Debt Relief Experts
Are You Considering Bankruptcy in Ontario?
Do you think that claiming bankruptcy might be the correct solution for your debt problems? If so, then learn all of the positive and negative effects of filing for bankruptcy in Ontario.
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
The best and most desirable effect of claiming bankruptcy in Ontario is that it gives an individual with overwhelming debts the opportunity for a fresh financial start. Other benefits of bankruptcy include:
- 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?
Filing for bankruptcy allows you to discharge certain unsecured debts, meaning the legal obligation to pay them is eliminated. This process provides a clean financial slate by wiping away qualifying debts.
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.
Bankruptcy is also not without some consequences. While the pros of claiming bankruptcy mean that your debts will be eliminated, you need to balance this against any cons of bankruptcy, including any assets you may lose and the effect on your credit score.
What Happens to Assets in Bankruptcy? Will I Lose Everything?
Ontario Exemption Limits
Filing for bankruptcy doesn’t mean you lose everything. While you are required to surrender non-exempt assets to a Licensed Insolvency Trustee to pay creditors, federal and Ontario law protects essential items that you can keep. Under Ontario’s Execution Act, certain personal property is exempt from forced seizure or sale to satisfy debts. The prescribed exemption amounts, effective as of December 16, 2020, are as follows:
- Unlimited clothing
- One vehicle (car, truck, etc.) worth up to $7,117
- Household items and furniture up to $14,180
- Work-related tools and equipment up to $14,405
- Most pensions, RRSPs, and certain life insurance policies
- Home equity protection up to $10,783
These exemptions ensure you maintain basic necessities and the ability to work while going through the bankruptcy process. The trustee helps determine which assets are exempt and which must be surrendered to repay creditors.
In truth, most people keep all of their assets in bankruptcy. There are alternatives to bankruptcy like a consumer proposal if you have property valued above the exemption limits that must be realized by your licensed insolvency trustee during bankruptcy.
Will Bankruptcy Affect My Home?
Worrying that the trustee will take your home is a concern for many homeowners. The general answer is: If you don’t have significant equity in your home, then claiming bankruptcy will not affect your homeownership. If your home equity exceeds the provincial exemption limit, you may want to consider a consumer proposal instead of bankruptcy, as this alternative allows you to keep your home while still addressing your debt situation.
Before filing for bankruptcy, we conduct a thorough review of your assets, including your home equity situation. Each homeowner’s situation is unique, and we can provide a detailed analysis of how bankruptcy will affect your home. Our goal is to help you make an informed decision based on your particular circumstances while ensuring you understand all aspects of the bankruptcy process as it relates to your property.
Will The Trustee Take My Car?
In most cases you can keep your car in a bankruptcy in Ontario. Historically, Hoyes Michalos has only repossessed a vehicle in less than 1% of all bankruptcies filed.
Ontario bankruptcy law protects an owned vehicle valued up to $7,917. If your car’s current market value is below this, you keep it. If it is greater, you can pay the trustee the difference above the limit or consider a consumer proposal instead.
For financed vehicles, you must continue your lease or car loan payments to keep your car. If you can’t afford your car loan, you can consider options to surrender your vehicle and eliminate car loan debt.
Your Licensed Insolvency Trustee will review your specific situation to determine the 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.
How Does Going Bankrupt Affect My Credit Rating?
Once a person files for bankruptcy in Ontario, the Office of the Superintendent of Bankruptcy will notify the credit bureaus, and the bankruptcy will be noted on your credit report. This will impact your report for 6 years after discharge. For a second-time bankruptcy, it will remain for a period of 14 years.
A bankruptcy on your credit report affects your ability to borrow money in two key ways: lenders may be less likely to approve new credit, and when they do, they typically charge higher interest rates. While this impact is significant, it’s temporary. You can rebuild your credit score after bankruptcy through careful financial management and responsible borrowing practices.
Will Bankruptcy Affect my Spouse?
The general answer to this very commonly asked question is:
No. As long as all of your debts are solely yours, then claiming bankruptcy should have no effect on your spouse or their credit rating. However, there are some unique circumstances. You need to ensure you are fully aware of all of the details on how claiming bankruptcy affects your spouse, prior to deciding if an Ontario bankruptcy is the correct choice for you.
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; most won’t even know you filed bankruptcy unless you need to stop a wage garnishment. However, some financial sector positions may have specific requirements regarding bankruptcy, and certain Ontario professional licenses or bonding requirements could be affected.
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 inform your LIT of any permanent address changes. The key is maintaining your bankruptcy duties, such as monthly reports and counselling sessions, regardless of your location.
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.
If you live or have significant assets in Ontario, you must file bankruptcy with a Licensed Insolvency Trustee registered in the province. As Licensed Insolvency Trustees regulated by the Office of the Superintendent of Bankruptcy and licensed to operate in Ontario, we’re qualified to explain all debt solutions and help you make an informed decision about your financial future. We will review your financial situation during your initial consultation to help determine if bankruptcy is your best option.
Debt Relief Options in Ontario
While bankruptcy can provide Ontarians with needed debt relief, it should be considered a last resort. 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.
How To Claim Bankruptcy
Bankruptcy in Ontario can only be filed through a Licensed Insolvency Trustee. The bankruptcy process is not difficult and our team is here to make it easy:
- Book a consultation with a Licensed Insolvency Trustee.
- Meet with the trustee to review your debts, assets and budget.
- Review the costs of claiming bankruptcy.
- Compare bankruptcy with your other options.
- Complete and sign all necessary forms including a statement of affairs – a detailed list of your assets, debts, income, and expenses.
- Your LIT will file 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.
The act of filing bankruptcy in Ontario is not without some short and long term negative effects. Hoyes, Michalos & Associates trustees are happy to offer everyone a FREE, no obligation, professional consultation. We will review the details of your individual situation and help you decide if claiming bankruptcy is indeed the correct debt management option for you.
There is no reason to continue living in the downward spiral of overwhelming debts. You do have options, and we are here to help. Simply contact us today.
