WHO IS A LICENSED INSOLVENCY TRUSTEE?
An Insolvency Trustee is a federally licensed insolvency professional who is authorized by the Government of Canada to file, administer and oversee bankruptcy and insolvency estates under the provisions of the Bankruptcy and Insolvency Act. Licensed Insolvency Trustees are subject to strict professional codes of conduct and have the necessary skills, experience and proper educational background and training to meet your needs.
Unlike many of the self-proclaimed “debt specialists” advertising on TV, the internet and elsewhere, Licensed Insolvency Trustees are Officers of the Court and they are the ONLY individuals who can compromise your creditors’ rights. A Licensed Insolvency Trustee is able to provide you with permanent relief from your debts and immediate legal protection from your creditors. ALL other debt settlement parties require the cooperation of your creditors, and the only remedy that they can offer you is that they will “attempt” to negotiate with your creditors on your behalf.
WHAT DOES A BANKRUPTCY INVOLVE?
Bankruptcy is a LEGAL PROCESS whereby, in return for protection from your creditors and forgiveness of your debts, you surrender a portion of your assets and, depending on what you make, share a portion of your income with your creditors while bankrupt.
The five Most Common Questions our Alberta clients ask when they are inquiring about Bankruptcy are follows:
- How Long will I be Bankrupt?
- How does my Income Affect the Length of my Bankruptcy?
- What will I Lose if I go Bankrupt?
- How Much does a Bankruptcy Cost?
- What happens to my Debts when I go Bankrupt?
1. HOW LONG WILL I BE BANKRUPT?
The length of a person’s bankruptcy and the date of one’s discharge from bankruptcy depends on two basic factors, the first being, have you been bankrupt before, and the second is how much do you make. The time-frame for discharges from bankruptcy, if you complete all your bankruptcy duties, are as follows:
First Time Bankrupt Minimum period of 9 months, to a max of 21 months.
Second Time Bankrupt Minimum period of 24 months, to a max of 36 months.
Third and Subsequent Barring any extenuating circumstances, 36 to 48 months.
2. HOW DOES MY INCOME AFFECT THE LENGTH OF MY BANKRUPTCY?
The Bankruptcy and Insolvency Act, Directives and Rules, set out federal government income guidelines which stipulate income sharing requirements depending on the size of one’s family. Any income earned by the family over and above the federal government income guideline, while you are bankrupt, must be shared equally with your creditors. For example, if your family income exceeds the guideline by $200.00, you are expected, as part of your bankruptcy duties, to pay ½ of that, or $100.00 to your bankruptcy estate. In essence, the more you make, the more you are expected to share with your creditors.
For more information regarding the federal government income guideline that would be applicable to your specific situation, and how much you would have to pay if you were to go bankrupt, please do not hesitate to contact us, either by giving us a call, or by using our “Contact Us” feature located in the upper right hand corner of each page on this website. We will be happy to provide you with a complete outline of the income guidelines and how they will affect you or your family.
3. WHAT WILL I LOSE IF I GO BANKRUPT?
The Bankruptcy and Insolvency Act allows each province to set the exemption limits for their residents, and what their residents can keep if they go bankrupt. What you get to keep and what you lose if you go bankrupt will depend on what you have and where you live. Alberta has some of the best exemption limits in Canada, and the assets you get to keep if you file for Bankruptcy in Alberta are as follows:
- Clothing and personal effects to a liquidation value of $4,000.00;
- Household furnishings and appliances to a liquidation value of $4,000.00;
- Tools of Trade or property used by the debtor to earn his or her principle source of income to a max value of $10,000.00, i.e. mechanic’s tools, carpenter’s tools, etc.;
- One car or a truck to a maximum value or equity* of $5,000.00;
- $40,000.00 equity* in your principle residence or, if you have joint ownership, your proportionate share thereof;
- Medical and Dental Aids;
- Certain Life insurance policies;
- Certain pensions, RRSP’s and RESP’s for children;
- Other special exemptions for farmers.
*Equity is the value of the asset less any amounts owed against it.
4. HOW MUCH DOES A BANKRUPTCY COST?
There are three factors to consider when determining the total cost of filing personal bankruptcy:
1) The Basic Fee;
2) Income Sharing while Bankrupt;
3) Assets you will Lose.
As you can see, the real cost of a Bankruptcy is not the Basic Fee you have to pay to your Trustee, but rather the amount of income you have to share while bankrupt, and the non-exempt assets you will lose, or have to surrender to your Bankruptcy Estate. If you have NO significant assets, and MODEST income, the cost of a bankruptcy, in the case of a first time bankrupt, approximates $1,800.00. If, however, you own a non-exempt asset, such as a ski-doo or a quad, boat, etc., etc., you must surrender those assets for sale and distribution of the proceeds to your creditors. If, in this scenario, you own a ski-doo which is worth $5,000.00, and has nothing owed against it, the cost of your bankruptcy, before any income sharing, would be $6,800.00 ($1,800.00 for the basic fee plus the value of the ski-doo or $5000).
As you can see, when you take into account all three factors, the cost of one’s bankruptcy can vary significantly from individual to individual. Notwithstanding that the relative cost of a bankruptcy can be higher for some, we have NEVER SEEN A CASE where a bankruptcy did not save a client a significant amount of money. People who earn more, and have to pay more in a bankruptcy, usually owe significantly more, and have more debt outstanding, than someone who does not make significant income.
5. WHAT HAPPENS TO MY DEBTS IF I GO BANKRUPT?
A bankruptcy, in most cases, eliminates virtually all, if not all, of a person’s debts. There are a few exemptions to the rule, which include the following:
SECURED DEBTS
In most cases, a bankruptcy does not prevent a secured creditor such as a Bank, Credit Union or Finance Company from realizing on any asset which you have pledged as security for your loan, if the payments on those loans are not being made. If you want to keep a secured asset, the payments must be made. If you don’t care about the asset, and are willing to surrender it to the lending institution, or you don’t want to keep it, any amounts you owe in relation to that asset can be written off in your bankruptcy.
In a bankruptcy, a creditor’s only recourse is against the asset itself, not you. If you find yourself upside down, where the amount you owe exceeds the value of the asset, you may want to consider surrendering or walking away from the asset.
LEGISLATIVE EXCEPTIONS
Certain types of debts are considered debts which the government, from a public policy perspective, considers as being not eligible for discharge by a bankruptcy. They include the following:
- Fraud, Embezzlement, Theft
- Debts by Misrepresentation
- Fines, Penalties imposed by Court
- Damage / Restitution Orders
- Alimony or Maintenance Obligations
- Student Loans less than 7 years old
- Dividends on Non-disclosed Debts
You can see, from a public policy perspective, that the government does not want people to get a discharge for debts which arise because of fraudulent or criminal activity, nor do they want people to be able to walk away from family maintenance obligations or go to school, get an education, and write off their student loans. Other than these exceptions, there are very few debts that survive a bankruptcy.
CALL OR CONTACT US AND GET MORE INFORMATION
For more information about Bankruptcy or to request a FREE, NO OBLIGATION consultation, please do not hesitate to Contact Our Alberta Licensed Insolvency Trustees. We are friendly, easy to talk to, and we will take the time to review all of your options with you.