Personal Bankruptcy, Frequently Asked Questions :: A.C. Poirier & Associates Inc., Trustee in Bankruptcy with offices in New Brunswick and PEI

	Personal Bankruptcy - Frequently Asked Questions




	How Do I Enter Into Personal Bankruptcy? What Is An Assignment In Bankruptcy? What Assets Can I Keep? Should I Continue To Pay Any Creditors? May I Keep Assets Which I Have Pledged If I Continue To Pay The Secured Creditor? What Is The Difference Between A Summary Administration And An Ordinary Administration? How Long Am I Bankrupt? What Happens To My Wages During Bankruptcy? Who Will Know About My Bankruptcy? What Happens At The Meeting Of Creditors? Do I Have Any Other Duties And Responsibilities? Who Files My Income Tax Returns? Does The Trustee Conduct Any Investigations? What Happens If I Acquire Assets During My Period Of Bankruptcy? What Are Bankruptcy Offences? What Is A Bankrupt's Discharge? What if I Don't Get A Discharge? Who Pays For The Trustee's Services? Do I Hire The Trustee? What Do I Do If A Creditor Sues Me? What Is The Trustee's Discharge? How Do I Qualify For A Proposal? What Is The Difference Between A Consumer Proposal And An Ordinary Proposal? What Kind Of Counselling Is Available To Help Me Choose The Best Alternative? How Much Does A Proposal Cost? How Do I Enter Into Personal Bankruptcy? There are two ways you can become bankrupt: Voluntary A voluntary bankruptcy is initiated by you. The formal documentation necessary to start the bankruptcy process is prepared by the Trustee and is based upon the information contained in our Fresh Start Workbook. A voluntary bankruptcy is referred to as filing an Assignment in Bankruptcy. All assets (things you own) and liabilities (amounts you owe) must be listed in the Fresh Start Workbook. A creditor cannot be left out for any reason. In Bankruptcy or Proposal proceedings, all creditors are entitled to be notified and to share in the distribution of any funds. If a creditor is not disclosed, then you may be responsible for payment of the same amount which the creditor would have received if the creditor had been notified. Involuntary One or more creditors asks the Court to make an Order stating that a person is Bankrupt and to appoint a Trustee in Bankruptcy. This Order is called a Receiving Order. What Is An Assignment In Bankruptcy? An Assignment in Bankruptcy is a legal document where you assign or transfer your assets to a Trustee in Bankruptcy for the general benefit of the creditors. An Assignment in Bankruptcy, when filed with the Official Receiver (the Superintendent of Bankruptcy's representative in the province) is the starting point of the bankruptcy. The date of filing of the assignment is the effective date of bankruptcy. Bankruptcy serves to transfer ownership of your assets to the Trustee. The Bankrupt person no longer has any right to deal with these assets. However, certain assets are exempt from seizure (meaning you can keep them) and are not transferred to the Trustee. The Assignment in Bankruptcy also causes a "Stay of Proceedings", which prohibits all creditors from taking legal action against you, with the exception of alimony or child support proceedings. Once you are bankrupt, credit collection procedures are terminated and creditors cannot continue with garnishments or lawsuits. Creditors must make their inquiries through the Trustee. What Assets Can I Keep? In a personal bankruptcy, you can keep certain assets. These are referred to as "Exempt Assets". The exempt assets are determined by provincial laws and therefore vary from province to province. In the Maritimes the exempt assets generally include: A vehicle if needed in the course of employment. Household goods and personal effects Pensions Certain types of RRSP's Tools of trade Provincial laws determine the maximum value allowed for each exempt asset. The Trustee can provide you with more specifics. Should I Continue To Pay Any Creditors? Once you become bankrupt, you must not make any further payments to any preferred or unsecured creditors. Payments to secured creditors (creditors that have a lien on assets) should only be continued after consultation with the Trustee. May I Keep Assets Which I Have Pledged If I Continue To Pay The Secured Creditor? In certain circumstances, it may be possible for a Bankrupt to keep pledged assets (e.g., house, car, furniture, etc.) provided that: The Trustee has determined that the security is valid. The Trustee has determined that there is no equity in the asset for the preferred or unsecured creditors and has released its interest in the asset. The Trustee and the secured creditor have agreed to leave the asset in your possession and the secured creditor has agreed to accept payments from you. You can afford to make the payments and the payments are reasonable in your circumstances. What Is The Difference Between A Summary Administration