How Bankruptcy Works
When you declare bankruptcy, your property is given to a trustee in bankruptcy who then sells it and distributes the money among your creditors. Every creditor — ranging from secured, preferred, unsecured and deferred — must prove their claim to be entitled to any of the distribution from the bankrupt’s estate.
Before making a final decision to take that route, you should have a serious chat with a bankruptcy trustee. That trustee or an administrator will perform an assessment of your financial situation and present you with the options available to you.
Consider the Alternatives
Before making the final step, consider trying to:
- Reanalyze Your Budget to try to trim expenses and readjust your financial plan to try to avoid bankruptcy. Can you sell anything of value to help pay off your debt, such as a car or house?
- Get a Debt consolidation Loan so you are only paying one loan payment each month rather than to multiple creditors.
- Be Proactive with Creditors by contacting them to see if they will “forgive” some of your debt or reduce your interest rates.
If you decide to go ahead and declare bankruptcy, the trustee will help you complete the myriad forms necessary to complete the transaction.
One form is an "Assignment." In signing this, you state that you are handing over all of your property to the trustee for the benefit of your creditors. Another form is called the "Statement of Affairs." In this, you list your assets, liabilities, income and expenses.
These forms and others are then filed with the Official Receiver. If there is no opposition, the bankruptcy is discharged and you are legally bankrupt.
Your earnings are not, in normal circumstances, interfered with by the trustee.
As a condition of your financial status, you will be required to attend a minimum of two counselling sessions with a counsellor.
You have to pay a filing fee to the Office of the Superintendent of Bankruptcy (OSB). In addition, the trustee is entitled to be paid. These fees are prescribed by the Bankruptcy and Insolvency Rules which you can learn about on the OSB's website at: http://osb-bsf.ic.gc.ca.
You can contact the OSB directly at:
OSB National Headquarters
155 Queen Street, 4th Floor
Ottawa, Ontario K1A 0H5
Addresses for the Office of the Superintendent of Bankruptcy (by Province)
Who will know?
In a bankruptcy that involves significant assets, a notice is placed in the "legal notices" section of a newspaper, to alert creditors to the date of the meeting of creditors. But if there are minimal assets, the creditors are notified by mail. Credit bureaus are also advised of the bankruptcy, and it is noted in your file. All bankruptcies are public documents.
What are a bankrupt's obligations?
A bankrupt must keep the trustee informed about various developments over the course of his or her bankruptcy. For example, the individual must report on where they are living, and account for their earnings, living expenses and any changes in family status.
When is a bankrupt discharged?
First-time bankrupts qualify for an automatic discharge nine months after they became bankrupt, unless the trustee recommends a discharge with conditions or the discharge is opposed by a creditor, the trustee or the Superintendent of Bankruptcy. In the event that you have been bankrupt before, your discharge will not be automatic and you'll need to go before a judge or a registrar to have it discharged.