Common Bankruptcy and Consumer Proposal FAQs:

bankruptcyWhat is a Trustee in Bankruptcy?

The website of the Superintendent of Bankruptcy describes trustees in bankruptcy as follows:

“A trustee in bankruptcy is a person licensed by the Superintendent of Bankruptcy to administer proposals and bankruptcies and manage assets held in trust. The trustee can give a debtor information and advice about both the proposal and bankruptcy processes and make sure that both the debtor’s rights and the creditor’s rights are respected.”

In most cases, It will cost you less to use a trustee than other Debt Consultants since trustees have their fees regulated by the government.

Trustees are the most highly trained and educated Debt Consultants in Canada. Almost all trustees have both an accounting designation and a university degree. In addition, all must complete and pass a rigorous three-year bankruptcy and law course and be investigated by the RCMP before being granted a trustee licence. Ongoing professional development is mandatory.

Will my Creditors Stop Harassing me?

Yes, they will! All collection actions and contact actions against a bankrupt must cease once the documents are filed, including garnishee orders, whether in place or contemplated. This does not apply to secured creditors such as banks holding, for example, a lien on a car.

Who Will Know?

Unless you are a prominent person only your creditors will know you have filed bankruptcy. The trustee will not tell your employer you filed.

In a bankruptcy, where there are significant assets, a notice is placed in the “legals” section of the newspaper notifying creditors of the date of the meeting of creditors. If there are minimal assets, the creditors are notified by mail only – there is no advertisement in the “legals” section of the newspaper. Any legal filing of a bankruptcy is a public document which the general public has access to. From this documentation, the Credit Bureau is notified and the bankruptcy is recorded and will remain on your credit record for 6 years. This does not mean that you cannot obtain credit during this time. Any granting of credit is the responsibility of the creditor to approve.

How is my spouse affected?


Untitled-3Your spouse, whether common law or married will not be affected by your bankruptcy if he or she is not responsible for any of your debt (did not sign an agreement or contract for any of your debt). If they have a supplemental credit card they are probably responsible for that debt. Your spouse’s credit rating will not be affected by your bankruptcy and any assets in the spouse’s name will not be part of the bankruptcy.

If your spouse is responsible for any of your debt or has his own debt then the spouse may have to file bankruptcy too.

Can my bank refuse to let me open a bank account or cancel my existing account?

Untitled-4No. They cannot. Your bank will be breaking the law if they prevent you from opening a bank account, simply because of your past bankruptcy.


Will my Vehicle lease be cancelled If I file Bankruptcy?

CaarContracts, so long as the payments are kept up to date cannot be cancelled in a bankruptcy or a proposal. Effective on September 18, 2009 a new law went into force protecting consumers in this situation.

What don’t I keep?

Untitled-5In a bankruptcy, assets in excess of your allowed personal exemption, such as, real estate, automobiles and boats that are the property of the bankrupt as at the date of bankruptcy and anything that the bankrupt acquires during the bankruptcy vests in the trustee for the benefit of the creditors of the bankrupt. This would include inheritances received or to which the bankrupt might become entitled, by the death of someone during the time of the bankruptcy. It also includes such things as lottery winnings and anything that the bankrupt might accumulate, such as assets bought with any surplus income.Tax refunds outstanding, as at the date of the bankruptcy, also vest in the trustee for the benefit of the creditors. Income Tax law requires a bankrupt to file two tax returns for the year of the bankruptcy. The first (pre bankruptcy tax return) covers the period January 1st through to the date of bankruptcy. The second (post bankruptcy tax return) covers the period starting with the date of the bankruptcy and ending December 31st. Pre and Post bankruptcy tax rebates vest in the trustee for the benefit of the creditors.


What about my wages during bankruptcy?

There are standards supplied to the trustee by the Superintendent of Bankruptcy which instructs the trustee to collect funds, for the benefit of creditors, from any earnings above what is reasonable for the number of people in the family and the bankrupt’s personal situation. To find out how much you would have to pay and how long you will be in bankruptcy go to our Calculator.


What about the terrible stress that I am under?

Once you file bankruptcy or a proposal you’ll find that your stress will be gone.

You have taken a positive step to regain financial control over your life. Once the bankruptcy or proposal papers are filed the trustee takes over all dealings with your creditors. If a creditor or collector calls tell him you have filed and refer him to your trustee.

It’s the law in Canada that all legal action stops once a bankruptcy or proposal is


Will I end up with a better credit rating if I use a credit counsellor?

attentivewoman1No! So long as you are on any kind of payment plan the credit bureau will record this fact. Using a credit counsellor will not give you a better credit rating faster. In fact, you will likely take longer to re-establish a good rating and pay much more if you use credit counsellor rather than a trustee.

Let’s consider the facts and then you decide. Remember, that your objective is to get out of debt and re-establish a good credit rating in an honourable and cost-effective way, as quickly as possible.

Key Considerations. Credit Counsellors. Trustees: Bankruptcy or a Consumer Proposal.
When will my debt be erased from the credit bureau? 3 years after the debt is repaid. Bankruptcy: 6 years after the discharge. Proposal: 3 years after the Proposal is satisfied.
Can I pay back less then I owe and have the rest of the debt erased? Only in rare circumstances. Yes.
Once I make a plan with a credit counsellor or file for bankruptcy or a consumer proposal, will my creditors, including CRA, be forced to stop all actions against me including trying to collect money; phoning me; garnisheeing my wages or repossessing my assets? No Yes.
Which will give me a better credit rating? In most circumstances a Bankruptcy. or proposal will give you a better credit rating. in a shorter time, and at a lower cost.
Can income tax debt and other CRA debt be included and eventually written off? No. Yes.
Is the advice given without a conflict of interest and in my best interest? Some so called “non-profit” credit counsellors are funded by banks and other credit grantors so there can be a conflict of interest. Yes.
What training and education do credit counsellors and trustees in bankruptcy have? There are no set standards. Most trustees have accounting degrees and all must complete and pass a rigorous 3-year course and be investigated by the RCMP. Ongoing training is mandatory.
Are they regulated? No. Yes, by the Federal Government.
What kinds of plans are offered? Payment plans, where monthly payments are made, which are distributed to the creditors. Bankruptcy and two kinds of Proposals.
Which is cheaper? A bankruptcy or a proposal is usually cheaper.
Is Government approved Credit Counselling offered? In some cases. Yes.
What if I have a dispute? There is no dispute mechanism in place. You have the right to have your dispute mediated.



What about Alimony and maintenance?

Untitled-7Alimony or maintenance payments are not affected by bankruptcy. These payments must be kept up to date. A bankruptcy does not stop any actions for collection. Alimony and maintenance are provable claims and will be paid as a preferred claim for amounts incurred in the year before bankruptcy.


What about student loans?

Untitled-8Student Loans can be erased in a bankruptcy if the student was in school 7 or more years ago. This amendment will apply where the debtor obtains his or her discharge on or after July 7, 2008 (PROVIDED that at the time they filed they had ceased to be student for the required seven years) or the debtor had or becomes bankrupt on or after July 7, 2008.

The amendment that will reduce to five years the period a bankrupt will have to wait to make a “hardship” application to have student loan debt or obligation discharged (BIA , s. 178 (1.1)) is also now in force. This amendment applies to all debtors notwithstanding when the bankruptcy or the process that results in the bankruptcy is initiated.

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