What exactly is bankruptcy?
Bankruptcy is a proceeding under the Bankruptcy and Insolvency Act that can only be filed through a Licensed Insolvency Trustee (LIT).
Filing for bankruptcy means, among other things, assigning your property to a trustee, which in fact means assigning your seizable property to the trustee. There are several exceptions which are described as exempt goods ( 1 ), and which are detailed in the Act.
The trustee will then have to realize the seizable assets and distribute them to your creditors. In some cases, the seizable assets can by repurchased by the person who filed for bankruptcy.
Bankruptcy will allow you to be protected from your creditors, to put an end to all recovery proceedings, all legal proceedings or all seizures brought against you. Bankruptcy will also allow you to free yourself from all your debts such as credit cards, lines of credit, loans, etc. except for certain non-dischargeable debts (*2) such as fines, penal fines, arrears of alimony and a few others. The insolvency practitioner you will meet will assess your financial situation with you and will be able to inform you if any of these debts are part of your statement.
This option, or the word “bankruptcy”, is often scary, but when we know all the mechanism, which will be clearly explained by your insolvency counselor, it may turn out that this solution is the most appropriate in your situation.
- Exempt Property: Property held in trust for another person; Property which, under the Civil Code of Quebec, cannot be part of an enforcement measure (movable property, work tools, etc.); RRSPs except for contributions made within the twelve (12) months preceding the date of bankruptcy. Seizable and Unseizable assets – Ministère de la justice (gouv.qc.ca)
- Non-dischargeable debts: Penal fines, indemnities granted for bodily injuries caused intentionally; alimony; fraud, embezzlement, misrepresentation; student loan, if the bankruptcy occurs within 7 years or the bankrupt has ceased to be a full-time or part-time student.
- You are not eligible for debt consolidation.
- You do not have the financial capacity to make a consumer proposal, or your financial situation is too unstable to be able to commit for five years (for example: precarious employment, in the process of divorce, on sick leave, etc.).
- You have no or little seizable assets with equity (i.e., with the value of the asset being equal to or less than the balance of the guaranteed loan).
Bankruptcy Eligibility Criteria:
Being insolvent means:
- A person who, for one reason or another, cannot meet his obligations as they come due.
- A person who has ceased to pay current obligations in the normal course of business as they become due.
- A person whose total property is not sufficient to allow the payment of all debts.
Have debt of $1,000 or more:
This amount dates back several years and is no longer appropriate to the current reality. Therefore, we will definitely not recommend to go bankrupt for such an amount!
The criterion used is rather that of insolvency as explained above, i.e., being unable to meet its financial obligations as they arise.
- Initial meeting with one of our insolvency professionals. This meeting will allow you to assess your overall financial situation and make a complete assessment.
- A statutory statement will be prepared with the help of our insolvency professionals, which will assess your situation, your assets, your debts, your income, and your monthly expenses.
- If you choose bankruptcy, the amount you will have to pay each month will be based on your budget and financial capacity. The duration of bankruptcy depends on your income and whether you have already filed for bankruptcy in the past.
- During the period of your bankruptcy, you will have two (2) mandatory counselling sessions that will help you better understand the causes of your financial difficulties, improve your financial management, set financial goals to achieve and have a better control over your finances.
- During the second counselling session, we will do a budget review, which will allow us to assess all your income during your bankruptcy and determine the date of your discharge. If you do not have "surplus income", the bankruptcy will last 9 months for a first and 24 months for a second. If you have “surplus income”, the term will be extended for an additional 12 months, in both cases.
Calculation of surplus income
In the context of a bankruptcy, the calculation of surplus income will affect the duration of your bankruptcy.
The payment to be made and the duration of a bankruptcy are directly linked to the existence or not of so-called “surplus” income, higher than a standard set by the government. To determine whether you have surplus income and to calculate it, we will consider the average net income earned during the bankruptcy, the number of dependents, the expenses you must assume for childcare expenses, child support as well as expenses related to a medical condition and for your employment.
It is the calculation of all these elements that determines whether you have a "surplus income", an income higher than the minimum set by the government for a person in a financial and family situation comparable as yours.
Thus, if you do not have "surplus income" bankruptcy will generally last 9 months for a first bankruptcy and 24 months for a second bankruptcy.
There are advantages and disadvantages to file for bankruptcy, but the more you know about the impacts, the more you know about the different options available to you, the more you will be able to make the best-informed decision. Often the consequences are less than you imagined.
We are here to help you better understand all aspects of the Act and the options available. Our objective during our first meeting is precisely that.
Do not hesitate to contact us and ask all the questions that worry you, we have the answers for you.
Most Frequently Asked Questions
Bankruptcy is the last resort for people in financial difficulty and the credit report is usually already blemished. Your credit rating will be R-9 and your bankruptcy information will remain on file for 6 years after the date of your discharge from bankruptcy with Equifax Canada and 7 years with Trans Union Credit.
