Personal Bankruptcy

If bankruptcy is the option you choose, you will work with the Licensed Insolvency Trustee (LIT) to complete the required forms. The LIT will then file these documents with the OSB and you will be formally declared bankrupt.

From that point on, the LIT will deal directly with your creditors on your behalf. Once you have been declared bankrupt

• you will stop making payments directly to your unsecured creditors
• any garnishments against your salary will stop; and
• any lawsuits against you by your creditors will also be stopped

Once you have been declared bankrupt, the LIT sells your assets, including any acquired during your bankruptcy. Assets that are exempted by provincial and federal laws are excluded from this sale. The LIT will hold the money raised by the sale in trust for distribution to your creditors.

Here are the amounts of equity you can protect in exempt assets in British Columbia (per person):

• Clothing (unlimited)
• Medical aids (unlimited)
• Household furnishings and appliances - $4,000 (quick resale value)
• Motor vehicle - $5,000 equity (quick resale value) in one motor vehicle (reduced to $2,000 if you owe money for child or spousal support). If your motor vehicle has more than $5,000 in equity, you can still keep your motor vehicle by agreeing to pay the LIT for the amount of equity over $5,000.
• Principal residence - $9,000 ($12,000 if your residence is in the Greater Vancouver area).
• Tools of the trade - $10,000 (tools that you use to earn income).
• Life insurance Policy Cash Surrender Value (CSV) when the named beneficiary is a preferred beneficiary (parent, spouse, child or grandchild).
• Registered Pension Plans (RPP).
• Locked-In Registered Retirement Savings Plans (RRSP).
• Registered Retirement Savings Plans (RRSP) that are invested in a segregated fund with a life insurance company.
• Registered Retirement Savings Plans (RRSP) contributions made more than one year before the date of bankruptcy (or the initial bankruptcy event).

 After you declare bankruptcy, the LIT will notify all your creditors about your bankruptcy.

 As part of your bankruptcy, you will be required to attend two financial counselling sessions. The purpose of these sessions is to help you understand the causes of your bankruptcy and to assist you in managing your financial affairs in the future.

You may be required to make additional payments to your LIT for distribution to your creditors.

In addition to paying the LIT 's fees, you may be required to make additional payments to your LIT for distribution to your creditors. These are called surplus income payments.

Each month during the bankruptcy process, you must submit a copy of your pay stubs and proof of other income to the LIT . The LIT then calculates your surplus income.

Surplus income is the part of your earnings that exceeds the amount of income a family needs to maintain a reasonable standard of living. This amount is set by the OSB annually. The larger your family, the more you are allowed to keep; the more you earn, the more you are required to contribute.

In other words, if your household income exceeds the level set by the OSB , then you must make additional payments to your LIT during your bankruptcy. (Contact an LIT to find out the current limits for your family size.)

A discharge releases you from the legal obligation to repay the debts you had as of the date you filed for bankruptcy, except for specific types of debts that are excluded by law. These include alimony and child support payments, student loans (if you stopped being a student less than seven years ago), court-ordered fines or penalties, and debts arising from fraud.

The timing of your discharge depends on a number of factors, including whether this is your first bankruptcy, and whether you are required to make surplus income payments.

If this is your first bankruptcy and you are not required to make surplus income payments (because your surplus income is less than $200 per month), you will be eligible for an automatic discharge from bankruptcy in nine months. If your surplus income is higher, your bankruptcy will be extended to 21 months and you will be required to make payments from your surplus income.

 Bankruptcies generally do not affect the rights of secured creditors. If a creditor has a valid security against your property (e.g., a car or a house), consult with your LIT . If you can afford monthly payments, financial arrangements can be made with the secured creditor.

 Your debts are your own; however, if you and your spouse have a joint (co-signed) debt, then a creditor can pursue your spouse for repayment.

Only the portion of assets that you own is included in your bankruptcy. So, if you own assets jointly with your spouse, your portion may have to be sold and distributed to your creditors. It is important to make the LIT aware of joint assets so that each case can be reviewed individually.