The most common questions we are frequently asked by individuals regarding personal bankruptcy are summarized below. If you are unable to find an answer to your specific question from the following selection, please contact our office at 780-944-1177 or toll free at 1-877-944-1177 to speak directly with a Faber Trustee.
Personal bankruptcy is a legal process administered under the Bankruptcy and Insolvency Act that provides you an opportunity to eliminate your debt and get a fresh financial start. Filing bankruptcy provides you with immediate protection against any further collection or legal action by your creditors including Canada Revenue Agency (“CRA”) for income tax and GST debt.
Your creditors are prohibited from contacting you and must communicate directly with your FABER Trustee. Your FABER Trustee will immediately intervene to terminate wage garnishments, bank account seizures and unencumbered asset seizures.
A Trustee in Bankruptcy is an individual that is licensed by the Office of the Superintendent of Bankruptcy (Federal Government) to administer consumer proposals and personal bankruptcies. A FABER Trustee will provide you with advice regarding the consumer proposal and personal bankruptcy processes as well as other debt restructuring plans available to you based on a thorough review and comprehensive understanding of your unique financial situation.
Trustees are highly educated and often hold multiple professional designations with one of those designations frequently being a professional accounting designation. Trustees are required to participate annually in mandatory professional development courses to maintain strict educational, professional and ethical standards. Trustees are the most educated, highly trained and experienced professionals in Canada to guide you through all of the debt restructuring plans available.
Only a licensed Trustee in Bankruptcy can provide you with immediate protection against any further collection action by your creditors.
To be eligible to file bankruptcy, certain requirements must be satisfied and are summarized below:
If you are currently an undischarged bankrupt and find that you may have to file another bankruptcy, we suggest you contact a FABER Trustee to discuss your options.
A bankruptcy must be filed with a licensed Trustee in Bankruptcy. You begin the process by contacting a FABER Trustee to schedule your free, confidential, no-obligation initial consultation. Your FABER Trustee will review your unique financial situation and discuss with you all of the debt restructuring plans available to you. If you determine that personal bankruptcy is the most appropriate option to eliminate your debt to give you a fresh financial start, your FABER Trustee will guide you through the process.
You may want to consider filing bankruptcy when you owe $1,000; and
The actual timing of when to file bankruptcy depends on you. Most of our clients file bankruptcy and enter into protection from their creditors as soon as they realize that they are no longer able to maintain their monthly payment obligations to creditors.
For a small number of our clients, they postpone filing bankruptcy and only seek protection from creditors after the creditors have pursued legal action and have been granted Judgment by the Court. At this point, the creditors are often enforcing the Judgment with a garnishee against wages or a seizure against bank accounts or unencumbered assets. Postponing the filing of your bankruptcy until creditors have pursued legal action for the recovery of the debt creates unnecessary stress, anxiety and financial uncertainty for you and your family.
If you are experiencing financial difficulty, we encourage you to contact a FABER Trustee immediately. The sooner you seek professional advice to address your finances and review your options, the sooner you eliminate your stress and get the fresh financial start you deserve.
You commence filing bankruptcy by contacting a FABER licensed Trustee in Bankruptcy. A FABER Trustee will meet with you to review your financial information, explain the Personal Bankruptcy process, your rights and the protection you will receive from creditors. At FABER we will take the time to properly explain the entire bankruptcy process and answer all of your questions without the use of confusing legal terms and jargon. FABER will prepare all of the necessary forms and reports for you to sign. FABER Inc. will file your Personal Bankruptcy and will send notice of the bankruptcy to all of your creditors. At FABER we will work with you throughout the entire bankruptcy process to ensure your bankruptcy is concluded in an orderly, efficient and timely manner.
The length of a bankruptcy varies and is dependent on whether it is a first or second bankruptcy and whether your household income exceeds the guidelines established by the Superintendent of Bankruptcy based on the number of members in your household which is defined as surplus income in the Bankruptcy and Insolvency Act.
