How Does Bankruptcy Work In Ontario?
Only people who live, do business or own property in Ontario are eligible to file bankruptcy in the province. You must also own more than $1,000 in unsecured debt to qualify.
If you want to file for bankruptcy in Ontario, you have to contact a Licensed Insolvency Trustee. Here is how the process goes:
- You book a consultation with a Licensed Insolvency Trustee.
- The trustee reviews your debts, assets, and your budget to see if you are insolvent. You are insolvent if you are not able to make the monthly payments for your debt and/or your total debt exceeds the full value of your assets.
- Together with the trustee, you review all the options to deal with your debts at your disposal, including bankruptcy and other alternatives.
- Together with your trustee, you review the costs of claiming bankruptcy and compare them with your other options.
- Your trustee prepares the paperwork necessary to file your personal bankruptcy with the Office of Superintendent of Bankruptcy.
- You sign the necessary paperwork.
- Your trustee sends the paperwork to your creditors within five days.
- Your creditor protection begins.
Pros And Cons Of Claiming Bankruptcy
Fresh Financial Start
The biggest and most desirable benefit of claiming bankruptcy in Ontario is that you get the opportunity to have a fresh financial start, without dealing with overwhelming debts on a daily basis.
No More Harassing Collection Attempts
After your trustee submits your paperwork, the Bankruptcy and Insolvency Act secures your right to an automatic stay of proceedings. Among other things, this implies that all the actions and attempts to force repayment are suspended while you move forward with the legal process of bankruptcy and that no new enforcement actions can be started.
This includes, but is not limited to:
- Collection calls
- Wage garnishment
This can give you some breathing room if you’re getting threatening calls from collectors of if your wages are garnished.
Most Of Your Financial Obligations Will Be Cleared
Most of your unsecured debts, such as credit cards, payday loans, personal loans, lines of credit, and tax debt will be cleared. With fewer bills around, your finances should be easier to manage.
However, there are some financial obligations you will still have to pay. Child or spousal support payments, as well as payments for other court judgments, will continue. If you’ve been out of school for seven years or more, your student loans might also be cleared.
Another benefit is that you could be debt-free in about nine months, when most first-time bankruptcy statements are completed.
However, this process can take up to 21 months if the trustee finds that you have surplus income or even longer if you’re not filing for your first bankruptcy.
Your Assets May Be Liquidated
One of the major downsides of bankruptcy is that your assets may be liquidated. All of your assets that do not classify as exemptions will be sold and all of the proceeds will go to your creditors.
Now, that doesn’t mean you’ll lose everything. You will get to keep your personal items, such as your clothing, household items, work tool, and sometimes even a vehicle. Most of your savings in the Registered Education Savings Plan (RESP), the Registered Retirement Savings Plan (RRSP), and your pension will also be protected. However, the contributions you made to these plans will not be exempt.
You will Fully Disclose Your Finances
You will have to disclose your income, assets, debts, and even some financial transactions to your Licensed Insolvency Trustee. This is necessary to complete a Statement of Affairs. Both the trustee and the court will know everything about your finances.
You will also have to submit your tax documents and pay stubs during the bankruptcy process to prove your income. This is how the trustee knows if you have surplus income.
The Filing Becomes Part Of Your Permanent Record
Your Licensed Insolvency Trustee will submit the filing to the Office of Superintended of Bankruptcy. The filing will be a part of your permanent record.
However, for most people, this means that only your trustee and your creditors will be aware of it besides yourself.
Bankruptcy Assets and Exemptions
Even though bankruptcy offers a fresh financial start, most of your assets may be seized under Ontario bankruptcy law. However, the law exempts most of your personal and household belongings, as well as the tools you use to make a living from seizure:
- All your clothing
- A motor vehicle, if its value is lower than $6,600.
- Furnishings and appliances, if their combined value is lower than $13,150.
- The tools you use to earn a living, if their combined value is lower than $11,300.
- RESPs, RRSPs, pension plans, and certain life insurance policies, excluding recent contributions.
Will I Be Able To Keep My House After Bankruptcy?
The answer to this question varies according to your specific circumstances, but claiming bankruptcy should not affect your house if you don’t have significant equity in it.
Can I keep My Car After Bankruptcy?
According to the Ontario bankruptcy law, you are allowed to keep a motor vehicle if its value is lower than $6,600.
Can I Apply For Credit After Bankruptcy?
The bankruptcy filing goes on your permanent record. Lenders consider bankruptcy as a high risk, so it will make it difficult for you to obtain future credit at convenient interest rates.
However, you can rebuild your credit after bankruptcy.
How Bankruptcy Affects Credit Score
Duties During The Bankruptcy Process
Personal bankruptcy requires you to surrender certain assets, such as personal property or credit cards, to your trustee.
You will also have to submit your tax documents and pay stubs during the bankruptcy process to prove your income.