Your credit rating (or credit score) is also a number between 300 and 900 that fluctuates over time. And that's okay. As in a report card: the higher the mark, the better.:
- A score between 800 and 900 is excellent
- A score between 750 and 799 is considered very good.
- A score between 680 and 749 is good.
- A score between 640 and 679 is average.
- A score of 639 or less makes access to credit more difficult.
For more information, consult the following link:
Comprendre votre dossier de crédit et votre pointage de crédit (gouv.qc.ca) (mettre la version anglaise)
Your licensed insolvency trustee will have to file your income tax return with the 2 levels of government for the period called “pre-bankruptcy”, from January 1 to the date of your bankruptcy. Any amounts that may be due on these statements are included in your bankruptcy and all previous years, and you do not have to pay them. However, if there are refunds for the pre-bankruptcy period and previous years, those from the federal government will be paid to your bankruptcy and will then be distributed to your creditors, while those from the provincial government are exempt from seizure and will be paid directly to you.
It is important to note that if you have a debt with either government, the refunds from the pre-bankruptcy statement will be applied against your debt.
At the end of the year, your tax return for the period called "post-bankruptcy", from the date of your bankruptcy to December 31, must be produced by you. If you owe amounts for this period, you will have to pay them; they are not included in your bankruptcy. However, if there are refunds for the post-bankruptcy period, those from the federal government will also be paid out upon your bankruptcy and will then be distributed to your creditors, while those from the provincial government are exempt from seizure and will be paid directly to you.
Your GST refunds, if any, will also be paid to the trustee (up to an amount established by law), and the excess will be returned to you.
The solidarity tax credit will continue to be sent to you directly.
If you file for bankruptcy, you must turn over all your credit cards to the trustee, whether you have a balance owing on said card, or not.
The purpose of the Bankruptcy and Insolvency Act is to promote the financial rehabilitation of individuals, so your mortgagee cannot repossess the property if you comply with your mortgage agreement and your payments are up to date. However, when your mortgage expires, the bank will have the details of your bankruptcy on file, so it could take this new information into account when analyzing the renewal. Also, if your house is too expensive for you and you opt for bankruptcy, the law will allow you to hand over the keys to your creditor and thus free yourself from all obligations.
During your meeting with one of our insolvency professionals, an appraisal of your property will be carried out to determine the possibility or not of an equity for the mass of your creditors. It is also possible, in the event of an equity, that you must pay a certain amount to keep your house. Before making the decision whether to go bankrupt, you will have all the necessary information that will allow you to assess all the impacts on your home.
Yes. Upon filing for personal bankruptcy, any seizure or legal proceedings against you are suspended.
Secured creditors with respect to their right under their security.
Example: Mortgage creditors can continue to initiate proceedings for repossession or sale under judicial authority, but this right is limited to the repossession of the house; mortgagees cannot therefore sue you for an amount of money.
For a garnishment of wages in payment of alimony.
Remember that the basic principle of the Bankruptcy and Insolvency Act is to help people who are over-indebted to be able to rehabilitate their finances by offering them legal protection against creditors. It would necessarily go against the main objective of the Act if you could no longer practice your profession.
However, you will no longer be able to occupy certain positions. For example, if you are bankrupt, you can no longer be a director of an incorporated company. Also, depending on your profession, certain professional orders (lawyers, accountants, trustees, etc.) could set conditions or suspend your authorization to practice during your bankruptcy or during your reinstatement. It is important to check with your professional order about the impact of bankruptcy.
However, apart from the cases listed above, nothing prevents you from continuing to earn your living if you declare bankruptcy.
No. Your creditors cannot refuse your bankruptcy, at least directly.
Your creditors do not have the legal power to refuse your bankruptcy directly. Only the Court has this authority. Thus, at the extremely rare request of a creditor, the court could refuse your personal bankruptcy if it considers, for example, that you were not insolvent.
In addition, from the moment you declare bankruptcy, your creditors can no longer communicate directly with you, they must do so via your trustee. Moreover, all legal proceedings brought by your creditors are systematically interrupted. Of course, proceedings in the family, criminal or bodily injury chambers can be maintained.
In the context of bankruptcy, student debts are dischargeable, which means that you can free yourself from your student debts provided that:
You have ceased to be a student for more than seven (7) years. Please note, it is not the date of the last loan granted by the Ministry of Education that makes it possible to calculate the seven (7) years but the date on which you ceased to attend, full-time or part-time, an educational institution. The date on which your educational institution certifies that you have stopped your studies corresponds to the date of the end of your studies that the ministry will consider.
- Once discharged from your bankruptcy, if the student debt was non-dischargeable and the last time you where a student was at least five (5) years ago, you can, through a lawyer, present a motion to request the release of this debt from the Court. If the latter believes that you cannot repay your student debt and that you are in good faith, it could reduce your loan or just completely erase your debt.