Common Questions & Information about Bankruptcy in Alberta
The most common and usually the first statement we hear from people when they contact one of our Licensed Insolvency Trustees is, “I have some questions about bankruptcy…”
Bankruptcy and how it works are not typical topics of everyday conversation, and for most people considering bankruptcy, it is an entirely new concept for them and something they would like to avoid. Sometimes, however, a debt management plan or debt repayment plan is not achievable, and bankruptcy is the best option for people. The fear of the unknown is one of the biggest reasons people are reluctant to call or contact a Licensed Insolvency Trustee.
We have assembled a list of the bankruptcy questions we most commonly get asked, for review by our readers.
You can submit your own question by e-mailing one of our Consumer Proposal Administrators, or by submitting an anonymous question to our Consumer Proposal Blog.
You can contact one of our Alberta Licensed Insolvency Trustees in your area, and speak to them personally or request a free, no-obligation consultation.
Common Bankruptcy Questions
After many years of recording the questions clients ask our Alberta Licensed Insolvency Trustees, we have identified that the most Common Questions are as follows:
- How can you tell if Your Financial Problems in Alberta are serious?
- How does a person declare bankruptcy in Alberta?
- How much does it cost to file bankruptcy in Alberta?
- How long will I be bankrupt if I file personal bankruptcy in Alberta?
- What happens to your debt when you file bankruptcy in Alberta?
- Do I need a bankruptcy lawyer to go bankrupt in Alberta?
As Licensed Insolvency Trustees, we get lots of questions, which centre around the same themes. For ease of review and research by the readers of our website, we have assembled them under separate headings as follows:
Each year in Alberta, approximately 10,000 to 12,000 people find themselves in Financial Difficulty and need to file bankruptcy or file a proposal, and there are experienced professionals in Alberta who can help you tell if your Financial Problems are serious. Many Albertans from all walks of life will experience or find themselves in financial trouble at some time in their life, and in need of financial help.
There are many reasons people find themselves in financial trouble, ranging from job loss, poor money management, divorce, injury at work, unpaid income taxes, etc. Everyone has a different set of circumstances and everyone has a slightly different reason. There are very common warning signs, however, which are good indicators of serious financial problems and a need to do something about it by contacting a Consumer Proposal Administrator who can help.
Common Financial Warning Signs
Think of your financial situation over the last six months or more, and consider the warning signs you may have been experiencing. Some of the most common warning signs include:
- You have been under financial stress for some time, you are making no headway with your bills, and your finances are only getting worse;
- You are losing sleep or constantly worrying about money and your debts. Your financial problems are the first thing you think about when you wake up and the last thing before you fall asleep;
- You are missing payments and your creditors are threatening legal action or wage garnishees and you have little or no money to pay them;
- You are using one credit card to pay off another, or you are living on your bank overdraft and find it impossible to go without it;
- You avoid opening your mail because it only contains bad news and/or overdue notices;
- You screen your phone calls or don’t answer your phone because collection agencies or bill collectors are calling;
- Your financial problems are getting worse, and you are borrowing from cash stores or family and friends just to get by;
- You are at or near the limits on your credit cards each month, and you can only afford to make your minimum payments, if at all;
- Your stress is building, your nerves are shot, your health and/or relationships are suffering, and you feel like you exist but don’t have a life anymore.
If one or more of these apply to you, you are likely in financial difficulty or heading for financial trouble and problems which are serious enough that you need professional financial help to resolve them.
The first step toward financial recovery is recognizing the severity of the problem, considering the options available and if necessary, seeking financial help. An Alberta Licensed Insolvency Trustee can review your financial situation and help you tell if your financial problems in Alberta are serious, and whether they may warrant a bankruptcy, a proposal to your creditors, or another legal remedy which can provide you with the financial help and relief you need.
Before a person can declare bankruptcy in Alberta, the person must meet certain financial conditions and meet the definition of being an insolvent person.
The Bankruptcy and Insolvency Act provides a definition of an insolvent person and sets out the conditions which must exist before a person can declare bankruptcy in Alberta or Canada. The conditions that must exist, or the threshold that must be met, before a person can declare bankruptcy in Alberta are not that stringent and for the most part are easily met by people in financial difficulty.
In order to declare bankruptcy in Alberta or Canada, a person must:
- Be able to show that their proven debts exceed one thousand dollars.
- Reside or have resided in or carried on business or have property in Canada; and,
- Not already be bankrupt;
They must also:
- Be unable to meet their financial obligations as they generally become due;
- Have ceased paying their current obligations in the ordinary course of business as they generally become due; or
- The total value of their property is not sufficient, or if disposed of at a fairly conducted sale, under legal process, would not be sufficient to enable payment of all their debts or financial obligations.
If a person meets these requirements they are eligible to declare bankruptcy, and they may wish to meet with a Consumer Proposal Administrator, who can help them make a decision as to whether their situation is serious enough for them to declare bankruptcy.
In most cases, people do not declare bankruptcy for as little as one thousand dollars. Each person’s threshold as to when it makes sense for them to declare bankruptcy in Alberta is different, and for the most part, depends on how much they make, how many debts they have, how long it will take to pay their debts off and if that is even possible for them to do.
