When an individual goes into bankruptcy, their assets vest with the Trustee. This does not mean that the Trustee is going to come and sees all your assets – this is a misconception out there about bankruptcy that makes it scarier than it really is.

In reality, some assets are exempt – protected from creditors – while other assets are non-exempt, which means the value of that asset must be paid into the bankruptcy. This doesn’t mean that you would have to surrender all your non-exempt assets, but rather the value of those assets would have to be paid into the bankrupt estate. This provides the bankrupt with the flexibility to decide if they would prefer to give up the asset or contribute the value of the asset into the bankrupt estate through monthly payments and thereby retain the asset.

Assets continue to best with the trustee until you receive a discharge from the bankruptcy. Any windfalls that come to you such as an inheritance, lawsuit, insurance payout, lottery winning could be payable into the bankrupt estate.

Prior year income tax refunds as well as any income tax refunds for the year of the bankruptcy would also be payable into the bankrupt estate in most cases.

In Alberta it is the Civil Enforcement Act of Alberta - and certain sections of the Bankruptcy and Insolvency Act - that dictates which assets are exempt from seizure and thus protected from creditors. These exemptions will differ depending on your province so make sure to investigate your provincial legislation. In Alberta, the following assets are exempt from seizure:

• $5000 equity in a vehicle
• $4000 equity in household furnishings and appliances
• $10,000 equity in tools of trade required to make a living
• Your share of $40,000 equity in your principal residence
• Food required by you and your dependents for the next 12 months
• Clothing required by you and your dependents up to $4,000
• Medical and dental aids
• If your occupation is farming, up to 160 acres of land if it is located on your principal residence
• If your occupation is farming, the personal property necessary for you to continue farming for the next 12 months

Any assets not included on the above list of exempt assets are by default non-exempt assets and thus vulnerable to creditor collection outside of bankruptcy or in a bankruptcy the value of these assets are payable into the bankrupt estate. Examples include:

• Shares
• Equity beyond the exempt amounts as listed above
• Vacation property
• Boats
• Campers/motorhomes
• Mineral rights
• Art collections etc.

When you file for bankruptcy, you will then be termed a “bankrupt”. As a bankrupt, you’ll have various duties to complete during the course of a bankruptcy, filing monthly income and expense statements with your Trustee, providing your tax information with your Trustee, attending two counselling sessions, making monthly payments, attending a meeting of creditors (should one to held), and providing the Trustee with complete information regarding your assets, liabilities and income. Should you fail to complete your duties in a bankruptcy, your discharge could be delayed thereby increasing the term of the bankruptcy.

No, creditors do not get to vote in a bankruptcy proceeding – the decision to file the bankruptcy is up to you. Once you have consulted with a Trustee and made an informed decision to declare bankruptcy you will sign some documents which lay out your assets or liabilities along with an Assignment into Bankruptcy which causes your assets to vest with the Trustee.

An insolvent person – someone who is unable to pay their debts - who owes at least $1,000 in debt is eligible to file an assignment into bankruptcy. Note that a person’s credit rating and ability to still make minimum payments on their debts does not have any bearing on their eligibility to file for bankruptcy.

Bankruptcy will drop your credit score to the lowest possible score and your credit rating will be notated as an R9. This note will be on your credit bureau for 6 years after you complete your bankruptcy if this was your first time filing for bankruptcy or 14 years after a second-time bankruptcy. Although you’ll have a bad credit rating after you get out of bankruptcy, you can rebuild your credit after initiating the bankruptcy - getting credit again is the key to repairing your credit.

You must rebuild your credit history with two revolving pieces of credit for two years if you want to be successful in obtaining a mortgage in the future. One missed payment will undermine your efforts to rebuild your credit to the degree necessary to obtain a mortgage after bankruptcy.

If you enter into a bankruptcy, you are required to attend two counselling sessions. These sessions are intended to educate and empower you to build healthy financial habits. The topics covered in these sessions include money management, spending habits, warning signs of financial difficulty, and obtaining/using credit. At Frederick and Company Ltd., these sessions are one-on-one with our certified in-house counsellors so the conversation will be focused on you and the questions you’d like answered.

The Trustee can object to your automatic discharge. This will likely happen if you have not completed all the duties required or if you have committed an offense under the Bankruptcy and Insolvency Act. When the Trustee objects to a discharge, they can request the Court to issue a Conditional Order of Bankrupt’s Discharge or an Order Adjourning Discharge Indefinitely which require the bankrupt to perform the remainder of the initiate duties and/or to complete additional duties. After fulfilling the terms of the Order, the bankruptcy will be eligible to receive an Absolute Order of Discharge.

At this point, you’ll receive a discharge from bankruptcy, meaning that your bankruptcy has been completed. If you complete all your duties within the minimum term of the bankruptcy, you are eligible to receive an automatic discharge and a Certificate of Discharge will be issued to you. This means that you’ll no longer have to pay the outstanding debts included in the bankruptcy.

If you were unable to complete the required tasks or make the required payments, the Trustee will be obligated to oppose your discharge and your bankruptcy will be extended. Your bankruptcy payments can be extended through a mediation process; however, if anything else remains outstanding in addition to monthly payment then an application to court will be required. The court will grant a Conditional Order of Discharge if there are only a few items outstanding or the court can grant and Order Adjourning Discharge Indefinitely if there is a significant list of outstanding items. You will remain a bankrupt until you complete all items as required by your trusty. Once all the outstanding items have been completed and the trustee will apply to court for an Absolute Order of Discharge.