And An Ordinary Administration? A summary administration is a bankruptcy in which the estimated realization of assets by the Trustee is less than $10,000. Where the estimated realizable value of assets by the Trustee is more than $10,000, the bankruptcy is referred to as an ordinary administration. The majority of personal bankruptcies are summary administrations. In summary administrations, the Trustee is not required to advertise the bankruptcy in the newspaper and, generally, there is no meeting of creditors. How Long Am I Bankrupt? You are bankrupt from the time of filing an assignment in bankruptcy until a Certificate of Discharge is issued. In most first-time bankruptcies, this period of time is 9 months and during this time you are referred to as an "undischarged bankrupt." What Happens To My Wages During Bankruptcy? Your wages, including salaries and commissions, are monitored by the Trustee. Each month you are required to complete an income and expense statement and forward it to the Trustee. This statement shows the amount of monthly income for your household family unit as well as amounts spent on rent, food, clothing, etc. The Trustee will provide you with blank income and expense statements for this purpose. The Superintendent of Bankruptcy publishes guidelines as to the normal maximum amounts required as living expenses for a household family unit. A portion of any income earned in excess of these guidelines is to be paid by the Bankrupt to the Trustee, for the creditors. These payments, if applicable, are referred to as Surplus Income Payments and must be paid to the Trustee each month during the period of the bankruptcy. At the commencement of the bankruptcy, the Trustee will review and determine the Surplus Income Payment requirements. This is based on the Superintendent of Bankruptcy Guidelines, taking into consideration family obligations and extraordinary circumstances. The surplus income payments will be adjusted based upon actual earnings during the period of bankruptcy. Failure to make the required Surplus Income Payments may result in the Trustee obtaining a Court Order to seize a portion of the bankrupt's wages or self-employed income, a Conditional Discharge being issued by the Court, or a Conditional Discharge being issued by the Trustee. Who Will Know About My Bankruptcy? In all bankruptcies, the creditors received a notice of the bankruptcy. Credit bureaus also maintain a record of all bankruptcies. The length of time is usually six years for a first time bankruptcy. If the bankruptcy is an ordinary administration, the Trustee must publish the notice of bankruptcy in the local newspaper in the area of the bankrupt's residence. If the bankruptcy is a summary administration, the Trustee is not required to publish the notice of bankruptcy in the local newspaper. The Office of the Superintendent of Bankruptcy also maintains a permanent record of all bankruptcies. Normally, employers are not notified of the bankruptcy. It is up to you to decide whether to inform your employer of the bankruptcy. In some cases the employer may be aware of the employee's financial difficulties, and will likely look upon the bankruptcy as a beneficial solution to the employee's problems. It may be necessary for the Trustee to communicate with the employer to stop a garnishment or to obtain information required for filing your income tax returns. What Happens At The Meeting Of Creditors? In a summary administration bankruptcy a meeting of creditors will not be called unless the creditors request one. The Trustee in Bankruptcy will send Notice of the bankruptcy to all creditors you disclosed to the Trustee. The creditors have 30 days to request a meeting. In an ordinary administration, there must be a meeting of creditors. If a meeting is called, the bankrupt must attend. The purpose of the first meeting of creditors is to: Consider the financial affairs of the bankrupt. Affirm the appointment of the Trustee. Appoint inspectors. Give directions to the Trustee with regard to the administration of the bankruptcy, the sale of assets, investigations to be conducted, actions to be taken, etc... The Trustee will provide the creditors who attend the meeting with a report, either verbal or written, on the administration of the bankruptcy including an estimate of the realizations for the unsecured creditors. The unsecured creditors can either affirm the appointment of the Trustee or substitute the Trustee. Trustees are substituted in very rare circumstances. An Inspector(s) may be appointed to represent the creditors and assist the Trustee with the administration of the bankruptcy. It is possible, but unlikely, that there may be other meetings of creditors. If so, the bankrupt may be requested to attend. Creditors' meetings are conducted in a business-like manner and are not held for the purpose of harassing the