If you are filing bankruptcy for the first time, the length of your bankruptcy will be:
If you are filing bankruptcy for a second time, the length of your bankruptcy will be:
If you are filing bankruptcy for a third time, the length of your bankruptcy will be determined by the Court at your discharge application that occurs approximately 12 months after you file for bankruptcy. As a general rule, the Courts in Alberta extend a third-time bankruptcy by up to 12 months beyond the time periods that apply to a second-time bankrupt. For a third-time bankrupt, the length of your bankruptcy will be approximately:
A third-time bankrupt is not eligible for an automatic discharge from bankruptcy. A court hearing is held to provide the Court the opportunity to determine the outcome of your discharge application. Often when the Court hears a discharge application for a third-time bankrupt, it will impose a continuation of duties and/or payment obligations for a further 24 to 36 month period as a form of restitution for having filed bankruptcy for a third time.
We have itemized the bankruptcy process into the following steps.
Step 3 Attend a second meeting with your FABER Trustee to complete a thorough review and sign the Personal Bankruptcy documents and to receive a further detailed explanation of the Personal Bankruptcy process.
Step 4 FABER electronically files your Personal Bankruptcy with the Office of the Superintendent of Bankruptcy and sends notice to all of your creditors. Payments to unsecured creditors stop and you receive immediate protection from all of your unsecured creditors, including the Canada Revenue Agency for income tax and GST debts.
Step 5 You perform the duties required of you during the length of the bankruptcy which include:
Step 6 Upon completing all of your duties during the length of your bankruptcy, you will receive your discharge from bankruptcy which releases you from any further legal obligation with respect to your debts and provides you with a fresh financial start.
One of the most confusing concepts in a personal bankruptcy for most individuals is surplus income. Often we consider surplus income to represent the money that is left over at the end of the month after paying all living expenses, which we commonly refer to as savings. This is not the case in a personal bankruptcy. The money left over at the end of the month after paying living expenses is of no significance in calculating your surplus income.
Confused? You are not alone. Allow us to further explain.
The Bankruptcy and Insolvency Act (“Act”) is a federal act that applies equally throughout Canada. In an effort to create uniformity in the application of the Act throughout Canada and in an effort to strike a balance between the need for debtors to eliminate their debt to receive a fresh financial start and the need for creditors to recover a portion of the money loaned or advanced, the Canadian legislators developed the Superintendent Standard to calculate surplus income in an effort to achieve the following objectives:
The 2015 Superintendent Standard is illustrated below.
Number of Persons
The Superintendent Standard is based on net monthly income which is your take home pay after deducting all statutory deductions for income tax, Canada Pension Plan and Employment Insurance and after deducting all non-discretionary expenses. Non-discretionary expenses are defined by regulation under the Act and include child support, alimony, child care expenses, medical condition expenses and fines or penalties imposed by the Court prior to the date of bankruptcy and interest on student loans that survive bankruptcy.
Every dollar you make in excess of the Income Standard is defined as “surplus income”. You are required to pay to your FABER Trustee for the general benefit of creditors 50% of your surplus income with the remaining 50% being retained by you for your use at your sole discretion, which may include additional living expenses, savings, investments, education savings plans or other purpose.
The Surplus Income Calculation is illustrated as follows:
Net Monthly Income – Non-Discretionary Expenses – Income Standard =
Surplus Income x 50% = Monthly Surplus Income Payment to Trustee
During the length of your bankruptcy, you will be required to pay your monthly surplus income payment to your FABER Trustee. For a first-time bankrupt, you are required to make surplus income payments for 21 months, and for a second-time bankrupt, you are required to make surplus income payments for 36 months.
If your monthly living expenses are of an amount that prohibits you from being able to afford to pay the full monthly surplus income payment amount, your FABER Trustee has the authority to reduce the monthly surplus income payment amount and extend the length of your bankruptcy beyond 21 months if you are a first-time bankrupt and beyond 36 months if you are a second-time bankrupt. Essentially, you must pay the surplus income amount prior to being eligible for a discharge from bankruptcy, so reducing your monthly surplus income payment amount will extend the length of your bankruptcy.
Calculating your monthly surplus income payment is not straightforward. We recommend you contact a FABER Trustee to further discuss surplus income and to properly calculate your monthly surplus income payment amount.
