What you should know

Frank J. Jaglowitz, Trustee in Bankruptcy

What you should know


	Assets and Property
	In a bankruptcy, you must assign all your assets to the trustee, except for exempt property (such as basic furniture, tools-of-trade and, under certain circumstances, the goods and service tax credit payments). Exempt property will vary from province to province. Your trustee can tell you what these are.

	Bankrupt
	This is the legal status of a person who declares bankruptcy.

	Bankruptcy and Insolvency Act (the Act)
	This is the federal law which regulates bankruptcy and proposal proceedings in Canada. It falls under the responsibility of the Office of the Superintendent of Bankruptcy at Industry Canada.

	Co-signers
	Your bankruptcy does not cancel the responsibility of anyone who has guaranteed or co-signed a loan on your behalf. For example, if your parent co-signed a loan for you, that parent would be liable to pay the loan in full even if you decide to file for bankruptcy.

	Creditor
	A creditor is a person, institution or business to whom money is owed. Secured creditors are creditors who have taken some measure to protect themselves and hold a mortgage, pledge, lien or similar instrument on, or against, your property. If they are not paid, they can enforce their claims by recovering the assets on which they hold security. Unsecured creditors are creditors who do not have any security for the debt owing to them.

	Credit Rating and Re-establishment of Credit
	Credit bureaus, or credit reporting agencies, collect information about consumers' financial affairs and sell the information to their clients, such as credit grantors, employers, and insurance companies. These agencies obtain information from various sources, for example: - from the consumer who provides information when filling out an application for credit or a loan; - from public records which provide information related to such matters as bankruptcy, court judgments, and conditional sales contracts; - from credit grantors and collection agencies who provide credit files on a monthly basis. These files contain information such as the account number, the outstanding balance, and a nine-point rating scale, for example: R1 indicating that payment was made on time; R2 that payment was made 30 days late, but not more than 60 days; and R9 indicating a bad debt or one that has been placed for collection and it also applies to bankruptcy. It should be noted that your credit rating is set by your creditors. Credit bureaus only pass on that information to their clients. Generally, information concerning your bankruptcy could show up on your file for a period of 6 to 7 years after your discharge. If you have been bankrupt before, this period could be extended to as much as 14 years. This period could vary from one province to another. The decision as to whether or not to grant credit to an applicant is made by the credit grantor, not the credit bureau. It is the lender's individual credit scoring system that determines access to credit. Should you wish to improve your credit record after obtaining your discharge from bankruptcy, you could, for instance, contact your banker and request a meeting. For this meeting, you could bring your pay cheque stubs, your budget, and your discharge papers. You could explain that you have obtained your discharge and ask the banker how you can earn your way back to a good credit record.

	Debtor
	A debtor is a person who receives a loan or an advance of goods and services in exchange for a promise to pay at a later date.

	Income Tax Returns
	Two income tax returns must be completed for the calendar year in which you become bankrupt. The pre-bankruptcy return covers the period from the beginning of the year to the date of your bankruptcy. You will be required to provide your trustee with details and documentation to support this return. The post-bankruptcy return covers the period from the date of bankruptcy to the end of the calendar year.

	Insolvent Person
	A person who is unable to meet financial obligations as they become due is insolvent.

	Legal Action
	Although legal actions or most garnishments against you stop on the date you declare bankruptcy or file a proposal, criminal actions and some civil matters, such as actions in matrimonial matters, are not affected by the bankruptcy or proposal. Give the trustee or administrator copies of all legal documents that you have received before and after the date you became bankrupt or filed a proposal. In a proposal, no creditor can, without permission of the court, start or continue any legal action until the proposal is either withdrawn, refused, annulled or until the administrator has been discharged. In the case of a bankruptcy, no creditor may, without permission of the court, start or continue any legal action until the trustee has been discharged.

