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Bankruptcy

Bankruptcy is a last resort. It is a legal process that stops any legal proceedings started by unsecured creditors to collect what is claimed by them, and ultimately cancels most debts.

Under a bankruptcy, secured creditors are treated differently than other creditors. They can seize and sell assets covered by their security agreement, even after bankruptcy proceedings have begun. They may also make a claim for any unsecured portion of the debt as part of the bankruptcy.

To file for bankruptcy, you must have debts of at least $1000, and be able to show that you are unable to pay your debts now or in the future. A creditor or group of creditors can also force a debtor into bankruptcy by asking a court to declare the debtor bankrupt. Typically creditors only do this if you have many assets to sell to pay the debts. Assets include any of your property or personal belongings that the trustee can sell to pay debts.

In Saskatchewan, a first bankruptcy generally stays on your credit rating for six years, and will seriously affect your ability to get credit. A second or subsequent bankruptcy will remain on your credit report for 14 years. It will be a major factor that creditors consider when deciding whether or not to grant you new credit in the future.

Filing for Bankruptcy

To file for bankruptcy you must contact a bankruptcy trustee. Trustees can be found under "Bankruptcy" in the yellow pages of the phone book or a trustee registry search of the Office of the Superintendent of Bankruptcy. A bankruptcy trustee will charge a fee for performing duties related to the bankruptcy, although many offer free initial consultations. A trustee may refuse to accept a bankruptcy if, for example, you do not have enough assets to pay the trustee's fees. If you cannot find a trustee to accept the bankruptcy, you can contact the Office of the Superintendent of Bankruptcy (OSB), a branch of Industry Canada. The OSB's Bankruptcy Assistance Program may be able to assist you if you have written refusals from two other trustees and meet other requirements.

Once a trustee accepts the bankruptcy, they take charge of your assets. You no longer have any rights to any assets the trustee takes. The trustee acts on behalf of all your creditors to distribute the assets. Creditors file their claims with the trustee. Unsecured creditors cannot take any other legal actions against you during the bankruptcy unless the court gives them permission.

The trustee may then set up a meeting with your creditors and yourself to discuss the bankruptcy. The trustee will sell your assets and divide the proceeds among your creditors. You may also be required to make additional payments if you have surplus income. The trustee's fees for these services also come out of the proceeds. You will be required to attend financial counselling sessions that can help you better understand the causes of your bankruptcy and provide information about managing your financial affairs in the future.

Exempt Goods & Property

A trustee will sell your assets to help satisfy your debts. However, certain assets are exempt from seizure, meaning that you will be allowed to keep them in spite of the bankruptcy. These items include...

  • food
  • clothing
  • furniture and appliances up to a value of $4500 (or $10,000 for a farm)
  • tools of your trade up to $4500
  • a vehicle that is necessary to carry out your duties while at work
  • RRSP's and pensions
  • certain life insurance policies

The first $32,000 of your home is also exempt from seizure. However, most mortgages allow the creditor to call the mortgage due and foreclose if you declare bankruptcy. A creditor may allow you to keep your house if you can pay the mortgage payments. Farmers can generally keep the home quarter. There are also other exemptions that apply to farm assets such as seed sufficient to plant the next year's crop as well as livestock and equipment for 12 months.

Discharge from Bankruptcy

A discharge from bankruptcy releases you from the legal obligation to repay debts included under the bankruptcy. Generally, if the trustee and the creditors agree, a first-time bankrupt is eligible for an automatic discharge nine months after the date of the bankruptcy. A first-time bankrupt who is found to have what is considered "surplus income" is eligible for an automatic discharge only after contributing part of their surplus to help pay creditors for a period of 21 months. You will not qualify for an automatic discharge if you do not receive the counselling that is required under your bankruptcy.

If you are not eligible for an automatic discharge the trustee will file a report with the court and provide copies to any creditors. You may be required to attend a discharge hearing. Following the hearing the judge may grant an absolute discharge, a conditional discharge, a suspended discharge or the judge can refuse the discharge. An absolute discharge means the bankruptcy process is over and you are released from your debts. A suspended discharge is the same as an absolute discharge except that it does not take effect until the specified date.

If the judge grants a conditional discharge, you must meet the conditions before the court grants the discharge. A condition may be that you pay a portion of your wages to the trustee for the next year or two. The court sometimes orders that some debts, such as debts from court judgments in personal injury cases, be paid in full before a discharge will be granted.

The court rarely delays the discharge or refuses to grant a discharge. Refusal may happen if the debtor...

  • is guilty of fraud
  • commits an offence under the Bankruptcy and Insolvency Act, such as fraudulently disposing of property or transferring assets to family members
  • fails to comply with any order of the court
  • does not cooperate during the bankruptcy

After Discharge

Bankruptcy does not affect all debts. Debts such as court fines, maintenance payments, and debts obtained by fraud must be repaid. A student loan cannot be discharged until seven years after you cease to be a full or part-time student. After five years you can make an application to the court to have a student loan discharged on the basis of hardship. You are still able to apply for credit, even before the discharge, although your credit history will be a factor. If the credit applied for is more than $1000, you must reveal that you are an undischarged bankrupt person.

After the discharge, you regain many of the rights you had before bankruptcy. You can own property and apply for credit. However, a bankruptcy recorded in your personal credit record remains there for six years, if it is a first time bankruptcy, and 14 years if it is not your first bankruptcy. If you apply for credit, the creditor may check your credit record. Many creditors refuse to give credit to someone who has had a bankruptcy, especially a recent one. The creditor may give credit if you can give security for the loan.

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