What Happens During Bankruptcy?
What Happens After Bankruptcy?
This page is provided as a resource for people considering personal bankruptcy or who have already declared bankruptcy and are seeking further information regarding what happens during and after filing for bankruptcy.
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5 Stages Of Bankruptcy – Step By Step From Start To Finish
There are five main stages involved in the bankruptcy process, with several questions that may arise at each stage:
- Meet with a Licensed Insolvency Trustee
- The trustee prepares the legal documents
- The trustee files the documents with the government
- The bankrupt person fulfills their obligations
- The person is discharged from bankruptcy, and their debts are eliminated
The first three stages lead up to the filing then, once the filing is complete, you are in a state of bankruptcy until you fulfil all the obligations and receive an official discharge. We will look at what happens during each stage and help answer common questions.
1. Meeting with a Licensed Insolvency Trustee
The first meeting with a Licensed Insolvency Trustee is a free consultation where they will review your situation and show you what options are available. There is no risk involved and no obligation to return. The trustee will help you make sense of everything and make sure you have a clear understanding of the potential solutions. They will explain the process in more detail and calculate the costs, including their fees.
Once you choose to move forward with a Licensed Insolvency Trustee a deposit (or retainer) for their services may be required.
How Is The Trustee Paid?
- The trustee’s fee is paid from the funds that they manage as part of the bankruptcy estate.
Can I file for Bankruptcy by myself?
- No, Licensed Insolvency Trustees are the only people who can submit and administer a bankruptcy filing.
2. Document Preparation
In order to file for bankruptcy in Alberta, the Licensed Insolvency Trustee will need full details of your situation including your name, address and birthdate. They will also need a detailed list of your creditors (everyone you owe money to) and your assets (cash in the bank, home equity, vehicles, etc.). With these details, the trustee will begin to prepare the official forms required by the government. When the forms are ready, you and the Trustee will meet again to review and sign the documents. This is a good time to ask the trustee any questions. The trustee will be able to explain the process and give you the information you need to feel at ease. They will go through each document with you to ensure that the information is correct.
There are four main statutory documents. The Assessment Certificate confirms that you have met with a Licensed Insolvency Trustee and that you were made aware of and understand all your options and are choosing to move forward with bankruptcy. The Monthly Income and Expense Statement (Form 65) includes a monthly budget for you and your family unit. There is a Statement of Affairs (Form 79) which lists all your assets and liabilities. The final document declares your insolvency and assigns your property to the Trustee. It is called an Assignment for the General Benefit of Creditors.
There are additional documents required by the Trustee to help them effectively administer the bankruptcy. With all of these documents in place, your bankruptcy officially starts.
Can I review the documents in detail prior to meeting with the trustee to sign them?
- Your Trustee will explain each document to you at the meeting, but you are welcome to review them beforehand.
3. Document Filing
After the Trustee witnesses your signature on the documents, they are ready to be sent to the government. In Canada, all Licensed Insolvency Trustees have access to and work with the same electronic filing system. The trustee uploads your documents through the system and waits for an electronic Certificate of Appointment. The Certificate of Appointment confirms that your bankruptcy is filed and is official. At this point, there is a “Stay of Proceedings,” meaning that your creditors are no longer able to take legal action to recover your debts. At this point, any wage garnishment will stop, and interest will stop accumulating. Collection agencies will no longer be able to contact you.
With the Certificate of Appointment, the Trustee will begin contacting your creditors to notify them of the bankruptcy.
4. Duties of the Bankrupt
A person cannot be discharged from bankruptcy until they fulfil all their duties. Your debts are only eliminated when you are discharged, so it is important to stay in touch with your trustee and fulfill all of the obligations. The first step is surrendering to the Trustee any assets that are not exempt in Alberta. The Trustee will supervise the sale of any assets, and all the proceeds will be added to the bankruptcy estate. You will also have to surrender all your credit cards to the Trustee for cancellation. The only exception to the credit card rule is if the credit card was issued to a third party and they authorize you to use it (i.e. an employer, spouse, parent or friend).
The Bankruptcy and Insolvency Act of Canada specifies that anyone filing for bankruptcy must attend two credit counselling sessions. These sessions are meant to help you learn how to manage your money and avoid problems with debt and insolvency in the future. Your Trustee will schedule these appointments for you. After declaring bankruptcy, you have 60 days to complete the first session and 210 days to complete the second.
During bankruptcy, you are required to submit monthly statements of your income and expenses to your Trustee. They will use the statements to calculate any surplus income which will you will have to pay, which will be added to the bankruptcy estate. You are also required to provide all the necessary information for the Trustee to file your tax returns. Any tax refunds up to the year of your bankruptcy filing will be sent directly to the Trustee and added to the estate.
Finally, you are required to make a monthly base payment to your estate. All your contributions and any money received as part of your estate are managed by the Licensed Insolvency Trustee. They will distribute the funds to your creditors.
What if I cannot make the payments or fulfil some other obligation?
- You will not be discharged until you fulfill all of your obligations. There is a process called mediation. We will work with you as much as possible. There is an ability to grant additional time to meet these obligations.
Can I declare bankruptcy twice?
- If you have been discharged from the first bankruptcy, you are able to declare bankruptcy a second time. There are some differences when you declare bankruptcy a second time, including longer terms. Talk to a Licensed Insolvency Trustee to see if there are any other options available first.
- If you have not completed the first bankruptcy, then you must fulfill all remaining duties until you can be discharged prior to filing a second time.
5. Discharge from Bankruptcy
Discharge from bankruptcy is the legal process of being released from bankruptcy and having your debts eliminated. In most cases, you will get an automatic discharge after nine months if it is your first bankruptcy and no “surplus income” payments are required. To qualify for the automatic discharge, you must have completed your duties, and the discharge must not be opposed by your trustee or your creditors. If it is your second bankruptcy, you may qualify for an automatic discharge after 24 months.
If you do not qualify for an automatic discharge, your Trustee will apply to the courts for your discharge. In this case, there is a discharge hearing, which you will attend, where your Trustee will present the facts of your bankruptcy and your creditors may be present to object. After the hearing, you may be discharged by the court, or there may be additional steps required, and you may have to apply a second time to the Registrar in Bankruptcy.
Credit Bureaus will continue to report your bankruptcy for up to six years following your discharge if it is your first bankruptcy, but you can begin to rebuild good credit right away. Your former debts are eliminated, and you have a fresh start!