The first step to declaring bankruptcy in Canada is to determine if bankruptcy is the correct debt management solution.
Book a debt assessment with a bankruptcy trustee. This is a chance to review your assets, debts and personal budget to understand what a bankruptcy will cost and compare bankruptcy to other options like a debt management plan or consumer proposal. Ask as many questions as you can at this meeting. Make sure you are comfortable with your choice to declare bankruptcy. You probably won’t file bankruptcy at this initial meeting unless you need an emergency filing to deal with something like a wage garnishment.
If filing bankruptcy is required, gather any information you bankruptcy trustee asks for about your debts and assets needed to complete your bankruptcy forms. This is relatively simple. Gather all of the bills you have received in the last month, or if they are electronic, print them off on your computer. You will also need all RRSP, RESP and investment statements, and details of any other assets you own. The trustee will want a copy of your most recent pay stub, and a list of your expenses. The trustee will prepare your paperwork from this information.
You may also need to complete some other homework like completing any unfiled tax returns or getting an appraisal and estimate of selling costs if you own a home.
Once you have provided all necessary information to the trustee, book a final meeting to sign the paperwork. Once this is done, the bankruptcy application is electronically filed with the government, and you are officially bankrupt. At that point all creditors are notified, and the phone calls and legal actions against you stop.
In most cases the bankruptcy period is uneventful. You have a few responsibilities and you will need to learn to live without credit cards. However you are also not struggling to make large debt payments or juggling between payments. In many regards, life is much simpler than it was before.
Because you declared bankruptcy you no longer have to deal with creditor calls. If creditors continue to contact you, refer them to the bankruptcy trustee for information.
You will be bankrupt for a minimum of nine months (longer if you have surplus income, or if this is your second bankruptcy). During the bankruptcy you are required to complete certain bankruptcy duties:
- Submit a monthly budget to your trustee;
- Make a monthly payment, based on your income;
- Attend two credit counselling sessions;
- Provide information to file your income taxes; and
- Assist the trustee with any other requirements.
Your creditors could request a creditors’ meeting to review your case, but in my experience a creditors’ meeting only happens in one out of a thousand bankruptcies.
The key to an uneventful bankruptcy is to keep your trustee “in the loop”. If your situation changes, such as new job, or you move, let your trustee know. Most people find that the bankruptcy process goes by very quickly.
After the Bankruptcy
Once you have completed all of your duties, you are officially discharged. Congratulations! With your discharge your debts are officially eliminated. You now have a fresh start.
You filed for bankruptcy because you had too much debt. Now that your debts are gone you want to take steps to stay out of debt. At your credit counselling sessions you learned some money management techniques; now is the time to put them into practice. Keep a budget to track your expenses. Start a savings account. Set goals for the future (like saving for your children’s education, buying a new house, or retirement) and start working towards those goals.
You have a fresh start, but what you do with it is up to you.