bankrupt or conducting extensive questioning of the bankrupt. The bankrupt's presence at these meetings is required for the purpose of answering proper questions which may be asked and which are permitted by the chairman. Do I Have Any Other Duties And Responsibilities? A bankrupt's duties and responsibilities are detailed in the Bankruptcy & Insolvency Act. In summary, the bankrupt person is required to: Reveal and turn over to the Trustee all assets in their possession or control. Submit monthly income and expense statements to the Trustee with proof of earnings, which is normally a copy of your pay stubs. Make the monthly surplus income payments to the Trustee. Turn over all credit cards to the Trustee for cancellation. Make available to the Trustee all relevant books and records. Attend any examination called by the Official Receiver. Assist the Trustee with making an inventory of assets if the Trustee wishes to do one. Disclose to the Trustee the details of all property disposed of by sale, gift or settlement. Attend the first meeting of creditors and any other meetings that may be scheduled. Attend a minimum of two counselling sessions. Provide the Trustee with all information necessary to file pre-bankruptcy income tax returns. Generally assist the Trustee. Keep the Trustee advised of place of residence, phone number and employer. Resign any corporate directorships. Provincial and federal legislation prohibits an undischarged bankrupt from being a corporate director. It is your responsibility to understand these duties prior to filing an assignment in bankruptcy. The Trustee can answer questions about your duties. Who Files My Income Tax Returns? The Trustee will file the income tax returns for the year you file for bankruptcy. There are two returns filed: one covers January 1 to the date of bankruptcy (the pre-bankruptcy return) and the second covers the period from the date of bankruptcy until December 31 (the post-bankruptcy return). You must provide the Trustee with the information required to file these returns. Income tax refunds from prior years and the pre-bankruptcy refund are assets of the bankrupt's estate and Canada Customs & Revenue Agency (formerly Revenue Canada) automatically forwards these refunds to the Trustee. Post-bankruptcy income tax refunds will also be forwarded to the Trustee and will become part of the bankruptcy estate. Amounts owing on prior years' income tax returns and the pre-bankruptcy return are debts that are discharged by the bankruptcy. The bankrupt must pay income tax liabilities arising from the post-bankruptcy return. Does The Trustee Conduct Any Investigations? You may be required to attend at the Office of the Official Receiver for an examination under oath, as to the facts relating to the bankruptcy. The Trustee will also investigate any transactions prior to bankruptcy involving circumstances where the bankrupt transferred assets to any person(s) for other than fair value, or where any creditor(s) received preference over other creditors by payment or by the giving of security. The Trustee may commence legal action to reverse these transactions. What Happens If I Acquire Assets During My Period of Bankruptcy? Non-exempt assets acquired or purchased during the period of bankruptcy may be taken by the Trustee for the general benefit of the unsecured creditors. These assets include inheritances and lottery winnings. You should consult with the Trustee before acquiring any non-exempt assets during bankruptcy. What Are Bankruptcy Offences? The Bankruptcy & Insolvency Act provides for penalties for bankrupts who commit certain bankruptcy offences. The following are some examples of bankruptcy offences: Failure to comply with your duties as defined by the Act. Fraudulent disposition of property. Refusal to answer questions at any examination held pursuant to the Act. Falsifying a statement or accounting record. Concealing, destroying or falsifying books or records. Obtaining credit by false representation. Concealing or removing property. Engaging in a trade or business without disclosing to all persons involved in any business transaction that he or she is an undischarged bankrupt. Obtaining credit while an undischarged bankrupt without disclosing the fact of being an undischarged bankrupt. Persons convicted of bankruptcy offences may be fined or imprisoned. What Is A Bankrupt's Discharge? One of the major purposes of the bankruptcy process is to provide a fresh financial start. A discharge from bankruptcy accomplishes this and occurs at the end of the bankruptcy period. If this is your first bankruptcy, then the Bankruptcy & Insolvency Act provides a procedure for an automatic discharge, which is one where there is no Court hearing. To qualify for an automatic discharge you must: Be a first-time bankrupt; Have complied with your duties under the Bankruptcy & Insolvency