Personal Insolvency Options

Options available to you are the following: Personal Bankruptcy or Consumer Proposal

Personal Bankruptcy

• Bankruptcy involves assigning your assets to a Trustee in bankruptcy for the distribution to your creditors. This is referred to as filing an assignment. The person filing an assignment is known as the bankrupt.
• An assignment provides the bankrupt with immediate relief from legal actions by creditors and eliminates the majority, if not all, of his or her debts.

• In order to make an assignment in bankruptcy, you must:
  • Owe at least $1000; and
  • Be unable to meet regular payments as they fall due; or
  • Own insufficient property to pay all of your debts
• Your own personal situation will be reviewed and counselling provided.
• You may be able to keep up to $31,000 in assets pursuant to the Court Order Enforcement Act.

Bankruptcy is not an easy way out of owing money

• The purpose of bankruptcy is to rehabilitate an honest debtor and to fairly distribute the bankrupt's assets and surplus earnings to creditors. The Bankruptcy and Insolvency Act penalizes both bankrupts and creditors who abuse the system.

• You may have enough income to manage your debts at a reasonable cost over a period of time. You might consider the following instead of bankruptcy:
  • Credit counselling
  • Informal proposal
  • Orderly payment of debts
  • Consumer proposal under the Bankruptcy and Insolvency Act
  • Proposal under the Bankruptcy and Insolvency Act

The Bankruptcy and Insolvency Act offers an alternative to bankruptcy:
• A consumer proposal, based on your circumstances, can be made to your creditors.
• You may ask the creditors to reduce the amounts owing to them or request more time to pay the amounts due.
• A consumer proposal must be made to all preferred and unsecured creditors but does not affect the rights of secured creditors.
• The terms of the proposal must be completed in five years and must offer the creditors at least what they would be paid in a bankruptcy.
• The consumer proposal is aimed at those who do not have many debts or complicated financial affairs.

Personal Bankruptcy Process

The major steps in making an assignment in bankruptcy

• Meet with a licensed Trustee for an initial counselling session.
• File an assignment in bankruptcy with the Official Receiver.
• Attend an examination by an Official Receiver, if required.
• Attend a meeting of creditors, if required.
• Attend two counselling sessions.
• In some cases, apply to the Court for a discharge from bankruptcy.

• A Trustee is an individual or corporation licensed by the government to conduct the bankruptcy process.
• A Trustee is not a lawyer. You can ask advice about certain bankruptcy matters but you are not a client of the Trustee.

• Disclose all of your assets and liabilities to the Trustee.
• Advise the Trustee of any property disposed of in the past year.
• Surrender all credit cards to the Trustee.
• Attend an examination before the Official Receiver, if required.
• Attend the first meeting of creditors.
• Advise the Trustee in writing of any address changes.
• Generally assist the Trustee in administering the estate.

• Wage assignments and garnishments are stopped once bankruptcy is declared.
• The Trustee reviews the amount of your wages and your living expenses.
• Your income is then compared to the guidelines set out annually by the Superintendent of Bankruptcy.
• These guidelines take into account the amount of household income and the number of dependents.
• The trustee will provide you with a copy of the guidelines and a supply of monthly income and expense forms.
• If you have surplus household income, a portion may have to be paid to your creditors through the Trustee.

• The only assets not assigned to the Trustee for distribution to your creditors are those exempted by provincial law.
• All of your assets declared under oath to the Trustee must be fully disclosed and properly valued.
• Your assets include all existing assets as well as those that may be acquired prior to your discharge.
• Once you have filed an assignment you cannot dispose of any assets assigned to the Trustee.
• Property exempt from seizure from each bankrupt includes the following:
  • Unencumbered personal good and chattels to maximum value of $4,000.
  • Automobile up to $5,000 unless you owe money for support or alimony in which case the value is $2,000.
  • Certain insurance investments, where designated beneficiary is a spouse, child, grandchild or parent of the person whose life is insured.
  • Tools of the trade to a value of $10,000.
  • Principal Residence equity in greater Victoria or Vancouver to a value of $12,000 or $9,000 elsewhere.

• The rights of secured creditors are normally not affected by bankruptcies and consumer proposals.
• If a creditor has a valid security registered against your property (car or house), consult the Trustee about surrendering the asset.
• If you can afford monthly payments, financial arrangements may be made with the secured creditor.

• You must supply the Trustee with documents to complete two income tax returns during the year in which a bankruptcy occurs, and the year prior to bankruptcy.
• A pre-bankruptcy income tax return must be filed for the period from January 1 to the date of bankruptcy.
• A post-bankruptcy income tax return must be filed for the period from the date of bankruptcy to December 31.
• Income tax refunds from prior years are assets of the bankrupt estate and must be sent to the Trustee.
• The Trustee will request that refunds from the post-bankruptcy return be paid to the trustee for budget to the creditors.
• Income taxes owing prior to the bankruptcy are discharged.
• Any amount owing on the post-bankruptcy tax return must be paid by the bankrupt.

• A first-time bankrupt is automatically granted a discharge nine months after filing bankruptcy unless a creditor, the Trustee, or the Official Receiver objects. If you are granted an automatic discharge, there is no court hearing and the Trustee sends you a copy of the discharge

• Debts that are not discharged by bankruptcy are outlined in Section 178 of the Bankruptcy and Insolvency Act. These include:
  • Fine or liability imposed by the Court
  • Alimony
  • Debts arising from fraud 
  • Liability for dividend to undisclosed creditor
  • Debt obtained by fraud
  • Liability for support or maintenance of spouse or child under an agreement or Court Order
• Student loans are not discharged unless you have been out of school 10 years.
• Damages ordered to be paid by Court re: bodily harm, assault, sexual assault or wrongful death resulting therefrom.