What is Bankruptcy?
A person or an institution becomes bankrupt when they file a legal procedure acknowledging that they are unable to repay their loan.
Said otherwise, bankruptcy is a legal process to help alleviate the burden of a person (or an institution) to repay their debt.
To be declared bankrupt and file for bankruptcy certain conditions must be gathered.
The procedure of consumer bankruptcy in Quebec is governed by the Bankruptcy and Insolvent Act.
Not everyone can file for bankruptcy in Quebec.
To be declared bankrupt, the Canadian system takes into consideration several items.
They look at a person’s assets, income and the number of persons in the household etc.
Each person’s personal circumstances dictate whether they can file for bankruptcy or not.
Types of Debt in Bankruptcy
Another reason why a person may not be able to file for bankruptcy is because of the type of debt.
Generally, student loans, secured debts and even some types of unsecured loans are not accepted for bankruptcy.
To file for bankruptcy in Quebec a person must have lived or undertaken business in the country during the last year and be declared insolvent.
It’s essential here to clarify the notion of insolvency and bankruptcy.
A person can be insolvent but not necessarily bankrupt.
A person or a business is declared insolvent if he/she cannot pay their debt as they come due.
In Quebec, you can declare insolvency if you owe at least CAD$1,000 and prove the inability to repay the debt.
Only after being declared insolvent can a person or business seek relief by filing for bankruptcy.
Bankruptcy is a legal process.
It is filed through a Licensed Insolvency Trustee.
The role of the trustee is that of a referee between the debtor and the creditor.
There are steps to follow when declaring bankruptcy.
The trustee will look at your financial situation and inform you about debt relief options available to you.
The recommendation is to try other options and only file for bankruptcy as a last resort.
The purpose of the bankruptcy process is to reach a fair and peaceful resolution of the conflict between you and your creditors.
The creditors seeking to recover their loan obtain assurance through the trustee for an honest rehabilitation.
It also promotes a sense of responsibility that deters the bankrupt from avoiding their financial responsibility for fear of having most of their assets taken.
The trustee acting as a referee ensures that both parties do not suffer too much from the process.
In the end, the creditors obtain their loan back and the bankrupt become in a much better financial situation debt free.
Consultation Before Filing for Bankruptcy
Your financial circumstance might be such that you do not find any alternative but to file for bankruptcy.
Just to give you some ideas of alternatives, you can decide to sell some of your belongings and pay a large portion of the debt, then seek a restructuring loan that offers better terms to pay off the debt.
You might also renegotiate the terms of the agreement with your creditors provided they are willing to understand your circumstances.
There might also be other options that might be available to you.
Your trustee will explain to you what other options you might have if possible prior to starting the procedure.
During your initial free consultation with a trustee, he/she will go over your personal circumstances.
The LIT will outline the procedure for filing bankruptcy and let you know what to expect depending on your circumstances.
The initial consultation is usually free of charge and confidential.
You do not have the obligation to work with the trustee after the consultation and can choose another one if you decide to continue with the procedure of filing for bankruptcy.
What to Expect if You’re Thinking About Filing for Bankruptcy in Quebec
Regardless whether you’re an individual or a company, there are several reasons why you might want to go bankrupt.
The most common include:
- For the repayment of an unsecured debt;
- To stop wage garnishment;
- To stop collection action;
- For financial recovery.
It’s important to understand exactly how filing for bankruptcy may affect you.
There are both good and bad implications when you file for bankruptcy.
Obviously, when you have debts, there is often harassment by creditors.
When you file for bankruptcy, you can at least stop such harassment.
However, you may lose significant assets such as personal items, a property and so forth.
For example, your car could be used to repay the debt if there is no loan against it.
Personal items such as jewellery, television, etc may also be confiscated.
At times, it is better to sell by yourself some of your belongings to repay some debt instead of going through the lengthy process of going bankrupt.
Costs to Go Bankrupt
If you are going to go bankrupt know also that there is a cost.
You will have to pay to become debt free.
Expect three different costs depending on each persons circumstances.
- A contribution monthly for administration purposes;
- Payments for surplus income dictated by the legislation;
- The loss of assets under the insolvency law.
Bankruptcy will also affect your credit ratings.
On your credit report, the bankruptcy will be noted as an R9.
The R9 will remain on your credit report for six more years after you have been discharged.
If you fall into bankruptcy for a second time, the period the R9 will remain in your credit report is 14 years.
The good news is that bankruptcy exemptions are provided under the federal and Quebec bankruptcy laws.
The exemption law allow you to keep some personal items preventing force seizure by the legal process.
Some items that fall under the exemption law include clothing, yours and those of your family member with no dollar limit, Vehicles that do not exceed a certain value, furniture and appliances up to a certain dollar value.
It’s important to obtain more information when you are filing for bankruptcy.
The Length of Bankruptcy in Quebec
Several factors come into play, regarding the length you might be declared bankrupt.
If it’s the first time you are filing for bankruptcy, the minimum period set by court for you to be discharged provided you’ve performed certain responsibilities is 9 months.
However, you might not be able to obtain credit since the claim will remain on your credit report for a few more years.
It could be that an insolvency court orders the extension of your bankruptcy.
A bankruptcy could be extended because:
- You obtain surplus income meaning that your income is higher than the limits set by law.
If the surplus income is more than $200 a month, the bankruptcy can be extended for 21 months;
- Even if it’s your first time being bankrupt, it could be extended because of a judge or Registrar of the insolvency court order;
- Failing to complete your obligations may also result in the extension of your file;
- Creditors and trustees may also sometimes oppose your discharge after nine months.
Discharge of Debts
It’s important to ask your trustee question concerning the minimum length you can expect to be discharged from your bankruptcy claim depending on your circumstances.
When you are discharged, you’re provided with a certificate of discharge which eliminates your debts.
It should be noted that some types of debt are not release when on discharged.
These are in the form of fines, penalties imposed by a court, accrued interests on certain loans.
It is worth obtaining information from your trustee to learn about the types of debt that you might still have to pay after being discharged.
Quebec has specific rules that must be adhered to when filing for bankruptcy.
It is a serious procedure that requires deep thought and consideration prior embarking on the procedure.
If you are debt burden and seeking to file for bankruptcy, you will also find some information on the internet.
The web offers a quick mechanism to find reliable trustees and other organizations dealing with consumer insolvency claims.
Thousands of people file for bankruptcy each year in Quebec.
It is preferable to seek alternative solutions prior to filing for bankruptcy, however, you should not be deterred from filing when you have no other alternatives.
It will help alleviate or completely finish your debt burden and give you a fresh financial start.