Act and cooperated with the Trustee; and The discharge must not be opposed by any creditor(s), the Trustee or the Superintendent of Bankruptcy. One month prior to the end of the nine-month bankruptcy period, the Trustee will prepare a report recommending whether or not a bankrupt should receive a Discharge, and whether the discharge should be subject to conditions. In preparing this report, the Trustee takes into consideration the bankrupt's conduct and the ability to make surplus income payments. This report is sent to the Superintendent of Bankruptcy, any creditors who request a copy and to you. If you do not agree with the Trustee's recommendations, you may request mediation. The Trustee will either request mediation or recommend a conditional order of discharge on the grounds that: You chose bankruptcy where, in the Trustee's opinion, a viable proposal could have been filed; You failed to comply with the requirement to make surplus income payments; or You did not fulfill your duties. Where you disagree with the Trustee's recommendation for a conditional order of discharge and mediation is unsuccessful, the Trustee will arrange for your discharge application to be heard by the Court. You may attend the Court hearing in person, or be represented by legal counsel. In this case, you may be responsible for the legal fees the Trustee incurs. After reviewing the Trustee's report and the bankrupt's affidavit, and after hearing the Trustee, you and any creditors in attendance, the Court will issue one of the following types of orders: Absolute Discharge - This type of Discharge order absolutely discharges a Bankrupt from obligations to pay the Dischargeable Debts owing at the date of bankruptcy. An Absolute Order of Discharge does not apply to any debts incurred by you after the date of bankruptcy. Conditional Discharge - This type of Discharge order states that the Bankrupt will receive an Absolute Discharge when certain condition(s) are met. The condition is usually payment of a certain amount of money to the Trustee for the general benefit of the Unsecured Creditors. The amount of payment can be set by the Trustee with the Bankrupt's consent. If a consensus cannot be reached between the Trustee and the Bankrupt, the amount of the payment will be at the Court's discretion. Payments are usually based on the Bankrupt's ability to pay, as indicated by the Bankrupt's income potential in the future and the net income of the Bankrupt's household family unit. When the Court grants a Conditional Discharge, the Bankrupt may apply to the Court after one year to have the condition changed if it can be shown that there is a reasonable probability that the condition cannot be met. Suspended Discharge - This type of Discharge order states that the Bankrupt will receive an Absolute Discharge at some specific date in the future. This type of Order is usually issued when the Court considers it appropriate for the Bankrupt to be penalized due to his or her conduct or because it is not the Bankrupt's first bankruptcy. What If I Don't Get A Discharge? If the bankrupt cannot be located or has not cooperated with the Trustee in ensuring that the administration of the Bankruptcy is complete, the Trustee may be obliged to ask the Court to delay the bankrupt's application for discharge indefinitely. The Trustee will then proceed to close the file and apply to the Court for the Trustee's Discharge. Once the Trustee has been discharged, and if the bankrupt has not received an Absolute Order of Discharge, the bankrupt may be in a worse position than before the bankruptcy. The reasons for this include: Once the Trustee has closed the file and has been discharged, the Stay of Proceedings is over and the creditors may resume collection efforts against the bankrupt. A bankrupt remains a bankrupt until an Absolute Order of Discharge is issued. Consequently, each time a bankrupt obtains credit without advising the creditor that he or she is an undischarged bankrupt, a bankruptcy offence is committed. Any assets acquired, such as lottery winnings, inheritances, savings, etc., can be seized by creditors until an Absolute Order of Discharge is obtained. Consequently, it is extremely important that the discharge terms are resolved before the Trustee closes the file. Who Pays For The Trustee's Services? The Trustee's fee is set by the Bankruptcy & Insolvency Act. In most cases the person filing for bankruptcy pays the fee. The basic fee covers all services provided by the Trustee including both mandatory counselling sessions and registration fees. Affordable monthly installments will be discussed with you prior to you filing for bankruptcy. Your monthly or lump sum payment to the Trustee to cover the Trustee's fee is credited to any surplus income payment requirements. In ordinary administration bankruptcies where there are significant assets and