Debt Relief Experts
Filing for bankruptcy is a legal process under the Bankruptcy and Insolvency Act (BIA) that can eliminate overwhelming debt and give you a fresh start. While often viewed as a last resort, bankruptcy can provide the debt relief you need when other options aren’t feasible. As Licensed Insolvency Trustees in Ontario, we help thousands of people each year understand their debt relief options and guide them through the bankruptcy process when appropriate.
What is Bankruptcy?
Bankruptcy is a legal process where individuals or businesses who cannot repay their debts can get relief from most debts. Working with a Licensed Insolvency Trustee, the person declaring bankruptcy must surrender non-exempt assets and potentially make payments from their income for a period of time. The process typically lasts 9-21 months for first-time bankrupts and results in the discharge of most unsecured debts.
Bankruptcy Ontario Statistics:
- Average debt eliminated per debtor: $76,000
- More than 85% of 1st time bankruptcies are discharged within 9 months
- 36,000 Ontario residents file bankruptcy each year
Benefits of Filing Bankruptcy in Ontario
Filing bankruptcy provides several important benefits for people struggling with overwhelming debt:
- Immediate protection from creditors
- Stop collection calls and legal actions
- Eliminate most unsecured debts, including income tax debt
- End wage garnishments
- Stop interest charges
- Get professional debt help
- Receive financial counselling
- Start rebuilding your financial life
What Debts Can Be Eliminated With Bankruptcy?
One of the primary advantages of filing for bankruptcy is the ability to discharge most unsecured debts and get immediate relief from your financial burdens. Here’s a more detailed look at what can and can’t be eliminated through bankruptcy.
Debts that can be eliminated include:
- Credit cards: High-interest credit card debt often becomes unmanageable, and bankruptcy wipes these balances clean.
- Personal loans: Unsecured personal loans, whether from banks, payday lenders or other sources, can be discharged in bankruptcy.
- Medical bills: Even with OHIP in Ontario, additional health care costs can quickly add up, and bankruptcy can relieve unpaid medical bills or debt due to time off during an illness.
- Tax debts: Under specific conditions, bankruptcy can discharge debts owed to the Canada Revenue Agency (CRA).
- Student loans: If it’s been more than 7 years since you have been out of school, student debt can be discharged.
Debts that cannot be eliminated:
- Secured debts: Mortgages and car loans, where the creditor has a claim on the property, aren’t discharged in bankruptcy.
- Alimony and child support: Family-related obligations remain, even after filing for bankruptcy.
- Court fines and penalties: Legal fines and penalties must still be paid, regardless of bankruptcy status.
Eliminate Your Debt
Understanding Bankruptcy Protection
One of the most immediate benefits of filing bankruptcy is the automatic stay of proceedings. This legal protection stops most creditor actions against you, including:
- Collection calls and letters
- Wage garnishments
- Lawsuits or legal actions
- Creditor contact of any kind
This protection begins the moment your Licensed Insolvency Trustee files your bankruptcy with the OSB. Your trustee will notify all your creditors of your bankruptcy, and they must deal directly with the trustee’s office rather than contacting you.
Ontario Bankruptcy Laws: What Makes Them Unique
Ontario’s bankruptcy system is governed by a comprehensive framework of federal and provincial laws that work together to protect both debtors and creditors. Understanding these laws helps you know your rights and what to expect when filing for bankruptcy.
Federal Bankruptcy and Insolvency Act (BIA)
The Bankruptcy and Insolvency Act is the primary federal law governing bankruptcy in Canada. It outlines the basic rules for bankruptcy proceedings, defines the roles of Licensed Insolvency Trustees, and establishes core protections for debtors. This act ensures consistent bankruptcy procedures across all provinces while allowing for provincial variations in certain areas.
Ontario-Specific Protections
What makes Ontario unique is its provincial laws that complement the federal BIA, particularly regarding asset protection:
The Ontario Execution Act defines what you can keep when filing bankruptcy:
- Your primary residence (if your home equity is under $10,000)
- One vehicle worth up to $6,600
- Household furnishings up to $13,150
- Work-related tools up to $11,300
- All necessary clothing and medical devices
- Most retirement savings (except recent contributions)
The Ontario Limitations Act provides additional protection by establishing a two-year statute of limitations on most debts. This means older debts may be uncollectible even without bankruptcy.