Trustee fees are regulated by the Office of the Superintendent of Bankruptcy under the Bankruptcy and Insolvency Act. For a summary administration bankruptcy, which is the most common form of personal bankruptcy, all Trustees across Canada are paid the same. Trustee fees are calculated pursuant to a Tariff under the Bankruptcy and Insolvency Act. Essentially the Tariff calculates Trustees fees as a percentage of the total contributions realized in a bankrupt estate.
The actual cost or financial contribution made by you during the length of the bankruptcy varies significantly from person to person and is based on your individual financial situation. There are 4 main factors that will determine the actual cost or financial contribution that is required from you during the length of your bankruptcy.
1. Base Contribution Amount
In situations where you have no surplus income, no non-exempt assets and no non-exempt equity from which the Trustee may recover its fees and disbursements, then most Trustees in Canada will require that you make a monthly payment of approximately $200 per month for payment of the Trustee’s fees and disbursements. The actual amount may be more or less than $1,800 depending on the complexity of your personal financial situation.
2. Surplus Income
In situations where your income is greater than the Superintendent Standard and you have surplus income as defined under the Bankruptcy and Insolvency Act. In these instances, you are required to make your monthly surplus income payment to your FABER Trustee for the general benefit of your creditors during the length of your bankruptcy.
If you are a first-time bankrupt, you are required to make surplus income payments for 21 months. If you are a second-time bankrupt, you will be required to make surplus income payments for 36 months.
If your monthly surplus income payment exceeds the amount you are able to afford on a monthly basis, your FABER Trustee has the authority under the Bankruptcy and Insolvency Act to reduce your monthly surplus income payment amount, but in doing so the length of your bankruptcy will be extended beyond 21 months if you are a first-time bankrupt and beyond 36 months if you are a second-time bankrupt.
3. Non-Exempt Assets
Non-exempt asset values also require consideration in determining the actual cost or contribution you will make during the length of your bankruptcy. Non-exempt assets vest in your Trustee for the general benefit of your creditors. The most common non-exempt assets are:
4. Non-Exempt Equity – equity is the difference between the fair market value of an asset and the loan or mortgage balance that remains owing against the asset. The following equation is used to calculate equity:
Asset Value – Loan Balance = Equity
Non-exempt equity is an extension of the equity calculation and represents equity that is in excess of the exemption value. For example, the exemption value for a residence is $40,000 in equity, and for a motor vehicle, the exemption value is $5,000 in equity. The following equation is used to calculate non-exempt equity:
(Equity – Exemption Value) – Reasonable Selling Costs = Non-Exempt Equity
Non-exempt equity most frequently occurs in motor vehicles and residences. Non-exempt equity vests in your FABER Trustee for the general benefit of your creditors.
Although non-exempt assets and non-exempt equity vests in your FABER Trustee for the general benefit of your creditors, your FABER Trustee has the latitude, flexibility and knowledge to structure your bankruptcy in a manner that permits you to repurchase non-exempt assets and non-exempt equity from your FABER Trustee at fair market value to avoid having to surrender the underlying asset.
The foregoing summarizes the more common variables that require consideration in determining and assessing the actual cost or financial contribution you will be required to make in a bankruptcy.
Your FABER Trustee will perform a comprehensive analysis of your personal financial situation to estimate the cost or financial contribution that will be required of you during the length of your bankruptcy prior to your filing bankruptcy.
Together with your FABER Trustee, you will explore all of your debt restructuring options and compare the estimated cost or contribution required in a bankruptcy with the costs of other debt restructuring plans to allow you to assess the option that works best for you.
Once you file bankruptcy, you will be required to make monthly payments to your FABER Trustee. The amount of your monthly payment will depend on a number of factors. The most common factors affecting your monthly payment amount include whether you have surplus income, non-exempt assets or non-exempt equity. Your FABER Trustee will review your personal financial situation with you and will calculate the cost or financial contribution you are required to make during the length of your bankruptcy. Together you will agree on an affordable monthly payment amount.
