How Bankruptcy Works

How Bankruptcy Works
BankruptcyCanada.com

Table of Contents
Page 3
Page 6
What You Keep in Bankruptcy
Page 7
How to Choose a Good Trustee
Page 12
What is the Bankruptcy Cost?
Page 16
Steps in a Canadian Bankruptcy
Page 23
Debts Erased in a Bankruptcy
Page 25
Discharge From Bankruptcy
Page 27
Rebuilding Credit After Bankruptcy

• A main purpose of the Canadian
bankruptcy law is to afford a person the
opportunity to get a fresh start by
eliminating their overwhelming
amounts of debt that they have no
hope of repaying.
• The main requirement for filing
bankruptcy in Canada is you must be
insolvent which means your debts are at
least $1,000 and you are unable to pay
your debt as it becomes due.

• When going bankrupt you can keep certain assets to
help you with your “fresh financial start.”
• The overview of how bankruptcy works is that most
people who file bankruptcy keep all their assets and
are out of bankruptcy in nine months. In most cases
all unsecured debts are erased upon the discharge
(when the person is out of bankruptcy).
• In almost all bankruptcies the debtor must pay $200
each month for 9 months for a total cost of $1,800.
• Our bankruptcy cost calculator will give you the exact
bankruptcy cost based on your personal situation.

• How bankruptcy works is also by eliminating most debts.
• While going bankrupt will eliminate most of your debts, certain
debts survive the bankruptcy:
• Court imposed fines;
• Money that you owe for items obtained through theft;
• Money gained through misrepresentation;
• Child support and alimony payment arrangements;
• Damages that were awarded by the court for sexual assault or
intentional infliction of bodily harm;
• Student loans if going bankrupt occurs prior to or within 7 years
after finishing the studies.

What You Keep in Bankruptcy
• One of the major tenets of Canadian bankruptcy law is
that a person, overwhelmed by debt, deserves the
opportunity of a fresh financial start. Part of that fresh
start includes leaving the person with enough
possessions to maintain dignity and to help that person
towards his or her fresh start.
• The property exempt form seizure, in a bankruptcy, is
set by the provinces and territories.
• Bankruptcy exemptions refer to the equity in the
property that is exempt from seizure in a bankruptcy or
any other seizure situation.

• Choosing a bankruptcy trustee starts with setting up a
meeting with a trustee. You can find a trustee here.
• You will need to make an appointment to meet with him or
her. The initial consultation will be free.
• Your initial meeting may be with an Administrator and not
the trustee in bankruptcy. This is alright. Administrators are
highly skilled and trained. They are also under the close
supervision of a trustee in bankruptcy. Before you sign any
bankruptcy or proposal documents, a trustee in bankruptcy
will meet with you and do an assessment of your financial
situation. The trustee in bankruptcy will also sign some of the
documents along with you.

• Checklist for Choosing a bankruptcy Trustee.
• When I first phoned the trustee office were they
responsive when I told them why I was calling? If I
had to have someone phone me back did they get
back to me quickly?
• Is the initial consultation free?
• If I wanted to see a trustee as soon as possible did the
trustee office set up the initial consultation in a
matter of a day or two?

• If I had an emergency because someone was going
to garnishee my pay was the trustee able to see me
that day or early the next day?
• Do the people at the trustee office treat me with
sensitivity and respect?
• Did they keep you waiting much past your scheduled
appointment time?

• If they did keep you waiting past your appointment
time did someone explain why they were delayed?
• Did the trustee address all your questions and
concerns?
• Am I going to be comfortable dealing with the
administrator or trustee?

• Did the administrator or trustee answer all my
questions so I could understand how bankruptcy will
affect my family and me?
• Will I be given all my duties in writing?

• In the vast majority of cases the bankruptcy
cost is $1,800.00, which can be paid over 9
months at rate of $200.00 a month.
• The cost of bankruptcy will depend on several
factors such as how much you earn and the
size of your family.

• The base cost of filing bankruptcy: When you
go bankrupt in Canada you will be required by
your bankruptcy trustee to make a base
contribution to your bankruptcy estate every
month, which is generally $200 a month for 9
months (for a total of $1,800, which is the
minimum cost of bankruptcy in Canada).

• Surplus Income Costs: In some bankruptcies
you will have income over a threshold set by
the government and in this case the cost of
your bankruptcy will increase because you will
be required to pay a portion of your excess
income to your trustee for distribution to your
creditors through your bankruptcy estate.

• These payments are known as surplus income payments.
If you are required to make surplus income payment your
bankruptcy will cost more and you will be bankrupt for
longer.
• You will be required to make surplus income payments if
your average income during the first 7 months you are
bankrupt is $200 or more over the limit set by the
government based on your family size.
• Debtors who will have significant surplus income
payments might want to consider a consumer proposal
as a bankruptcy alternative.