The Personal Property Security Act (PPSA) protects both you and your creditors by requiring registration of secured interests in property. This transparency ensures fair treatment of secured debts during bankruptcy.
How These Laws Work Together
This legal framework creates a balanced system that:
- Protects essential assets you need for daily living
- Provides clear guidelines for debt relief
- Ensures fair treatment of all parties involved
- Offers multiple options for debt resolution
Your Licensed Insolvency Trustee will help you understand how these laws apply to your specific situation and ensure you receive all available protections under both federal and provincial legislation.
The Bankruptcy Process in Ontario: Filing Bankruptcy
Filing for bankruptcy is a significant financial decision that follows a structured process. Each step is designed to help you move toward a fresh financial start:
- Meet with a Licensed Insolvency Trustee (LIT) who will review your situation and ensure bankruptcy is your best option.
- Complete your statement of affairs – a detailed list of your assets, debts, income, and expenses – and sign all necessary documents.
- Your LIT files your bankruptcy with the Office of the Superintendent of Bankruptcy, which immediately stops collection calls and creditor actions.
- Complete your bankruptcy duties, including monthly payments if required, credit counselling sessions, and surrendering certain assets.
- Receive your discharge from bankruptcy, eliminating eligible debts and giving you a fresh financial start.
To file bankruptcy in Ontario, you must work with a Licensed Insolvency Trustee licensed in the province. As a Licensed Insolvency Trustee firm in Ontario, Hoyes Michalos can help you understand your options and guide you through each step of the process. Book your free consultation today to learn how we can help you get a fresh start.
Who Can File for Bankruptcy
Personal bankruptcy is generally used only when all other debt-relief alternatives have been exhausted, and you cannot reasonably pay off your debts within a few years, even with reduced interest rates and extended payment terms.
To qualify, you must meet these conditions:
- You owe at least $1,000 in unsecured debt.
- You’re unable to pay your debts as they come due.
- You’re insolvent, meaning your total debts exceed the value of your assets, or you can’t pay your bills as they come due
- You must reside, own property or run a business in Canada.
Your Licensed Insolvency Trustee will review your financial situation during your initial consultation to help determine if bankruptcy is your best option.
How Much Does Bankruptcy Cost in Ontario?
The cost of bankruptcy in Ontario varies based on your assets and income. Generally, bankruptcy costs include:
- a base contribution to cover administrative costs and government fees – usually between $200-$250 a month
- a surplus income calculation which can increase your monthly bankruptcy payment requirements
- the value of any non-exempt assets that must be surrendered.
Surplus income payments are required if your income exceeds the government’s threshold for your family size. The payment is 50% of your income above this threshold. For example, if the threshold is $2,400 per month for your family size and you earn $3,000, your surplus income payment would be $300 monthly ($3,000 – $2,400 = $600 × 50% = $300). If you have high surplus income, your LIT may recommend a consumer proposal as an alternative to bankruptcy.
Your Hoyes Michalos trustee will calculate your exact costs during your initial consultation and explain all payment obligations. Remember that while bankruptcy has costs, it also eliminates your unsecured debts and stops interest charges, often resulting in significant monthly savings compared to minimum payments on credit cards and other debts.
Think you might have surplus income? Try our surplus income calculator to see what your bankruptcy payments may be.
How Long Will Bankruptcy Last?
For a first-time bankruptcy, most people are eligible for an automatic discharge after 9 months if they complete all their required duties and don’t have surplus income. However, several factors can impact how long you will be bankrupt:
Surplus income payments extend a first bankruptcy to 21 months. If you’ve filed for bankruptcy before, the minimum period is 24 months with no surplus income or 36 months with surplus income. Your trustee will explain exactly how long your bankruptcy will last based on your specific situation.
Impact on Your Credit
Filing bankruptcy will significantly impact your credit rating and will remain on your credit report for 6-7 years after your discharge from a first bankruptcy. During this time, obtaining new credit may be difficult and interest rates will likely be higher. However, many people find this temporary credit impact is outweighed by the benefit of becoming debt-free.