The duties you are required to perform in a bankruptcy include the following:
The bankruptcy process comes to an end when you receive a discharge from bankruptcy. A discharge from bankruptcy releases you from any further legal obligation with respect to your debts which are permanently forgiven. Furthermore, a discharge from bankruptcy releases you from the bankruptcy process. You are no longer required to perform the duties that were required of you during the bankruptcy process and you can begin to rebuild your credit and acquire assets in your pursuit of financial freedom.
To receive an automatic discharge from bankruptcy, you must first perform all of the duties imposed upon and satisfy all payment obligations to your FABER Trustee for the general benefit of your creditors within the following defined periods of bankruptcy:
An automatic discharge from bankruptcy requires no Court intervention. Your FABER Trustee has the legal authority to issue your Certificate of Discharge. This is the most preferred method of receiving a discharge from bankruptcy as it eliminates any uncertainty in whether the discharge from bankruptcy will actually occur. The vast majority of Canadians that file bankruptcy receive an automatic discharge from bankruptcy.
In certain circumstances, you may not be eligible to receive an automatic discharge from bankruptcy and a court hearing is required. The circumstances requiring a court hearing for your discharge application include:
A court hearing is held to provide the court the opportunity to determine the outcome of your discharge application. Often when the court hears a discharge application, it will impose upon you a continuation of duties and/or payment obligations as a form of restitution for any misconduct that occurred prior to or during your bankruptcy. Once you have satisfied the additional court-imposed obligations, you will become eligible for a complete and final discharge from bankruptcy.
Generally, when you file bankruptcy, there is no requirement to publish notice of the bankruptcy in the “legal notices” section of the newspaper. Publication of a bankruptcy in a local newspaper only occurs in large or complex bankruptcies. For the average person, their bankruptcy is straightforward. The Trustee notifies the creditors of the bankruptcy by mail and it is unnecessary to publish the bankruptcy in the local newspaper. In addition, the credit reporting agencies are notified of all bankruptcies by the Office of the Superintendent of Bankruptcy.
There is no requirement for your Trustee to contact your employer. The only time your employer will be contacted is when one of your creditors served your employer with a Garnishee Summons to attach to a portion of your income. In these instances, the Trustee will contact your employer to terminate the Garnishee Summons.
While a bankruptcy filing is a public record that is maintained by the Office of the Superintendent of Bankruptcy, members of the general public have no knowledge that the public record exists or any knowledge of where to perform a bankruptcy search. There is also a registration and search fee to perform a search that most individuals are unwilling to pay. Unless you tell them, your family, friends, co-workers and employer will not be made aware of your filing bankruptcy.
Prior to filing bankruptcy, you are encouraged to open a new bank account at a new bank. Often the bank you are currently using prior to filing bankruptcy is a creditor that is owed money for an overdraft, personal line of credit, personal loan or a credit card. As a creditor, your bank will receive notice of the bankruptcy from your Trustee. Upon receiving notice of the bankruptcy, your bank will freeze your bank account. Following the freeze placed on your bank account, all direct deposits will continue to be accepted into your bank account, however you will be denied any access to the funds. All direct payments will cease to be made from your bank and you will be unable to withdraw any funds from your account.
For the reasons summarized above, we encourage you to open a new bank account prior to filing bankruptcy. It is important to maintain complete control of your bank account and money at all times. Opening a new bank account prior to filing bankruptcy ensures that you have uninterrupted access to your money. There is no requirement for the Trustee to notify your new bank of your bankruptcy as you will not have any debt with your new bank. Accordingly, no freeze will be applied to your new bank account.
Wage garnishments stop when your employer is notified that you either paid off your debt or declared bankruptcy. Your employer is required to make payments out from your pay directly to the creditor until he or she received official notification instructing otherwise because your employer had received a court order requiring the wage garnishment in the first place.
Your FABER Trustee is not required to contact your employer. Your employer will be informed of your bankruptcy only if you already had your wages garnished by one of your creditors, in which case your employer will have already been contacted about your debt.
In order to stop any garnishee on file, your FABER Trustee will notify your employer to terminate the garnishee summons. One way to avoid having your employer being informed of the bankruptcy would be to file for bankruptcy before one of your creditors garnishes your wages.