substantial work for the Trustee to do, the Trustee's fee is based on the number of hours spent by the Trustee's staff at the normal billing rates. All Trustee's fees are reviewed by the Office of the Superintendent of Bankruptcy and, if applicable, are approved by the Court. Do I Hire The Trustee? It is a common misconception that the bankrupt "hires" the Trustee. This attitude is quite often reinforced by the fact that the bankrupt: Chooses the Trustee. Perceives to be paying the Trustee. Is guided through the bankruptcy process by the Trustee. Has all questions answered by the Trustee. Provides the Trustee with detailed information. If required, assists the Trustee in selling non-exempt assets. However, it should be clearly understood that the Trustee has a responsibility to the creditors and the Court as well. One of the Trustee's main responsibilities is to maximize the amount of funds available for distribution to the unsecured creditors. What Do I Do If A Creditor Sues Me? Once a person declares bankruptcy a creditor cannot continue Court actions. If a creditor commences a Court action against you after bankruptcy or after filing a proposal, you should immediately inform the Trustee of the action and send any legal documents to the Trustee. If a creditor commences a Court action against a person who has been discharged from bankruptcy, the person will usually only have to provide the Court and the creditor with a copy of the final discharge documents, for the action to be stopped. In the case of a completed proposal, the debtor would provide a copy of the Certificate of Full-Performance. What Is The Trustee's Discharge? When work on a bankruptcy file is complete, the Trustee must file a formal report with the Office of the Superintendent of Bankruptcy and, depending on the type of file, the Court. This report includes an accounting of the liquidation of the assets, the various costs of the administration of the bankruptcy, details of the Trustee's fee and listing of the funds distributed to the unsecured creditors. The Trustee notifies the bankrupt and the creditors of the time and place of the Trustee's discharge hearing. Anyone who takes exception to the Trustee's administration may make their objection to the Court, in which case a Court hearing will be scheduled to review their concerns. When the Court finds the Trustee has satisfactorily completed the administration of the bankruptcy, it will grant the Trustee a discharge and the Trustee's duties are concluded. How Do I Qualify For A Proposal? For a Proposal to be acceptable to your creditors, it must give the creditors a greater return or payment on their outstanding accounts than they would receive in bankruptcy. You must be able to make the payments. There is no advantage to filing a Proposal if you cannot comply with its terms. For a Proposal to succeed, it will generally have to be in a situation where at least one of the following is applicable: You have steady employment which provides a level of income above that necessary for normal living requirements. Third parties, such as parents, are prepared to provide funding or guarantees for the proposal settlement. Certain assets which may not be available to the creditors in a bankruptcy proceeding are voluntarily offered as part of the proposal. There have been no fraudulent or irregular dispositions of property. What Is The Difference Between A Consumer Proposal And An Ordinary Proposal? A Consumer Proposal is a streamlined proposal process that is available to debtors whose total debts do not exceed $75,000 (excluding the mortgage on their personal residence). This type of proposal does not require a creditors' meeting, unless requested by the creditors, and there is no automatic bankruptcy if the creditors turn down the proposal. An Ordinary Proposal applies to debtors who owe more than $75,000. In this case there must be a creditors' meeting and if the Proposal is not accepted by the required majority of creditors, then the person filing the Proposal automatically becomes bankrupt. What Kind Of Counselling Is Available To Help Me Choose The Best Alternative? We would be pleased to arrange for a no-charge confidential initial consultation. To arrange for your initial consultation, please call one of our Offices. How Much Does A Proposal Cost? The Trustee's fees for a Consumer Proposal are set by the Bankruptcy & Insolvency Act and are based upon the amount of funds paid to the Trustee under the Proposal. If you file an Ordinary Proposal, there is usually more work for the Trustee to do and the Trustee's fee is normally based upon the number of hours spent by the Trustee's staff at normal billing rates. Costs will vary depending upon the complexity of the Proposal proceedings, and can be paid for out of funds paid to the Trustee under the Proposal or by way of separate arrangements with you.