Bankruptcy is a big decision, and it’s a long journey for individuals and businesses. The decision to file bankruptcy should never be taken lightly as it may not even solve all your financial problems. There are a few essential steps you need to know about. The first of these is to seek out advice from a trustee, credit councillor or knowledgable accountant to find out if it’s the right solution. For many businesses and individuals, there are other paths to get out of financial trouble.
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What is Bankruptcy?
The Bankruptcy & Insolvency Act is a federal law that dictates the rights and responsibilities of all involved in the bankruptcy process. Bankruptcy in Canada has specific exemptions and limits based on each individual province, although all federal bankruptcy laws apply across Canada. These laws are in place to help honest Canadians who have come into unfortunate debt and financial situations by providing protection from creditors. The process isn’t easy, though, and can be long and have lasting effects. Many look to this process as a solution to eliminate unsecured debts, stop collections, prohibit other from garnishing wages, and can provide a kind of financial restart. Some companies use this process for corporate reorganization if no other options are available.
The Steps to Filing for Bankruptcy
Once you’ve concluded that declaring bankruptcy is the right decision for you or your company, you must file the necessary paperwork with your chosen trustee. This stage will involve providing your personal information or company information as well as a list of creditors and assets. Once you’ve filed this paperwork, you’ll have certain responsibilities that you must perform.
You’ll have to surrender certain assets. For many provinces, the bankruptcy process will protect certain assets such as clothing or personal furniture. All credit cards associated with the individual or business are to be surrendered to the trustee. You’ll have to attend a specified amount of credit counselling sessions on a dedicated timeline. Every month, you’ll need to prove your income and specified expenses to your trustee. In addition, you’ll need to provide all the necessary information required to file a “pre-bankruptcy” tax return. Throughout the process, you’ll be responsible for making payments to your estate. You may have more responsibilities, depending on your situation and province. Be sure to consult with your trustee to understand what you must take care of. This entire process can take anywhere from 9 months to 36 months — sometimes, more.
What Happens After?
After you‘ve filed for bankruptcy and followed all the responsibilities and rules, your bankruptcy is discharged, and your debts are cancelled, so to speak. This discharge can be automatic if:
- no one from the OSB (Office of the Superintendent of Bankruptcy Canada), your trustee, or a creditor takes issue with your discharge,
- you’ve adhered to all responsibilities as listed above, and
- this isn’t your 3rd time applying for bankruptcy.
If the automatic discharge isn’t granted, your request will go to Bankruptcy Court. In Bankruptcy Court, they’ll grant one of four discharges:
- an absolute discharge,
- a conditional discharge,
- a suspended discharge, or
- they’ll refuse the discharge.
If approved, you’ll receive a discharge certificate. Keep this safe.
It’s not over here, though. If you go through with this, it will follow you for a very long time as a flag on your credit for at least 6 years. During this time, it’s the responsibility of the individual or company to start rebuilding their credit score. The credit counselling you need to attend will help with methods for this. Speaking to an accountant is an excellent step here because they can help you create strategies for rebuilding your credit.
Are you considering bankruptcy or struggling with debt and creditors within your business? We can help you discover what options are available to you. Get in touch today for a second set of eyes to evaluate your situation.