Your credit score will begin to improve once you’re discharged from bankruptcy, especially if you follow good financial management practices. Many people successfully rebuild their credit by using secured credit cards and following proper budgeting techniques learned during their bankruptcy counselling sessions.
Remember: 85% of all first-time bankruptcies are completed within 9 months. That means that less than one year from filing bankruptcy, you can begin the process of rebuilding your credit.
Life After Bankruptcy
Getting Your Discharge
Your bankruptcy discharge officially releases you from most debts included in your bankruptcy. To receive your discharge, you must:
- Make all required payments
- Complete two credit counselling sessions
- Provide required income and expense reports
- Submit necessary tax returns to the Canada Revenue Agency
- Fulfill any other conditions of your bankruptcy
Most first-time bankruptcies result in an automatic discharge after 9 or 21 months, depending on surplus income. Your trustee will provide documentation confirming your discharge, which you should keep permanently as proof of your fresh start.
Rebuilding Your Financial Life
Life after bankruptcy offers an opportunity for a fresh financial start. During your bankruptcy, you’ll learn valuable financial management skills through mandatory counselling sessions. These sessions cover:
- Budgeting and money management
- Warning signs of financial difficulties
- Credit use and debt management
- Setting financial goals
- Strategies for saving money
Many people find these sessions helpful in developing better financial habits. You’ll learn how to manage bank accounts effectively, rebuild your credit rating, and maintain an emergency fund to avoid future financial difficulties. Combined with being debt-free, these new skills provide a foundation for long-term financial stability.
Alternatives to Bankruptcy
While bankruptcy can provide needed relief as a last resort, it’s important to consider all available options for debt settlement. Common alternatives include:
Consumer Proposal: A consumer proposal is another remedy under the Bankruptcy and Insolvency Act that allows you to make an offer to pay a portion of your debt while keeping all your assets. Payments are spread over up to 5 years, and you don’t need to report your monthly income. This can be a good option if you have a stable income and assets you want to protect.
Credit Counselling: Credit counselling agencies can help you create a debt management plan and negotiate with creditors to reduce interest rates. This works best for smaller debt loads where you can repay the full amount with reduced interest.
Debt Consolidation: Consolidating your debts through a loan or line of credit can simplify payments and reduce interest rates. However, you need good credit to qualify for the new loan and must be able to maintain the payments.
Your Licensed Insolvency Trustee will review these options with you to determine which solution best fits your situation. Remember, while bankruptcy is often seen as a last resort, it can be the most appropriate solution when other debt relief options aren’t feasible.
Contact Hoyes Michalos For Debt Advice
Filing bankruptcy is a significant decision that should be made with professional guidance. At Hoyes Michalos, we’ve helped thousands of Ontario residents understand their debt relief options and guide them through the bankruptcy process when appropriate. Contact us today for a free initial consultation to discuss your situation and learn about all your debt relief options. As Licensed Insolvency Trustees regulated by the Office of the Superintendent of Bankruptcy, we’re qualified to explain all debt solutions and help you make an informed decision about your financial future.
Frequently Asked Questions About Bankruptcy in Ontario
Does bankruptcy affect my employment in Ontario?
Generally, filing for bankruptcy will not affect your current employment or ability to find work in Ontario. Your employer cannot terminate you solely for filing bankruptcy, and most won’t even know about it. However, some financial sector positions may have specific requirements regarding bankruptcy, and certain Ontario professional licenses or bonding requirements could be affected.
Do you have to declare your spouse’s income in bankruptcy?
Yes, you must declare your spouse’s income when filing bankruptcy, even if they aren’t filing themselves. This is because total household income affects your required bankruptcy payments and surplus income calculations. However, your spouse isn’t responsible for your debts unless they’ve co-signed, and your bankruptcy won’t affect their credit rating.
Can I travel or move if I file for bankruptcy in Ontario?
You can travel and move freely during bankruptcy, including internationally, but you must keep your trustee informed of any permanent address changes. The key is maintaining your bankruptcy duties, such as monthly reports and counselling sessions, regardless of your location.
