bankruptcy and keep your credit cards Archives - Ira SmithTrustee & Receiver Inc.

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Canadian bankruptcy laws Introduction

I got your attention with this silly Brandon’s Blog title, didn’t I? The answer to the question “will Julian Assange face Canadian bankruptcy laws?” is of course, no. He may face the justice systems of Britain, Sweden or the United States, or all three. But as far as I know, he isn’t wanted by the Canadian authorities.

However, there are many Canadians having problems paying all of their debts. Many have actually quit satisfying their financial commitments. If this is where you find yourself, then you are in financial difficulty and may even be insolvent.

I tell everyone that bankruptcy should be your last option. There are many ways to avoid bankruptcy. It really depends on how early on in your situation you consult a professional for advice and guidance.

The purpose of this Brandon’s Blog is to answer what seems to be the 10 essential problems bothering people thus far in 2019 for people facing financial challenges and considering filing for bankruptcy.

What happens if I declare bankruptcy in Canada?

When you declare bankruptcy, you must assign or hand over your assets to the licensed insolvency trustee (previously called a bankruptcy trustee) (Trustee). Each province regulates what assets are exempt from seizure.

So in bankruptcy, you will not lose all your assets. There is a listing of things that are excluded from seizure in Ontario:

Necessary clothing for you and your dependents.
Home furnishings and appliances that are of a worth not more than $13,150.
Tools and various other personal effects not worth more than $11,300, made use to earn revenue from your business. If you are an Ontario farmer, this amount increases to $29,100 for everything, including your livestock.
One car or truck that is worth not more than $6,600.
The cash surrender value of life insurance if your beneficiary is what is called a “Designated Beneficiary”.
Your Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF) or Deferred Profit Sharing Plan (DPSP) other than for any amounts contributed in the 12 months immediately preceding your date of bankruptcy.
$10,000 of equity in your home but only if your share of the equity is less than $10,000 in total.

Earnings are not impacted by bankruptcy yet you will need to submit a monthly Income and Expense Form providing your household revenue and expenditures; this becomes part of your budgeting procedure. If your earnings go beyond specific criteria developed by the Office of the Superintendent of Bankruptcy (OSB), you will certainly have to pay part of the excess into the bankruptcy estate via the Trustee. This is called surplus income.

When you declare bankruptcy, the assets that are not exempt from seizure must be turned over to your Trustee. Those assets will be offered for sale and the cash gained from the sale of your possessions will be available for the Trustee to pay a dividend to your creditors.

Also, see below the discussion of will you lose your house and car in bankruptcy, as these assets may be handled differently.

How much does it cost to file bankruptcy in Canada?

The irony is that it does cost money for an insolvent person to file bankruptcy in Canada. The cost of a no asset, no surplus income administration is in the $1,800 to $2,000 range. If you have neither assets nor income, then you or someone on your behalf will have to make satisfactory arrangements with the Trustee for payment of this cost.

If there are assets and/or surplus income, this will most likely change the calculation of the amount the Trustee is entitled to charge for administering your insolvency file. However, the Trustee is entitled to take the Court approved fee from the funds obtained through the sale of assets and/or the surplus income payments received. In this case, the cost of your proceeding to you may very well be no extra charge!

Will I lose my house and car if I file bankruptcy in Canada?

A complete discussion of the issues involved can be found in my April 2019 blogs:

The Trustee is entitled to your equity in your home and car when you file for bankruptcy. As these other blogs of mine discuss, if someone can purchase the value of your equity, subject to the Ontario exemptions, then the Trustee will not have to take possession of your house and car.

Can you file bankruptcy and keep your credit cards?

The issue of a bankrupt keeping his or her credit cards is governed by Section 158(a. 1) of the Bankruptcy and Insolvency Act (Canada) (BIA) and Directive No. 3 issued by the Superintendent of Bankruptcy (OSB). The title of Directive No. 3 is, “Duties of the Bankrupt to Deliver Credit Cards to the Trustee”. It is provided to define under what conditions a bankrupt shall supply to the Trustee, for cancellation, all charge cards issued to and in the ownership or control of the bankrupt.

