Perry Krieger & AssociatesBankruptcy Essentials
How much will it cost to file for bankruptcy?
The cost of a bankruptcy depends on your income, your assets, your family size, and prior bankruptcy history.
Assets
You will loose all of your assets except for certain assets that are exempt from creditors. You may also loose any equity in assets which have loans. A Trustee can advise you as to which assets you will be able to keep when filing for bankruptcy.
Income / Family Size
Depending on your income and value of your assets, you may need to make payments to the Trustee on a monthly basis. These payments are called “surplus income”. The surplus income payments are based on the number of people in your household and your income as well as the government guidelines.
Prior Bankruptcy
Those who have been bankrupt before will generally pay more for their bankruptcy than first-time bankrupts.
What will it cost to make a proposal?
The cost of a proposal is based on what you offer to your creditors, and can be as much or as little as you can afford. Greater offers are more appealing to creditors, while lesser offers are easier to maintain payments on. The Trustee’s fees are paid out of the regular payments that you make in the proposal, as this is one of the terms of all proposals.
What is Surplus Income?
Surplus income is a portion of your income deemed to be ‘excess’ by the Office of the Superintendent of Bankruptcy surplus income guidelines. Upon meeting with a Trustee, we can estimate your surplus income based on all of the relevant factors.
Surplus income does not apply in a proposal, however in a proposal, creditors will consider what they may receive if you file an assignment in bankruptcy. You will generally need to offer more in a proposal than the creditors would receive in a bankruptcy.
Does filing for bankruptcy affect my spouse?
Filing for bankruptcy generally does not financially impact your spouse. The effect of being discharged from bankruptcy is releasing the bankrupt of his/her debts. As a result, any ‘joint’ or ‘co-signed’ loans, such as joint credit cards, co-signed mortgages, and so on will be fully the responsibility of the non-bankrupt spouse. Also, if a house or other assets are jointly owned (in both names), a portion of the equity may need to be purchased from the Trustee.
How long will I be bankrupt?
Upon completion of a bankruptcy, a ‘discharge’ is received, which relieves you from the liability of your debts. The minimum period of being an ‘undischarged bankrupt’ is 9 months for a first time bankrupt or 24 months for subsequent bankruptcies. A Court can extend this period based on factors such as your income, prior bankruptcies, conduct as an undischarged bankrupt, or opposition from creditors.
We can advise you of the potential for an extension of this period based on your particular factors. Most commonly, if you would be required to make surplus income payments, these will automatically extend your discharge by 12 months, amoung other outcomes.
Credit
How long will the bankruptcy stay on my credit rating?
A credit rating of R9 (meaning bad credit; placed for collection; unlocatable; or bankruptcy) will remain on your credit report for a period of 6 years after you obtain your discharge from bankruptcy. With a 9-month bankruptcy, this rating will remain on your credit report for a total of 6 years and 9 months.
While the poor credit score will impact your credit rating, lenders will consider a wide variety of factors when determining whether to grant credit in the future.
How long will a proposal stay on my credit rating?
As soon as you file a proposal, your credit rating will be revised to either R7 or R9. After you complete your proposal, a R7 credit rating will remain on your credit report for a period of 3 years.
While a proposal has a negative effect on your credit rating, considering a proposal usually means that your credit rating is poor to start with. The next improved rating from an R7 is an R5 rating indicating that payments are as much as 120 days late. Making a proposal to your creditors shows efforts being made to settle your debts, rather than simply being unable to pay the debts.
What happens to my student loan?
When filing for bankruptcy, you must include all of your debts, including student loans. Student loans, though included, are not automatically discharged by bankruptcy unless they are at least 7 years old.
Assets
What happens to my house?
The Trustee will review the value of your house and subtract any amount owing on your mortgage to calculate the equity in your home. Should the equity be significant, you may need to have someone pay this amount to the Trustee, buying the equity in your home, or a number of other arrangements.
What happens to my car?
You are entitled to keep a car valued up to $5,650. If your car is of greater value than this, you may have a third party purchase the difference in value from the Trustee.
If your car is financed, the current value of the car, less the amount owing on it (the equity) would be calculated. This amount can be up to $5,650, and any excess could be purchased by a third party.
If your car is leased, you can discuss this matter with your leasing company. Provided that you continue to make payments on your vehicle and advise the leasing company that you wish to keep the car, you will typically be able to continue to use the leased car.
You should, in all cases, evaluate whether keeping the car is the right choice for you, as the payments on the car may be higher than you are able to afford.
What happens to my RRSP?
Property in a registered retirement savings plan (RRSP) or registered income fund are not considered property that can be distributed to creditors with the exception of contributions made in the 12 months prior to filing for bankruptcy. Your RRSP remains untouched, other than contributions made in the last year.
What happens to my bank account?
If your bank account is overdrawn, it should be included as one of your debts. If your bank account is not overdrawn, any excess funds in the account should be delivered to the Trustee.
If you owe money to the bank holding your account, such as having a credit card or loan with the same bank, you should open an account with a bank that you do not do business with to prevent the bank from seizing any funds in, or being deposited to, the account.