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Credit Counselling Instead of Bankruptcy

What is bankruptcy?

Bankruptcy is a legal process, regulated by the Act, by which you may be discharged from most of your debts. The purpose of the Act is to permit an honest, but unfortunate, debtor to obtain a discharge from his or her debts, subject to reasonable conditions.

What are the benefits to the debtor?

When you declare bankruptcy, your property is given to a trustee in bankruptcy who then sells it and distributes the money among your creditors. Your unsecured creditors will not be able to take legal steps to recover their debts from you (such as seizing property or garnisheeing wages).

Can joint bankruptcies be filed?

Yes, it is possible to file a joint assignment. A joint assignment allows two bankrupts, involved in a close financial relationship, to file for bankruptcy and to see their files dealt with as one file. This is available to debtors if their debts are substantially the same and the trustee believes it is in the best interest of the debtors and creditors.

How does one become bankrupt?

First, you meet with a trustee in bankruptcy who will assess your financial situation and explain the options available to you. If you decide to become bankrupt, the trustee will help you complete several forms which you will have to sign. You are considered a bankrupt only when the trustee files these forms with the Official Receiver.

What kind of forms will I have to sign?

You will have to sign at least two forms. One is an "Assignment", and the other is your "Statement of Affairs". In the assignment you state that you are handing over all of your property to the trustee for the benefit of your creditors. In the statement of affairs you list your assets, liabilities, income and expenses. As well you will have to answer several questions about your family, employment and disposition of assets.

Before you sign them, make sure you understand the legal documents that are part of your bankruptcy file. Although the trustee prepares them from the information you provide, they are your statements. You are responsible for the accuracy of their contents. Review them carefully before you sign. Once these documents have been filed with the Official Receiver, you are legally bankrupt and, at this point, the process cannot be reversed without a court order. Keep copies of notices and all other documents the trustee sends you.

What happens after the forms are filed with the Official Receiver and I become bankrupt?

Generally, a meeting of creditors is not necessary but there may be instances where such a meeting will be held. Creditors or the Official Receiver may request one. If a meeting of creditors is called, you must attend this meeting. You may also be required to go to the Official Receiver's office to answer several questions under oath about your financial affairs.

What happens at the first meeting of creditors?

If a meeting is called, the trustee will give a report about your assets and liabilities and creditors may ask you related questions. The creditors will then vote to either confirm the trustee's appointment, or substitute a trustee of their choice. The creditors will then have an opportunity to vote for the appointment of inspectors. They may also give directions to the trustee with reference to the administration of the estate.

What does the examination with the Official Receiver involve?

The Official Receiver may send you a notice instructing you to appear before him or her for an examination under oath. The Official Receiver will then ask you a number of questions about the causes of your bankruptcy, your conduct, the disposition of your property, and the nature of your debts.

When is a bankrupt discharged?

There will be an automatic discharge for first-time bankrupts nine months after they became bankrupt unless the trustee recommends a discharge with conditions or it is opposed by either a creditor, the trustee or the Superintendent of Bankruptcy.

The trustee is required to recommend a discharge with conditions if either of the following circumstances exists:
the bankrupt did not pay the agreed amount of surplus income, or the bankrupt filed for bankruptcy instead of proposing a viable repayment plan (called a proposal).

If the bankrupt or a creditor does not agree with the trustee's recommendation, mediation may be requested as long as there is no other ground for opposition.

If mediation fails to resolve the issue or if an opposition is filed, the trustee will have to obtain a date for a court hearing. The party opposing the discharge will have to give his or her reasons to a court official who will make a decision. It should be noted that a first-time individual bankrupt who refuses or neglects to receive the required counselling sessions will not qualify for an automatic discharge.

For those who have already been bankrupt before or who do not qualify for the automatic discharge, the trustee is required within one year from the beginning of the bankruptcy to apply to the court for a hearing of the application for a discharge. The court official has several options from which to choose.

What kind of discharge orders can a judge or registrar issue?

At a hearing for a discharge the court decides whether to postpone the hearing to a later date, refuse the discharge, or issue any of the following orders:

Order of Absolute Discharge

This official document relieves you of the debts incurred before you declared bankruptcy, taking under consideration the exceptions provided in the Act.

Order of Conditional Discharge

The court may impose certain conditions that must be met before your discharge becomes absolute. For example, the Court may require you to pay an amount to your trustee for distribution to your creditors.

Order of Suspended Discharge

The court orders a delay so that the discharge will not be effective until a certain date.

Your discharge may be delayed by an opposition by a creditor, the trustee or the Superintendent of Bankruptcy on such grounds as an ongoing criminal investigation or a breach of your duties as specified in the Bankruptcy and Insolvency Act.

What is the effect of a bankruptcy discharge?

The bankrupt is released of most debts. However, some debts are not released, such as an award for damages in respect of an assault, a claim for alimony, spousal or child support, a debt arising out of fraud, any court fine, or debts or obligations for student loans when the bankruptcy occurs while the debtor is still a student or within ten years after the bankrupt has ceased to be a student.

How does bankruptcy affect employment?

For the most part, bankruptcy should not affect your employment. However, there are some special cases. For example, you may have difficulty being bonded. Your trustee will be able to give you more information on other possible restrictions or prohibitions.

Does it cost anything to go bankrupt?

Yes. There is a filing fee to be paid to the Superintendent of Bankruptcy. In addition, the trustee is entitled to be paid. These fees are prescribed by the Bankruptcy and Insolvency Rules.

