 if you are in debt for child maintenance arrears
RRSPs are generally exempt from seizure. However, any contributions to an RRSP in the 12-month period preceding your filing into bankruptcy may not be exempt.
Depending on your designated beneficiary, the cash surrender value of your life insurance may be exempt.
The insolvency trustee must deal with any partially exempt assets (assets with a value exceeding your provincial exemptions) and any non-exempt assets. At R. West & Associates Inc., we often make arrangements for a bankrupt to repurchase the non-exempt assets from the bankruptcy estate (to avoid the liquidation of such assets).
The bankruptcy fees paid to a trustee are regulated by the federal government. The actual cost of bankruptcy varies according to your net adjusted income (see Surplus Income Standards), number of dependents, assets, any prior bankruptcies, and the complexity of your situation. Normally, we set up a monthly payment plan based on these factors.
The Superintendent of Bankruptcy has established Surplus Income Standards that are compared to your household’s adjusted net income. These standards set the dollar amount you are required to pay monthly to your trustee. The standards vary depending on the number of people in the household. Generally, if the
household’s adjusted net income exceeds the applicable income standard, you are required to pay 50% of your proportionate share of the difference into your estate. We will discuss this issue with you during your initial consultation. (See calculation of Surplus Income Obligation.)
If you’re a first-time bankrupt and no surplus income obligation exists, 9 months after you file into bankruptcy, you will be eligible for an automatic discharge from bankruptcy. If you have a surplus income obligation, you will not be eligible for an automatic discharge from bankruptcy until after 21 months.
If this is your second bankruptcy and no surplus income obligation exists, 24 months after you file into bankruptcy, you will be eligible for an automatic discharge from bankruptcy. If you have a surplus income obligation, you will not be eligible for an automatic discharge from bankruptcy until after 36 months.
Your eligibility for discharge is also based on these two factors:
- You have completed your duties.
- Your creditors are not opposing your bankruptcy and forcing a court hearing.
Your duties include:
- timely reporting of your monthly income and expenses
- providing the trustee with all the necessary tax information to file your tax returns
- completing the payment arrangement you make with the trustee for the repurchase of non exempt assets from the bankruptcy estate (to avoid the liquidation of these assets)
- keeping the trustee informed of any change in residence, employer, marital status, and so on
- making payments to the trustee in accordance with the surplus income standards and/or to cover the basic administration costs of your bankruptcy
- attending both counseling meetings
- surrendering all your credit cards
- informing the trustee of any material change in your financial situation (inheritance, lottery winnings, and so on)
If your discharge is opposed, the opposition and your application for discharge will be heard by the bankruptcy court. After reading our report on your conduct throughout the bankruptcy, considering your present financial situation, and taking into account the opposing creditors’ arguments, the court may:
- still discharge you from bankruptcy
- grant you a discharge subject to completing certain conditions
- suspend your discharge to a specific date
- adjourn your application for discharge (this is usually done if you have not completed your duties)
During your bankruptcy, your credit rating indicates that you are presently in bankruptcy. After your discharge from bankruptcy, your credit rating will indicate that you previously filed for bankruptcy.
Your discharge from bankruptcy normally releases you from an income tax debt. However, the Canada Revenue Agency (CRA) has enacted legislation allowing it to become a secured creditor, which makes it more difficult for you to discharge this debt.
If you have not appealed a tax assessment and the assessment is more than 90 days old, CRA can register a secured claim against your personal or real property (land and buildings). Based on our experience, CRA normally allows your provincial exemptions and negotiates the amount to be paid for the removal of the registered charge against your property. However, in determining whether to grant the provincial exemption, CRA considers compliance history, the amount of debt, and reason for the debt.
If you have significant tax debt and personal or real property, time is of the essence. We strongly recommend that you obtain independent financial advice or contact us for a free initial consultation.
In determining whether to oppose a bankrupt’s discharge from bankruptcy, CRA will normally review the bankrupt’s income tax compliance history, amount of tax debt, reason for the tax debt, and present financial situation.
An automatic discharge from bankruptcy is not possible for a bankrupt whose personal income tax debt exceeds $200,000 and whose personal income tax debt represents 75% or more of the total unsecured proven claims. In this situation, the bankrupt will normally be required to attend court to obtain the discharge.
Most personal bankruptcies are not advertised in the newspapers. However, if your non-exempt assets exceed $15,000, the bankruptcy will be advertised.
During your bankruptcy, we are required to contact all of your creditors. In some circumstances, it is necessary to contact your employer or your financial institution (to stop a garnishment).
We understand that bankruptcy can be embarrassing; therefore, we try to be discrete and only contact the parties we need to.
Your discharge from bankruptcy will not release you from any of the following obligations:
- fines or penalties imposed by a court or default on bail bond alimony or child support arrears (Ongoing obligations for child support or alimony are not stayed by a bankruptcy; you are required to continue to make these payments.)
- any debt or liability arising out of fraud, embezzlement, misappropriation, or defalcation while acting in a fiduciary capacity
- debts not disclosed to the trustee (Creditors are entitled to the dividend that would have been paid if a claim had been submitted in the bankruptcy.)
- any award of damages by a court in civil proceedings with respect to bodily harm intentionally inflicted, sexual assault, or resulting wrongful death
- student loans, if you become bankrupt before or within seven years after ceasing your studies (After seven years of ceasing to be a student, and after being discharged from bankruptcy, if you have acted in good faith and have continued to experience financial difficulty, you may make an application to the
court for an order for the discharge of a student loan.)
- debt for interest on debts that survive a bankruptcy
You are required to hand in all your credit cards to your trustee. The credit cards are destroyed, and the affected creditors are notified of your bankruptcy.
While in bankruptcy, you are not allowed to get or use a regular credit card; however, you can obtain a prepaid credit card.