604-591-7634 info@rwest.ca

Bankruptcy FAQs

What assets can I keep?

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).

What does bankruptcy cost? Does it depend on my income?

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.)

How long does bankruptcy take?

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.

What about income tax debt?

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.

Who will know if I go bankrupt?

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.

What debts survive bankruptcy?

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

What happens to my credit cards?

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.