What are my duties as a bankrupt?

A bankrupt shall:

  • make discovery of and deliver all his property that is under his possession or control to the trustee or to any person authorized by the trustee to take possession of it or any part thereof;
  • in such circumstances as are specified in directives of the Superintendent, deliver to the trustee, for cancellation, all credit cards issued to and in the possession or control of the bankrupt;
  • deliver to the trustee all books, records, documents, writings and papers including, without restricting the generality of the foregoing, title papers, insurance policies and tax records and returns and copies thereof in any way relating to his property or affairs;
  • at such time and place as may be fixed by the official receiver, attend before the official receiver or before any other official receiver delegated by the official receiver for examination under oath with respect to his conduct, the causes of his bankruptcy and the disposition of his property;
  • within five days following the bankruptcy, unless the time is extended by the official receiver, prepare and submit to the trustee in quadruplicate a statement of the bankrupt's affairs in the prescribed form verified by affidavit and showing the particulars of the bankrupt's assets and liabilities, the names and addresses of the bankrupt's creditors, the securities held by them respectively, the dates when the securities were respectively given and such further or other information as may be required, but where the affairs of the bankrupt are so involved or complicated that the bankrupt alone cannot reasonably prepare a proper statement of affairs, the official receiver may, as an expense of the administration of the estate, authorize the employment of a qualified person to assist in the preparation of the statement;
  • make or give all the assistance within his power to the trustee in making an inventory of his assets;
  • make disclosure to the trustee of all property disposed of within the period beginning on the day that is one year before the date of the initial bankruptcy event or beginning on such other antecedent date as the court may direct, and ending on the date of the bankruptcy, both dates included, and how and to whom and for what consideration any part thereof was disposed of except such part as had been disposed of in the ordinary manner of trade or used for reasonable personal expenses;
  • make disclosure to the trustee of all property disposed of by gift or settlement without adequate valuable consideration within the period beginning on the day that is five years before the date of the initial bankruptcy event and ending on the date of bankruptcy, both dates included;
  • attend the first meeting of his creditors unless prevented by sickness or other sufficient cause and submit thereat to examination;
  • when required, attend other meetings of his creditors or of the inspectors, or attend on the trustee;
  • submit to such other examinations under oath with respect to his property or affairs as required;
  • aid to the utmost of his power in the realization of his property and the distribution of the proceeds among his creditors;
  • execute such powers of attorney, conveyances, deeds and instruments as may be required;
  • examine the correctness of all proofs of claims filed, if required by the trustee;
  • in case any person has to his knowledge filed a false claim, disclose the fact immediately to the trustee;
  • inform the trustee of any material change in the bankrupt's financial situation;
  • generally do all such acts and things in relation to his property and the distribution of the proceeds among his creditors as may be reasonably required by the trustee, or may be prescribed by the General Rules, or may be directed by the court by any special order made with reference to any particular case or made on the occasion of any special application by the trustee, or any creditor or person interested; and
  • until his application for discharge has been disposed of and the administration of the estate completed, keep the trustee advised at all times of his place of residence or address.

In addition, there are specific bankruptcy offences to be aware of:

Section 198
Any bankrupt who:

makes any fraudulent disposition of the bankrupt's property before or after the date of the initial bankruptcy event, refuses or neglects to answer fully and truthfully all proper questions put to the bankrupt at any examination held pursuant to this Act,

makes a false entry or knowingly makes a material omission in a statement or accounting,

after or within one year immediately preceding the date of the initial bankruptcy event, conceals, destroys, mutilates, falsifies, makes an omission in or disposes of, or is privy to the concealment, destruction, mutilation, falsification, omission from or disposition of, a book or document affecting or relating to the bankrupt's property or affairs, unless the bankrupt had no intent to conceal the state of the bankrupt's affairs,

after or within one year immediately preceding the date of initial bankruptcy event, obtains any credit or any property by false representations made by the bankrupt or made by any other person to the bankrupt's knowledge,

after or within one year immediately preceding the date of the initial bankruptcy event, fraudulently conceals or removes any property of a value of fifty dollars or more or any debt due to or from the bankrupt, or

after or within one year immediately preceding the date of the initial bankruptcy event, hypothecates, pawns, pledges or disposes of any property that the bankrupt has obtained on credit and has not paid for, unless in the case of a trader the hypothecation, pawning, pledging or disposing is in the ordinary way of trade and unless the bankrupt had no intent to defraud,

is guilty of an offence and is liable, on summary conviction, to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year or to both, or on conviction on indictment, to a fine not exceeding ten thousand dollars or to imprisonment for a term not exceeding three years, or to both.

A bankrupt who:

without reasonable cause, fails to comply with an order of the court made under section 68 or to do any of the things required of the bankrupt under section 158 is guilty of an offence and is liable

on summary conviction, to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year, or to both; or

on conviction on indictment, to a fine not exceeding ten thousand dollars or to imprisonment for a term not exceeding three years, or to both.

Failure to disclose fact of being undischarged

Section 199
An undischarged bankrupt who

engages in any trade or business without disclosing to all persons with whom the undischarged bankrupt enters into any business transaction that the undischarged bankrupt is an undischarged bankrupt, or

obtains credit to a total of five hundred dollars or more from any person or persons without informing such persons that the undischarged bankrupt is an undischarged bankrupt, is guilty of an offence punishable on summary conviction and is liable to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year, or to both.