Bankruptcy

Bankruptcy

Bankruptcy is a legal process in which an insolvent person (someone who owes more than they own and cannot repay their debts as they come due) assigns their non-exempt assets to a Trustee. They are thereby released from their obligation to pay back the eligible debts. All legal actions are stopped in a bankruptcy under consumer protection law (the Bankruptcy and Insolvency Act). You must be discharged from bankruptcy after a set period of time.

Depending on a few things, a bankruptcy can be between 9 and 36 months. A normal, basic bankruptcy is 9 months. If certain basic duties are not performed, a court can extend the length of a bankruptcy to any length and impose conditions on your discharge.

The bankruptcy law sets out a key alternative to bankruptcy: a consumer proposal.

Your bankruptcy is an individual action – it will not affect the credit rating of your spouse or your family.

An individual is allowed certain personal exemptions on their property in a bankruptcy. This means you can keep your car if it is under a certain value. And you can keep your house if it has no equity value. You are also allowed to keep all personal effects such as furniture and jewelry, provided you have nothing that is of significant value (e.g., art collection, expensive hobby car etc.).

During an insolvency proceeding in Canada under the Bankruptcy and Insolvency Act, a bankrupt is not allowed access to unsecured credit of any kind (credit cards, lines of credit). The point is, essentially, to stop the bleeding. If you are having your existing unsecured debt discharged in a bankruptcy filing, it would not be right to be incurring additional unsecured debt simultaneously. This is also consistent with the financial rehabilitation concept of bankruptcy: the idea is to emerge debt-free.

But you ARE allowed to have secured debt during a bankruptcy. So that means car loans, mortgages, home equity loans, and the like. But it also means you can apply for a secured credit card, which would allow you to make purchases online, rent cars, etc. A secured card means giving the lender a security deposit, and then using the card to make purchases. The credit limit is usually very low, which helps maintain spending discipline. It also allows you to rebuild your credit during bankruptcy, as the card is tied to your credit bureau.

It depends on a number of factors, such as your income, what you own (excluding personal exemptions) and if you have been bankrupt before. It can cost as little as $1,800 ($200 for 9 months) in a basic bankruptcy.

All unsecured debts:

  • Credit card balances
  • Lines of credit
  • Personal loans
  • Retail cards (Future Shop, the Bay etc.)
  • Bank account overdrafts
  • Payday loans
  • Utility balances
  • Personal income tax owing
  • Student loan balances (must be out of school more than 7 years)
  • Shortfalls on secured loans

Your responsibility for your debts is released in a bankruptcy, but not that of anyone who has co-signed or guaranteed a debt of yours. They are then responsible for the entire debt balance.

Depending on a few things, a bankruptcy can be between 9 and 36 months. A normal, basic bankruptcy is 9 months. If certain basic duties are not performed, a court can extend the length of a bankruptcy to any length and impose conditions on your discharge.

You are legally obligated to tell the Trustee about any lottery winnings. You would only lose whatever amount was required to cover your bankruptcy obligations. The rest you would keep.

Licensed Insolvency Trustees spend a lot of time dispelling myths about bankruptcy in general. There is a lot of misinformation on the internet, especially, which people often take as gospel: if it’s in writing, it must be true! Let’s take a minute to review some of the most common ones we hear.
(Also, people really like lists these days, so we’ll even do it in list form.)
If you prefer this in video form, I’m here on You Tube.
Here are the Top 5 myths about bankruptcy in Canada:

#1. I will lose my house & personal possessions

First, it is the equity in a house that is of interest to the trustee – in other words, would there be any money left over after sale costs? If not, then keep your house during a bankruptcy. As long as you keep paying your mortgage, you can keep your house. If your house does have equity, Ontario property legislation allows you $10,000 in exemption. So you’d have to have over $10,000 in equity before the house was of interest to the trustee. And even then, if you made a settlement with the trustee to pay the equity into the estate, you could keep your house and that equity payment would be distributed by the trustee to the creditors. Very few trustees actually seize houses these days because of these factors. As far as personal possessions, there are also exemptions for this, but unless there are significant items such as fine art which could be liquidated, personal items are not seized.

#2. My trustee will tell me what I can spend my money on

Also false. The trustee assists the bankrupt in laying out a personal monthly budget that is reasonable, but it is a guideline based on income. Since income is reported monthly during a bankruptcy, the trustee sees where you money is going, and provided it is reasonable there is no need for any issues regarding the bankrupt’s discharge.

#3 I will go to jail

Absolutely not. This is not a Dickens novel. Debtor prisons existed long ago, but the spirit of the bankruptcy law today is rehabilitative in nature – i.e., the government wants you to have a fresh start. Bankruptcy law is not meant to be punitive.

