The fundamental principle of bankruptcy is to permit an honest, but unfortunate, debtor to obtain a discharge from his/her debts. Because of your inability to pay your debts, you assign all of your assets, except those exempt by law, to a licensed trustee in bankruptcy. Filing for bankruptcy and bankruptcy discharge process relieves you of most debts, and legal proceedings against you by creditors should stop. The principal function of the trustee in a bankruptcy process is to take possession of all the assets of the bankrupt person and sell or dispose of these assets for the equitable benefit of the creditors.
The key initial steps in filing for bankruptcy are as follows:
When the trustee registers the signed bankruptcy documents with the Official Receiver the person making the assignment becomes officially bankrupt on that date.
At this point:
The bankrupt must adhere to the following basic general duties:
For more detailed information, see Duties of the Bankrupt.
The bankrupt is normally "in bankruptcy" and undischarged of his debts for a period of 9 months (see Discharge from Bankruptcy). During this time, the bankrupt must also adhere to the following:
Trustees normally charge a basic amount to be paid toward the cost of administering the bankruptcy. For example, a common fee may be $260 to start and $170 per month during the bankruptcy process. This amount can vary depending on the circumstances of each individual. The payment can also be applied toward any surplus income which may be required to be paid to the trustee.
During the bankruptcy process, you are free to earn a salary or carry on self employment. However, statements of household income and expenses must be submitted to the trustee at the end of each month in order to establish if a "surplus" of income exists. If it does, a portion (generally 50%) of the surplus is required to be paid over to the trustee for eventual distribution to unsecured creditors.
The surplus is determined by comparing the household income to the Standards set by the Office of the Superintendent of Bankruptcy. These standards are updated each year and vary by the number of persons in the household (see Surplus Income). Your trustee can provide current information on the standards, allowable deductions, as well as more details on how the excess income is calculated .
Generally, a bankrupt will be automatically discharged from bankruptcy after a period of between 9 and 36 months depending on whether it is a second bankruptcy and/or the bankrupt is earning surplus income. The automatic discharge occurs unless there has been more than one prior bankruptcy or the discharge is opposed by the trustee, a creditor, or the Superintendent of Bankruptcy. If so, a court hearing will be scheduled.
At a discharge hearing the bankrupt could have his application for discharge suspended for a particular period of time. The court may also impose a conditional discharge, i.e. requiring a partial repayment of the debts. In severe cases, such as where significant bankruptcy offences have been committed or there have been more than three prior bankruptcies, the discharge can be refused altogether.
For more details see Bankruptcy Discharge.
Once the bankrupt has received an absolute discharge, all debts are extinguished with the exception of the following:
Some debtors also choose to continue paying on secured debts such as house mortgages or car loans in order to keep those assets.
(Please note: You should consult with your trustee for more detailed information regarding these types of debts.)
The web site of the Superintendent of Bankruptcy provides the following description of a bankruptcy trustee:
The trustee acts as an officer of the court. In order to file for bankruptcy in Canada, or to file a proposal to your creditors under the Bankruptcy and Insolvency Act, you must use a licensed trustee.
You are permitted to keep some assets in a bankruptcy. These exemptions are set by various federal and provincial laws. For personal bankruptcy in B.C., the following assets are exempt:
During the bankruptcy year, the trustee must prepare and file income tax returns from January 1st to the date of bankruptcy. The return is called a pre-bankruptcy tax return. Also, the trustee normally prepares a second tax return from the date of bankruptcy to the end of the year. This is called a post-bankruptcy tax return.
If any refunds are forthcoming from these returns, or any prior year return, they will be forwarded to the trustee and will form part of the estate assets.
If you have questions about filing bankruptcy and bankruptcy process in British Columbia, please contact our bankruptcy trustee. We will be glad to help.