	Mediation
	Mediation is a way of resolving conflict between two or more individuals. In the course of a bankruptcy, the parties involved in a disagreement can agree to work with an impartial and independent person, called a "mediator", who will help them settle their dispute instead of going to court. Generally, the mediator is an employee from one of the Superintendent of Bankruptcy's Division Offices. Mediation is more flexible, speedier and less costly than a format court decision. It allows people affected by the bankruptcy to be directly involved in deciding how their disagreement will be settled. In bankruptcy, mediation is available to resolve two types of disputes: (i) disagreements over the amount of money the bankrupt will pay to the trustee for the benefit of the creditors during the bankruptcy (called surplus income); and (ii) disagreements regarding the conditions that the trustee has recommended for a bankrupt's discharge. When mediation takes place, the bankrupt and the trustee (or trustee's representative) must be present. If a creditor requests mediation, that creditor must also be present.

	Official Receiver
	The Official Receiver is a federal government employee in the Office of the Superintendent of Bankruptcy and an officer of the court with specific duties under the Bankruptcy and Insolvency Act. The Official Receiver, among other things, accepts the documents that are filed in proposals and bankruptcies, examines bankrupts under oath and chairs meetings of creditors.

	Payments and Surplus Income
	Immediately after becoming bankrupt, you should no longer be required to make payments to your creditors. However, while you are an undischarged bankrupt, you are required to make payments to your trustee for distribution to your creditors. Remember, you have a duty to inform your trustee of any material change in your financial situation (for example: an income tax refund, a new job, or the birth of a new family member). At the beginning of the bankruptcy, the trustee determines the amount that you will be required to pay. This amount may be adjusted during the administration of your bankruptcy if there is a change in either your total income or personal or family situation. The trustee sets the amount of payment by taking into account your total income, the standards issued by the Superintendent of Bankruptcy, and your personal and family situation. If your payments are set at $50 or more per month (known as the "surplus income" payment) and you do not agree with the amount set by the trustee, the trustee must request mediation. Similarly, a creditor may request mediation if that creditor does not agree with the amount of the surplus income payment set by the trustee. If mediation does not resolve the disagreement, the trustee, under certain circumstances, will have to apply to court to have the matter decided. Failure to make the required payments may affect your discharge (i.e. release from bankruptcy).

	Pressure from Creditors
	One of the objectives of the Act is to relieve you of pressure from your creditors. If you receive phone calls or letters from creditors, tell them that you are bankrupt, or have made a proposal, and refer them to your trustee or administrator of consumer proposals.

	Superintendent of Bankruptcy
	The Superintendent of Bankruptcy is a federally appointed official who oversees the administration of the Bankruptcy and Insolvency Act in Canada.

	Windfalls
	You must give all windfalls, such as lottery winnings and inheritances, occurring during the period of your bankruptcy, to the trustee for distribution to your creditors.

	Assessment and Counselling
	Before you make a final decision on making a consumer proposal or on declaring bankruptcy, the administrator of consumer proposals or the trustee, as the case may be, will perform an assessment. The purposes of this assessment are to evaluate your financial situation, to provide you with an explanation of the options available to you and to discuss with you the merits and the consequences of your choice. Should you decide to make a consumer proposal or declare bankruptcy, the Bankruptcy and Insolvency Act requires that counselling be provided to you. This counselling must be given by a counsellor registered with the Office of the Superintendent of Bankruptcy. Counselling consists of two stages. During the first counselling stage, you will be provided with information concerning money management, spending and shopping habits, warning signs of financial difficulties, and obtaining and using credit. In the second stage, the counsellor will help you to discover and understand the causes of your insolvency or bankruptcy and will assist you in establishing a rehabilitation plan by helping you to develop recommendations and alternatives for a financial plan of action. You must attend these two stages. Counselling may also be provided to someone who is related to you or has a financial relationship with you. If you feel that you need additional help or assistance, you may ask for a third counselling session.

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This web site is for general information purposes only. The major sources of reference were the Bankruptcy and Insolvency Act of Canada and the Executions Act of Ontario.

Although every reasonable effort has been made to ensure the accuracy and timeliness of the information contained herein, no individual or organization involved in the preparing of this information accepts any contractual or any other form of liability for its content or from any consequence arising from its use.