In all conditions, the Trustee shall require that the bankrupt supply to the Trustee, for termination, all credit cards issued to and in the ownership or control of the insolvent person with one exception. Except for those bank cards discussed in the next paragraph, in a bankruptcy, all credit cards must be given to the Trustee. This is regardless that there may be a zero balance on that charge card.

There is only one exception to this requirement. The insolvent person need not supply to the Trustee a credit card in the possession and control of the bankrupt where the primary cardholder is a third party (e.g., employer, spouse, friend, parent) and the primary cardholder has obtained a supplementary card in the name of the insolvent and about to be bankrupt person.

How long does bankruptcy last Canada?

The length of time you will be an undischarged bankrupt will rely on mainly three factors:

Is this is your first time or is it your 2nd or more time in bankruptcy?
Do you have a surplus income amount?
Have you given one or more of your creditors, or your Trustee, reason to oppose your discharge?

If this is your 1st filing with no surplus income and nobody opposes your discharge application, your bankruptcy will last for 9 months. If this is your 1st time and you do have surplus income and no one opposes your discharge, it will last 21 months.

If this is your 2nd time and you do not have any surplus income, you are not eligible for a bankruptcy discharge for 24 months. However, you should consider if there is something in your pre-filing affairs that will give rise to someone opposing your discharge. For example, if the reason for your 2nd time is the same as your 1st time, your Trustee will be bound to oppose your discharge.

If you are a 2nd timer and you do have surplus income, then you will not be eligible for a discharge for at least 36 months. Again, consider your pre-filing conduct to estimate the likelihood of opposition.

In the case of an opposition, either by one or more of your creditors or by your Trustee, then it becomes a Court process. A discharge hearing will be scheduled in Court. The timing is then driven by the Court process. If your discharge is being opposed, you would be wise to consult with a bankruptcy lawyer.

Does bankruptcy ruin your credit forever?

A person that declares bankruptcy is given the lowest possible credit score. For a first time bankrupt, the information that negatively impacts your credit rating is inevitably gotten rid of approximately 6 years after your discharge from bankruptcy.

One of the purposes of the Canadian bankruptcy system is financial rehabilitation. Once you are discharged from bankruptcy, you can begin to repair and rebuild your credit.

Two easy ways are:

Get a secured credit card. This is one where you put funds on deposit to equal your credit limit. The secured credit card issuer reports your activity to the two Canadian credit agencies monthly. By paying the balance off every month, you start to rebuild and repair your credit.
Take out an RRSP loan and invest the money in your RRSP. Pay the loan off over the next 12 months and then rinse and repeat. By borrowing money in a manner the Bank will lend to you through the RRSP loan and paying the loan off in a year, you are rebuilding and repairing your credit. By the way, you also enjoy the tax benefit of the RRSP deduction and you are starting to build your retirement savings.

Do you have to declare your bankruptcy after 7 years?

This question was recently asked of me. At first, I didn’t quite understand what the person meant. After some further discussion, it became clear that what the person was really asking was two questions as follows:

Will my bankruptcy filing show up on my credit report after 7 years?
After 7 years, do I have to report the fact that I was bankrupt?

The first question is answered both above and below. As far as reporting the fact that you filed for bankruptcy, there are several issues. First, you don’t need to tell anyone unless you are specifically asked. Second, you will only be asked on an application for a loan or credit card, a job where handling cash and/or bonding is required, on an insurance application or in connection with a professional license that you hold. Sometimes the question may be limited, such as, “in the last 5 years”. You have to read the question carefully and answer truthfully.

Does a bankruptcy automatically come off?

When you file bankruptcy, Canadian bankruptcy laws require your Trustee to inform your creditors, the Canada Revenue Agency (CRA), credit rating coverage firms and the OSB. The OSB maintains a database of insolvency filings that anyone can search. So the fact you filed for bankruptcy is public. That information exists forever.

Your filing will also show up in your credit report. For personal bankruptcy, as indicated above, it will remain on your credit report for about 6 years after you get your bankruptcy discharge.

Additionally, specific insolvencies, both for personal and corporate bankruptcy call for a legal notice to be placed in a local newspaper.

