What is Bankruptcy?
In Canada, bankruptcy is a legal process that a person can choose to go through as a way of dealing with debt. Bankruptcy is presided over by a bankruptcy trustee. The process is governed by the Bankruptcy and Insolvency Act. The good news for many who are asking “What is bankruptcy?” and considering it is the following major tenet of Canadian bankruptcy: Every honest debtor deserves a fresh financial start.
Who Can File Bankruptcy in Canada?
A person eligible to declare bankruptcy in Canada must either now or in the past have resided in or done business in Canada. Canadian bankruptcy can be filed from abroad. You must also be insolvent, which means:
- You must be in debt for an amount of no less than $1,000; and
- You must be unable to pay your debts when payments are due.
What is Involved in the Bankruptcy Process?
A voluntary assignment into bankruptcy is the most common way that a bankruptcy process begins. There are times, however, when creditors petition someone into bankruptcy. You aren’t on your own because a Licensed Insolvency Trustee will handle the administration of your bankruptcy. The trustee will deal with creditors on your behalf and will file all necessary paperwork.
As soon as a trustee files your bankruptcy papers, a Stay of Proceedings is immediately put into effect. The Stay of Proceedings stops all collection actions by creditors of unsecured debts. Interest stops accruing, and collections calls cease. Wage garnishment that is either in place or being considered is also halted.
Any assets you currently have must be surrendered because they aren’t protected by bankruptcy exemptions. The trustee holds onto your assets until they are sold. The funds from the sale of your assets will be distributed to all creditors who have submitted a valid Proof of Claim on your debts owed to them.
You are required to make all required payments to your bankruptcy estate and to complete all bankruptcy duties. The government sets the cost of going bankrupt.
Once you have received your bankruptcy discharge, all eligible debts are erased.
What Debts are Not Eligible to be Erased in a Bankruptcy Discharge?
Not every type of debt is eligible to be discharged in a bankruptcy proceeding. The following debts are not erased through bankruptcy:
- Alimony or maintenance payments;
- Things that were obtained through misrepresentation;
- Money owed for stolen items;
- Fines imposed by a Court;
- Award of damages for sexual assault or intentionally inflicting bodily harm; and
- Student loans, if the bankruptcy is filed within or prior to seven years after studies have been completed.
What Happens After Bankruptcy?
A bankruptcy discharge remains on your credit for up to seven years. You will be able to rebuild your credit, once bankruptcy is behind you.
In the end, what is bankruptcy? For many people, it is the only path to a fresh start, after accruing high debts and establishing poor credit.