Although you may be married, you and your spouse are legally two separate individuals with your own individual legal rights and responsibilities. A personal bankruptcy applies only to the person that files for bankruptcy. If the debt is only in your own name only, then your spouse will not be affected. If you have debt held jointly with your spouse, then your spouse will be affected by your bankruptcy as he or she will become liable for your debts. For example, if you spouse is named as a co-borrower or co-signer or he or she guaranteed any loan or is jointly listed on your credit card, personal line of credit or bank overdraft agreements, then he or she will be affected by your filing for bankruptcy to the extent that you co-mingle liabilities.
Your spouse will continue to be responsible for payment of his or her debts, as the only debts that are discharged in a bankruptcy are the debts of the person filing for bankruptcy.
Bankruptcy will not cancel the liability of an individual who has guaranteed or co-signed a loan with you. All the rights in and responsibilities in relation to this loan will continue to exist. In other words, the co-signer is still legally responsible for the loan and must take over the payments.
You may not be fired from your job simply because you filed for bankruptcy. Further, an employer may not discriminate against you in the form of imposing terms and conditions of employment due to your bankruptcy, such as reducing your salary or demoting you. This protection is meant to extend to the spouse of a bankrupt as well. Whether you are an employee of the government or of a private company, the protection against job termination is meant to safeguard bankrupts against further discrimination and financial hardship. If you are looking to be hired for a new job, however, the same protections will not be in place. Private employers have the discretion not to hire you based on knowledge of your prior bankruptcy.
When you file for personal bankruptcy with the Office of the Superintendent of Bankruptcy, your FABER Trustee will send notice of your bankruptcy to your unsecured creditors within 5 business days. Any wage garnishments, asset seizures and legal actions against you will be immediately terminated and you will receive immediate protection against any further action by your unsecured creditors.
Unsecured creditors must immediately stop harassing you for payment as soon as they receive notice of your bankruptcy. Any attempts to garnishee or seize assets must cease. Unsecured creditors are unable to ignore or refuse your bankruptcy. They must comply as soon as you file for personal bankruptcy as there is no vote or any form of approval required from them for your bankruptcy to be accepted and enforceable.
Tax debts owed to the CRA are unsecured debts and subject to bankruptcy, including for income tax and GST owed. CRA is legally obliged to comply with the Bankruptcy and Insolvency Act. The CRA is unwilling, however, to negotiate a settlement of tax debts with an individual taxpayer for any amount less than the full amount owed because if they make a settlement with one taxpayer to pay a lesser amount of tax, it may force them to make settlements with all other taxpayers.
The debt you owe prior to bankruptcy may be discharged through the bankruptcy process. In most cases, any tax debt owed before the date of bankruptcy will become dischargeable and will not have to be paid. To avoid the same problem in the future, it is important that you understand how you accumulated your tax debt by consulting with your FABER Trustee.
Child support and spousal support (alimony) owed under a court order or under a separation agreement are not discharged in bankruptcy. This means that if you have support obligations and you are considering filing for bankruptcy, you will still have to pay support obligations even after it is completed. The relevant sections of the Bankruptcy and Insolvency Act are 121, 136 and 178, which provide that child support and spousal support debts owed by the bankrupt do not get discharged (unlike all other debts). Instead, enforcement proceedings for child support and spousal support are able to continue during a bankruptcy (except against assets that the Trustee is holding).
Once you have filed for bankruptcy, a dependent who is owed child support or spousal support by you will be entitled to the same pro rata distribution as all other unsecured creditors unless he or she makes a claim as a “preferred creditor”. Support arrears are priority claims under bankruptcy law, justified by the requirement to protect vulnerable persons. Further, child support and spousal support arrears which are owed from the twelve months prior to bankruptcy, as well as any lump sum child support or spousal support obligations, will be given priority over other unsecured creditors.
If it has been more than seven years since you were enrolled in school and you have a student loan, the loan will be included in your bankruptcy and you will not have to pay it off as it then becomes a dischargeable debt. If it has been less than seven years since you were out of school, you will have to continue to pay off your student loan as it will not be discharged.