#4 My spouse/partner’s credit will be affected

Totally untrue. Nobody can cause credit harm to another person simply by virtue of filing a bankruptcy in Canada. Even married people cannot do any credit harm to each other. If you have joint debts, of course, and only one person files bankruptcy, the other is liable for that debt, but that would have been the case anyway.

#5 I will not be able to renew my mortgage

Almost every client with a conventional mortgage asks this as often their mortgage is coming up for renewal during the time of bankruptcy. Mortgages are usually amortized over a maximum of 25 years. Interest rates are set for specific periods. When the rate comes up for renewal, it is usually a formality with a conventional bank and as long as you are current with your payments there should not be an issue.

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Testimonials

What some of our satisfied clients are saying



For 6 years we invested all of our financial, emotional and physical resources into our business. When the recession hit and access to credit dried up, it hit us hard. As debt piled up and collector harassment increased, we contacted Cooper & Co. for advice. What a relief! They were professional and easy to work with, listening to our concerns, answering questions, and treating us with respect. Cooper & Co. understood us and offered options and solutions that we were unaware of. They helped us avoid bankruptcy. Cooper & Co. took care of everything, allowing us to relax and get our lives back on track.

Howard & Deanne

This is my story. I was laid off in 2009 and was off work for close to 11 months. I had burned through my saving and I was having difficulty maintaining my lifestyle. I soon realized I was hitting bottom and even with the income I was receiving from my new job I didn’t have enough to stave off my creditors. I was at risk of losing my home and my car. Bankruptcy was not an option. I was searching on an Ontario government website where I found a link to ‘cooperco.ca’. I made the call and with Cooper & Company’s counsellors and Trustees I was able to put things back together without losing my car or my home. Legal insolvency is hardly ideal, but it is a way out with a light at the end of the tunnel if you choose to learn from your experience.

Stewart

Filing with Cooper & Co. stopped the garnishee on my wages and got me back my income. I am now on a budget that lets me pay off my debts at a reasonable pace and I can keep my house. Thanks to Cooper & Co. for getting me out of this mess!

Sharon

I had just gone through an extremely messy and expensive divorce and found that my sole income was too little to sustain payments on my car and condo. My credit cards had been run up to try to stay afloat, and I had huge legal bills. I came to Cooper and Co. and they helped me do a consumer proposal I could afford and clear my debts and get on with my life. One payment, no interest. I would recommend Cooper & Co. to anyone. They take the time to listen, tell you your options and let you decide what the right way is.

Allan

Our lifestyle had become too expensive. Too many toys and use of credit – big house, big cars, lots of trips, two boys in traveling hockey – we had bitten off more than we could chew. Plenty of income but poor money management. Once the bills got too high we had to do something. We filed a consumer proposal each and we now pay much less per month in a single 0% interest payment than we did to support our minimum credit card payments. A big thanks to the folks at Cooper & Co.!

Len & Jody

As a struggling single mom trying to run my own small business, I could no longer afford my lifestyle once my client base started dropping. I owed income taxes and GST from years of failing to file, and could not afford to pay it. Cooper & Co. got me into a Consumer Proposal with payments I could afford and now my collectors are off my back. I was able to avoid bankruptcy, my debts will be gone in under 3 years and I am able to sleep at night for the first time in a long time.

Roxanne

Upon the sudden closure of my restaurant business, I needed advice how best to handle outstanding debts civilly and legally. Cooper & Co. made what was a difficult situation for me more tolerable through their understanding of my situation and explanation of the entire process back to front before my moving forward. The bankruptcy process was not the daunting a task I had imagined thanks to the help of the entire team at Cooper & Co who I felt worked with my best interests in mind.

Jan, Restaurant Owner

I’d first heard of Cooper & Co. a full five years before I contacted them. I’d gotten myself into debt, and I was going get myself out. I threw every stray nickel I had at it and by the end of those five years… I was exactly where I’d started. Broke. Depressed. Frustrated. Calling Cooper & Co. was not easy for me. Actually showing up? Adding up my debt in front of a total stranger? Even harder! However, when I sat down with Scott, I realized I was the only person there judging me. There were no lectures; just calm statement of fact and a rational discussion on how to proceed. Scott kept the atmosphere light & respectful and I left Cooper & Co. that first day feeling 10ft tall. After the proposal was set, every payment felt like an accomplishment. When it was paid off in full, you couldn’t wipe the smile off my face. Obviously, a consumer proposal isn’t a cure-all. I still have some bad spending habits to work on. Personal growth isn’t just handed to you, but it does come easier when you’re freed of your burdens and able to focus. Not only that, but knowing how easy it can be to fall into debt makes it easier to avoid the same mistakes later. The gratitude I feel to Cooper & Co. is immense. I would (and do) recommend them highly. Just do yourself a favor: don’t wait five years.

David