A Certificate of Discharge and an Absolute Order of Discharge both function to discharge the debts outstanding – the remaining balance owing on dischargeable debt will be written off by the creditor.

It is strongly recommended that the bankrupt attend court if a creditor has opposed their discharge, if they are advised by their Trustee to attend which usually would occur in estates where they have been bankrupt twice previously or there are concerns in the file and the Trustee is likely to ask for additional terms.

Yes, if they have reason to do so. The courts can set the terms of your discharge, suspend your discharge, or refuse your discharge. If the Court feels that you have not been rehabilitated and have seriously abused the integrity of the bankruptcy process, they may consider refusing your discharge or suspending your discharge for a period of time.

A Conditional Order for Discharge requires the bankrupt to do something before they are discharged. Often, the bankrupt is required to pay more money into the estate, file outstanding returns or provide certain information.

An Order Adjourning Discharge Indefinitely is granted in situations where too much information is missing and the court is unable to determine the proper course of action. In these cases, you remain on discharged until you have returned to the trustee, completed the outstanding duties, and a further application to court is made. In these cases, you remain on discharged until you have returned to the trustee completed the outstanding duties and a further application to court is made for an Absolute Order of Discharge.

An Order Suspending the Discharge means the details of the estate dictated that your discharge should be delayed. This would mean that while your file has gone to court the discharge has been dated sometime in the future. The date has passed then this order acts the same as an Absolute Order of Discharge.

The creditors’ rights are reinstated, and you will remain an undischarged bankrupt. At this point, you should consult your Trustee to determine the path for you to be discharged.

If you do not receive a discharge from bankruptcy, then you will remain a bankrupt indefinitely. This is likely to impair your future financial progress and is therefore not recommended. The best course of action is to complete your bankruptcy in a timely fashion.

If you do not wish to continue with the trustee that administered your bankruptcy or significant time is passed, making it very difficult to complete the tasks assigned to you, you have the option of filing a proposal out of bankruptcy which will resolve your old bankruptcy by replacing it with a proposal.

There are some debts that do not get discharged after a bankruptcy. These debts are listed under section 178 of the Bankruptcy and Insolvency Act. These debts include but are not limited to child support, spousal support, fraud, a judgment arising from intentional bodily harm, and student loans that are younger than 7 years old. These debts should be discussed as part of your consultation (if any of these apply to you) so you are aware they will not be written off at the end of the process. They will be stayed during the process and will receive dividends throughout the process which will reduce the amount owing after the proposal is complete.

While creditors usually take a passive role in the bankruptcy process, the Bankruptcy and Insolvency Act includes provisions that allow creditors to be a very active part of the process. Creditors can participate in the ongoing administration of the estate by attending meetings of creditors or being appointed as an inspector. As an inspector they oversee the administration of the estate which can include approving the sales process of the assets.

Creditors can also object to your discharge, which stops the automatic discharge process. The objection is filed with the court and a date is set where the creditor, the trustee, and you (it is not required, but it is advisable for you to participate) go to court where the Registrar will listen to all parties and then determine what additional terms you must complete to receive a discharge or what additional information must be provided to the court. The duties required can be above and beyond the initial duties as listed above.

If you owe personal income taxes this that will be dischargeable upon your discharge from bankruptcy.

If you owe more than $200,000 of personal taxes and this forms a significant portion of your total debt, then you be in a situation where you are considered a “high income tax debtor.” High income tax debtors must go to court for their discharge and their discharge will be opposed by the Canada Revenue Agency. A lawyer from the Department of Justice will appear at your discharge hearing and it is likely additional terms and provisions will be required prior to you being eligible for a discharge. If you are considered a high-income tax debtor, there are no additional provisions or terms required if you were to file a proposal instead of a bankruptcy.

After receiving a Certificate of Discharge or Absolute Order of Discharge, the bankrupt can start rebuilding their credit rating. In Canada, two credit bureaus track credit ratings: Equifax and Trans Union. There will be a notation on the credit bureau record for 6 years after a discharge for a first-time bankrupt and 14 years for someone who has previously been bankrupt.

The minimum term of a first-time bankrupt is 9 or 21 months depending on if you have surplus income. The minimum term of a second time bankrupt is 24 or 36 months depending on if you have surplus income.

Your household income, how many people reside in your household, and whether you filed a bankruptcy before will all factor into your surplus income payment. This payment is intended to determine whether you can chip more money towards your creditors or whether you cannot chip in any extra towards it because you have no surplus income. This calculation is intended to fairly balance your needs with your ability to pay your creditors. Canada is a vast land with infinite regional differences however there is one only one guideline for the whole the country so this calculation may not always be a perfect fit for everyone.

At the outset of the bankruptcy your surplus income payment will be calculated. It is important to note this will be an estimate of the amount you have to pay and it will not be the final number. Your final payment could increase or decrease depending on changes in the number of people in your household, or income fluctuations. It will be important to continue to review this calculation with your trustee to ensure you are on track to be discharged on time. If your income changes, the number of months you are required to be in bankruptcy can change as well. Your bankruptcy could fluctuate from nine months to 21 months or from 21 months to nine months depending on increases or decreases in the surplus income payment.

If there is a Trustee’s office within 100 kilometers of your residence, then you need to travel to that office to file a bankruptcy. If you live farther than that, you should consider discussing the options of filing a bankruptcy remotely with your Trustee.