Filing for bankruptcy can make managing your student loan payments easier. If you are near the seven-year threshold, however, you may want to discuss timing your bankruptcy with your FABER Trustee to ensure that your student loan is included in your bankruptcy.
When you file for bankruptcy, you are required to surrender all of your credit cards to the Trustee. However, once you have been declared bankrupt, it may be possible to obtain credit and credit cards once again, in order to rebuild your financial profile. You will have to disclose the details of your bankruptcy to the potential lender. In some cases, the lender may require a deposit to secure the credit card.
A FABER Trustee will help you rebuild your credit and improve your credit rating through the proper use of credit. Our clients frequently re-establish their credit and attain an R1 credit rating within two years following their discharge from bankruptcy.
There are certain types of debt which survive bankruptcy, found in Section 178 of the Bankruptcy and Insolvency Act, including:
There are also many exempt assets that you can retain.
After declaring bankruptcy, some property or assets are exempt from bankruptcy and are protected by law because they are considered essential and therefore cannot be seized. In Alberta, you are able to retain:
The value of any assets exceeding specified amounts must be usually be turned over to your Trustee, which in turn will be sold with the proceeds distributed among the creditors. Similarly, assets non-exempt assets, whether in your possession or in the possession of a third party, will be transferred to the Trustee for the benefit of the creditors. However, non-exempt assets, such as a motorcycle, travel trailer or boat, may be structured in the bankruptcy such that you can retain possession of the asset and repurchase it at fair market value from the bankruptcy Trustee. If a non-exempt asset is subject to a lien or charge held by a secured creditor and there is no equity, then you main be entitled to retain possession of that asset during bankruptcy by maintaining your monthly loan payments to the secured creditor.
In most cases, your car will be considered an exempt essential asset under the Bankruptcy and Insolvency Act. This is because, in bankruptcy, you are legally permitted to retain some essential assets in order to rebuild your finances. This exemption applies, however, only up to the extent that you have $5,000 equity in the car. Unsecured creditors would be prevented from repossessing your car, but secured creditors may be able to repossess it to obtain the debt owed to them.
In most cases, it is possible to keep your home if you file for personal bankruptcy as exempt assets under federal and/or provincial legislation up to $40,000 equity. Whether this is a feasible option for you after filing for bankruptcy will depend on several key factors, including the amount of equity you have in your home and the amount of your current cash flow. In order to feasibly keep your home, you would need enough cash flow to be able to cover the regular house-related bills and payments related to mortgage, tax and utilities. While your house would be considered a bankruptcy exemption as detailed above, it may not make sense financially to keep it if you have low or negative equity in the home and you are unable to make the regular house payments. If you cannot make payments on your house and your mortgage is secured by the property, then the secured creditor may be able to force the sale and charge you the difference of what you owe.
If you did not file an income tax return for the year prior to the year of bankruptcy, your FABER Trustee will immediately file it on your behalf. Your FABER Trustee will also file an income tax and benefit return for the period from January 1st up to the day before the date of bankruptcy, which is known as the pre-bankruptcy return. In some cases, your FABER Trustee may also file an in-bankruptcy return to report income from liquidated assets which he or she has wound up for the benefit of creditors. It is your responsibility to file an income tax return for the post-bankruptcy period, which is from the date of bankruptcy to December 31 if it was not already filed on your behalf.
Tax refunds issued for the year of bankruptcy, and for the years prior, are considered to be the property of the estate in bankruptcy, and must be sent to your FABER Trustee. Tax refunds which are issued in relation to returns for years subsequent to the year of bankruptcy will be sent directly to you, unless your Trustee has a court order to seize them.
In most cases, by the time you have filed for bankruptcy, your credit rating is at its lowest. After a first bankruptcy, your credit rating will usually be listed a R9, which is the worst possible rating. Equifax’s policy is to retain the note about your first bankruptcy on their system for 6 years after the date of discharge. Transunion’s policy is to retain the note about your first bankruptcy on their system for 6 to 7 years after a payment became overdue or you last made a payment, whichever is later.
There is no waiting period to apply for a new credit card after you are discharged from bankruptcy, however, so you can begin working on rebuilding your credit as soon as you can get approval for a new credit card.