What are the disadvantages of filing for bankruptcy?

There are certain disadvantages of filing for bankruptcy. In no particular order:

Your non-exempt assets will be handed over to the Trustee to be sold in order to obtain the value in cash so that a distribution can be paid to your creditors.
As indicated above, your bankruptcy will certainly show up on your credit report for about 6 years after you get your discharge from bankruptcy. This could be for as much as 7-10 years from your date of bankruptcy.
A bankruptcy drops you to the lowest possible credit score rating.
You have to turn over all of the credit cards in your control or possession where you are the primary cardholder. The credit card companies will also cancel any card you may have forgotten to give to your Trustee.
A bankruptcy might impede your capacity to get a home mortgage or a loan for several years.
If you did not have adequate life insurance before you filed for bankruptcy, your ability to obtain life insurance without being rated will be difficult.
If your employment requires you to be bonded, a bankruptcy could affect your job.
Although your discharge from bankruptcy operates to discharge you from your debts, there is a list of debts that are not discharged.

They are:

- secured loans – home mortgage or vehicle loan;
- certain student loans (remember the 7-year rule I just mentioned?);
- penalties or fines enforced by the court;
- spousal support and alimony you have to make in your separation agreement or divorce proceedings; and
- any debts from fraud.

It is for these reasons that I always advise people that filing for bankruptcy should be a last resort. There are many options to avoid bankruptcy. Which ones might work, depends on how long you have waited to see me and how severe your situation has become. Various options to avoid bankruptcy are:

Do I need to retain a bankruptcy lawyer near me?

In simple situations, I would say it is not necessary. When you have an initial free consultation with a Trustee, he or she can tell you whether or not they believe it would be in your best interest to consult with a bankruptcy lawyer.

Remember that there is no such thing as Trustee-bankrupt confidentiality. In fact, as part of the documentation for an insolvency filing, you will have to acknowledge your understanding that under the Personal Information Protection and Electronic Documents Act (S.C. 2000, c. 5), certain information will be disclosed and will be public.

So, if your situation is complicated, or if you require advice on a matter you need to be kept confidential, you should retain a bankruptcy lawyer. That way you can discuss those issues and obtain the advice you need and be assured of confidentiality.

BONUS ISSUE: Can I get a credit card during bankruptcy?

I thank you for getting this far along in my blog. So here is an 11th bonus question that I am asked from time to time – can I get a credit card during bankruptcy?

Applying for a credit card is just like applying for a loan. You are asking a lender to advance you money that you promise to repay. Under Section 199 of the BIA, it is a bankruptcy offense to obtain a credit of $1,000 or more from any person without telling the lender that you are an undischarged bankrupt.

Once you make that disclosure, or they find out otherwise, I highly doubt they will approve of you. There may be some companies that will give a car loan to an undischarged bankrupt, but, the amount you can borrow will result in your not getting a very good car. Also, the fees and interest rate that they will charge you will be extremely high.

The only exception is that you could apply for a secured credit card. As I noted above, a secured credit card is a good way to start rebuilding your credit.

Canadian bankruptcy laws summary

If you have too much debt and are facing financial challenges, I hope this Brandon’s Blog has provided some insight for you. The above questions are what I have found to be the 10 essential problems bothering people thus far in 2019 when facing financial challenges and considering Canadian bankruptcies laws.

If you are one of the many Canadians facing debt problems and not knowing what to do about them, call the Ira Smith Team today. We have decades and generations of experience aiding people and companies trying to find and work through a successful financial restructuring or debt settlement approach. As a licensed insolvency trustee, we are the only experts recognized, approved and supervised by the Federal government to provide insolvency help and solutions to help you to avoid bankruptcy.

Call the Ira Smith Team today so you can do away with the stress and nervousness debt concerns produce. With the distinct roadmap we develop special to you, we will rapidly return you right into a balanced, healthy and carefree life.

You can have a no-cost evaluation to aid you so we can repair your debt issues. Call the Ira Smith Team today. This will definitely enable you to go back to being productive, healthy and balanced, Starting Over Starting Now.