What is Bankruptcy?
Filing bankruptcy tells your creditors that you are unable to pay them and that you are turning over your assets to a Trustee (other than those that are exempt or secured) for division among your creditors. A stay of proceedings goes into affect which means that your creditors cannot commence or continue any action against you to collect the debt. The Trustee gets the proceeds from your assets (which can include but are not limited to income tax refunds, GST refunds, non-exempt assets which are not fully secured) and deposits the funds in a trust account. You may be required to make payments to the Trustee for the benefit of your creditors pursuant to the Superintendent's Standards depending on your income level. The Trustee is paid pursuant to rules under the Bankruptcy and Insolvency Act (“BIA”) and therefore gets paid from the funds in the trust account. Basically, any funds left in the trust account after the Trustee has taken their fees is divided among your creditors (except personal GST refunds which would be returned to you if the Trustee didn't need them to cover their fees).
In Ontario, the following assets are exempt from seizure by the Trustee for your creditors:
- clothing and personal effects, up to a value of $5,650
- household furniture and effects, up to a value of $11,300
- tools and instruments you use in your profession up to a value of $11,300
- a motor vehicle, up to a value of $5,650
- most pension plans, life insurance policies, and certain RRSPs
- a farmer of land, livestock, fowl, or bees may keep the books, tools, and equipment up to a value of $28,300, as well as sufficient seed, feed, and bedding for said farming
A secured creditor is someone you owe that has used an asset as collateral for their loan. Examples of a secured creditor would include a bank or other lending institution who registered a mortgage against your home or registered an interest in your vehicle when you made those purchases. A secured creditor may sell the asset if they don't get paid. In many cases, the creditor may allow you to continue your payments or make a settlement in order for you to keep your home or vehicle.
Filing bankruptcy allows you to make a fresh start. You should consult a Trustee to get all the information to allow you to make the decision best for you and your circumstances.
More information about bankruptcy can be found on the website for the Superintendent of Bankruptcy.