• Step #1 in a Canadian Bankruptcy
• Consultation with the Trustee.

• Take the time to think over what
the trustee told you.

• The trustee will mail out the bankruptcy
documents to your creditors within 5 business
days of your signing the documents.

• Each month you will send in your Statement of
Income & Expenses, pay stubs and the
required monthly payment to your trustee.

• Two financial counselling sessions are held at
the trustee’s office.
• The first counselling session is held within the
1st two months; the second one is held at the
7th month.
• You must take the two financial counselling
sessions in order to be eligible for your
discharge from bankruptcy.

• At the eighth month, following your signing the
bankruptcy documents, your trustee must report
on how you conducted yourself before and during
the bankruptcy.
• If you have conducted yourself properly and
performed all your duties your trustee will
recommend an absolute discharge from
bankruptcy.
• The majority of bankrupts are discharged in nine
months.

• Your Trustee will send you your Certificate of
Discharge which will certify that all your eligible
debts have been erased.
• The credit bureau will be notified and in 6 years the
record of the bankruptcy will be removed from your
credit report.
• If any former creditor tries to collect from you or
says you still owe them money showing them a
copy of this document will prove that you do not
owe them any money.

• When you receive your discharge
from bankruptcy the debts erased are
all of your eligible debts that existed
at the time of the bankruptcy filing.
• You must include all of your debts in
your bankruptcy paperwork.

• Debts Erased in a Bankruptcy include:
• Credit Card Debt;
• Payday Loans;
• Mortgage Debt Shortfalls;
• CRA Debts;
• Student loans if you have been out of
school for 7 years.

• Getting your discharge from bankruptcy is usually
automatic.
• In the vast majority of cases a person is discharged
(released from bankruptcy) nine months after
filing bankruptcy.
• The discharge from bankruptcy is very important to the
bankrupt as it results in the following:
• * The debtor is no longer bankrupt and therefore not
under any more obligations under the Bankruptcy and
Insolvency Act;

• * The bankrupt no longer has a restriction on being a
director of a corporation under provincial law;
• *The countdown to when the credit bureau clears the
person’s record of having gone bankrupt begins its six-
year term;
• If a person does not get a discharge from bankruptcy,
the trustee will seek to be discharged once the file has
been completed.

• A person can start to rebuild credit as soon as
he is discharged from bankruptcy.
• Rebuilding credit after bankruptcy will be quick
and painless If you follow the steps provided
here.
• You will be able to get a secured credit card and a
car loan shortly after you are discharged.

Rebuilding credit after bankruptcy – Step 1 –
Get your Bankruptcy Discharge or the Certificate of
Completion for your Consumer Proposal or Division I
Proposal.
After you have filed for bankruptcy or a proposal, you will
need to follow your trustee’s directions on how to gain your
Absolute Discharge or Certificate of Completion.
If you have not gained your Absolute Discharge or
Certification of Completion, it is impossible to gain any
form of borrowing, even with private lenders. Attempting
to gain financing before your discharge is futile.

Rebuilding credit after bankruptcy - Step 2 –
Clean up your credit.
Check your credit report and write to the credit bureau
to correct any errors.
The credit bureaus will correct mistakes on your credit
report. They will not remove information that is
correct.
Now that you have your Absolute Discharge, you need
to clean up your credit score, or ensure that it is clean
already. It is very common to see multiple errors on
credit scores.

Check your Credit Report to see if
you have to correct errors.
Get a free credit report
from Equifax and TransUnion by downloading the
forms. You will get your report in a few weeks.
You can pay for Equifax’s report online and have it
instantly.
The online report costing $15.50 only includes your
credit report.
You can pay for TransUnion’s report online and have it
instantly.

Rebuilding credit after bankruptcy -Step 3 –
Gain New Credit.
Re-Established Credit has to be New Credit
After you receive your bankruptcy discharge you need
to get new credit to start rebuilding your credit and
increasing your credit score.
By handling your new credit responsibly you will show
lenders that you are responsible managing your
money which will help your credit score improve.

A Bankruptcy Canada tip is to get a secured credit card and use it
for small monthly purchases, such as your gym membership.
This secured credit card is recommended because they report
your payments to the credit bureaus.
After You obtain the secured card you should do the following:
RAISE YOUR SCORE: You want to get your FICO score back up to
about 700 or higher, because then you can qualify for a
mortgage.
2) INCREASE YOUR LIMIT: If you start off with the minimum $500
limit, you will want to increase your limit on your card using this
form to show that you can handle a higher limit.

Accumulate your Down Payment.

Contact a Mortgage Professional who is
experienced at helping people, who were in
bankruptcy, filed a proposal or a consumer
counselling debt program, get a mortgage.

Contact a Licensed Insolvency Trustee
• To Learn More About Bankruptcy in Canada:
Call 24/ 7 For a Free Evaluation
1-877-879-4770

How Bankruptcy Works

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