There are many new terms you will be introduced to when you start exploring the Canadian bankruptcy process. If you’re considering filing bankruptcy in Canada the following are the most common terms your trustee might mention during your initial consultation and what they mean:
1. Bankruptcy Trustee
First of all, let’s get to know the person you are meeting with. A trustee in bankruptcy (now known as a Licensed Insolvency Trustee) is licensed by the Federal government. Before being able to meet with clients, a trustee must go through a rigorous examination and qualification process. Not only are they familiar with all of the laws and rules that could affect your financial situation, they are also able to gather all of the information necessary to help you make the decision as to whether or not bankruptcy is the best solution for your situation and how it will affect your finances. Keep in mind that a bankruptcy trustee does not work for you or for your creditors. A bankruptcy trustee is an officer of the court, whose job is to assist you in filing for bankruptcy protection, but is also there to make sure that the process is not abused and that all of your creditors’ rights are protected. The system allows you to get a fresh and fair start.
2. Stay of Proceedings
One of the reasons you have probably sought out a trustee is because of the actions your creditors are already, or are about to, take against you. These can range from collection calls at all times of the day, at home and at work to legal actions against you in court. You may find out from your payroll department that there is a garnishment against your wages, or that Canada Revenue Agency has seized your bank account. By filing for bankruptcy protection, all of these things stop because a stay of proceedings is started as soon as you file. This means that no creditor can start, or continue, a collection action against you. You are protected by law.
Most people think that when they file for bankruptcy, they lose everything. They picture the moving truck arriving at their front door and emptying the contents of their home. This is not the case. When someone files for bankruptcy, they are allowed to keep their basic worldly possessions. This would include furniture, household goods, appliances, clothing and jewelry; all within reason. If you own your own car, you are allowed to keep a basic vehicle. If you lease or finance your vehicle, you will not lose it as long as your payments are up-to-date. And then there is the family home. Your creditors do not want to take your home away from you, but if there is equity in your home, you will have to pay this to your creditors to avoid having the home sold. After all, it wouldn’t be fair for you to walk away from all your debts, but keep your valuable assets. Assets are a complex subject and your trustee in bankruptcy will explain in detail how each asset would be affected by a bankruptcy filing.
4. Surplus Income
When someone files for bankruptcy, they are allowed to earn a living. Our Federal government sets certain standards, which basically say that if your take home pay on a monthly basis is more than the standard, you must pay a portion of that money to your creditors. If you are below the standard, you will not have to pay anything. The length of time you will be subject to these surplus income rules can range from as low as nine months, to as high as three years.
I always tell people it is easy to start a bankruptcy, but the hard part is finishing it. After meeting with your bankruptcy trustee and signing all the necessary paperwork, your bankruptcy is in place. Now what? What you are hoping to accomplish is having all of your debts eliminated; this is part of the bankruptcy discharge. After completing all of your duties, your trustee will report to the creditors and the courts that your bankruptcy is over and that all of your debts have been cleared. Your duties are very much in your control: complete monthly reporting and pay any surplus income owing, provide the trustee with the information necessary to complete your taxes, attend two mandatory financial counselling sessions and satisfy any payment arrangements you have made with your trustee.
6. Debts Not Dischargeable
Not every liability you have may be included in your bankruptcy. Examples include amounts owing for child or spousal support, fines or penalties imposed by a court, student loans if it has been less than seven years since you finished school and secured debts, such as a car loan or a home mortgage. Your trustee will explain these in detail to you based on your unique situation: how they are treated during your bankruptcy and what happens once you get your discharge.
7. Consumer Proposal
A consumer proposal is one of the best kept secrets in debt management for people who are struggling with their debts, and is the number one alternative to bankruptcy. A consumer proposal is a legal process handled by a consumer proposal administrator and is geared toward people who have a source of income, but have a difficult time carrying their monthly payment or are making a dent in paying down the principal debt. It allows people to settle their debts with their creditors by making monthly payments to their trustee for a maximum period of 5 years. There is still the beneficial stay of proceedings, but more importantly, they get to keep their assets (which is especially good news if there is equity in the family home).
The above list is far from all inclusive, but has touched on the highlights of the bankruptcy process. The best way to learn more is to meet with a trustee in bankruptcy. Become informed. Explore your options. Find the right solution for you and get a fresh start.