A Consumer Proposal Administrator can meet with you on a confidential, no obligation basis, to discuss your personal situation and the steps which need to be taken to declare bankruptcy in Alberta.
The need to file bankruptcy in Alberta and the total cost to file bankruptcy in Alberta depends on your personal situation, your family income, the type and number of assets you have, etc. Every person considering bankruptcy in Alberta will bring a separate set of facts and circumstances for review and consideration.
In order to better determine what it will cost to file bankruptcy in Alberta, we have set out five points one needs to consider from an overall cost of bankruptcy perspective:
Bankruptcy Costs to Consider:
1. Basic Payments
There are basic costs for a person to file bankruptcy in Alberta and costs to administer a bankruptcy estate, such as government filing fees, mailing costs, postage, court fees, notices, trustee remuneration, etc., which you will need to cover by making a contribution to your bankruptcy estate. Normally, you can make payments by way of manageable monthly installments to your Licensed Insolvency Trustee.
2. Tax Refunds and GST
A person who decides to file bankruptcy in Alberta loses any GST Credits and income tax refunds they may normally receive during the period their bankruptcy estate remains open, and those refunds or tax credits are directed to your Licensed Insolvency Trustee by the government, deposited to your bankruptcy estate, and distributed in connection with your bankruptcy in Alberta.
3. Shared Income
Depending on how much you earn while bankrupt, you may be required to pay a portion of your monthly income into your bankruptcy estate. The portion that you are required to pay into your bankruptcy depends on the size of your family, and whether or not your earnings while bankrupt exceed an income standard or guideline set by the federal government and whether you have been bankrupt before. Net income exceeding the income standard or guideline is considered “surplus income”, and must be shared with your creditors and the shared portion paid into your bankruptcy estate monthly. A Licensed Insolvency Trustee can explain and review a sample surplus income calculation with you. We recommend that you bring a copy of your most recent pay-stub to any meeting you have with a Licensed Insolvency Trustee so that he/she can estimate what your monthly bankruptcy contribution and cost will be.
4. Non-Exempt Assets
Individuals who file bankruptcy are allowed to keep certain assets which are considered exempt from seizure in Alberta. Any assets which are not protected in a bankruptcy or which exceed your Alberta exemption limits are referred to as “non-exempt assets” and must be surrendered to your Licensed Insolvency Trustee for sale, with the proceeds from their sale paid into your bankruptcy estate. A list of assets you can keep while bankrupt in Alberta and assets which are exempt from seizure in a bankruptcy are summarized on our bankruptcy exemptions page.
5. New Assets: Increases in Asset Values while Bankrupt
Any assets acquired by you prior to your discharge from bankruptcy or any increase in the value of your assets which exceed your exemption limits while you are bankrupt are subject to attachment by your Licensed Insolvency Trustee for the benefit of your creditors. These include windfalls, such as inheritances, lottery, bingo or other winnings, increases in home equity or the value of any other assets which exceed your exemption limits, and any other awards you may receive while bankrupt.
You can contact a Consumer Proposal Administrator who can meet with you and help you understand all the factors that will determine what it will cost to file bankruptcy in Alberta.
A person who decides to file personal bankruptcy in Alberta and who is a first-time bankrupt, can be eligible for an automatic discharge from bankruptcy as early as nine months after filing bankruptcy. There are several factors, however, that can affect how long a person remains bankrupt after they file bankruptcy, and depending on these factors, their file can take longer to resolve than the minimum nine months.
The Principal Factors to consider are:
- Have you filed bankruptcy or a proposal previously and if so, how long has it been since your last bankruptcy file was closed and you were discharged?
- How much do you make each month, and do you have the ability to pay something to your creditors?
- Have you completed all the Duties Required of you in connection with your bankruptcy file?
- Have your creditors in your bankruptcy file or your Licensed Insolvency Trustee objected to your discharge from bankruptcy for non-performance of your bankruptcy duties or your financial conduct?
Is This a First or Second Bankruptcy?
People who file second or subsequent assignments in bankruptcy are not eligible for an automatic discharge after nine months, and their bankruptcy file and discharge…
In order to obtain a discharge, the Licensed Insolvency Trustee will have to file or make an application to Court, where the merits of one’s discharge will be heard. Notwithstanding that most second-time bankrupts who file personal bankruptcy get their discharge, the Courts may ask a bankrupt to confirm why did they file an assignment in bankruptcy a second time? When did they file their last assignment, etc, etc., and why did they file that assignment? The Court wants to make sure that people who are filing bankruptcy are not repeating the same mistake, taking bankruptcy lightly, or abusing the system.
Although the Courts are more cautious when people file a second or subsequent personal bankruptcy assignment, there are many valid reasons people find themselves filing bankruptcy again, and the Court recognizes that, and in most cases, is not punitive.
Have All Duties Been Completed?
If you file an assignment in bankruptcy, your Licensed Insolvency Trustee will detail or outline a series of duties a person must complete before being eligible for a discharge from bankruptcy and forgiveness of your debts. A Consumer Proposal Administrator can help outline and explain the Duties of a Bankrupt person when they file bankruptcy in Alberta.
Have the Creditors or Licensed Insolvency Trustees Objected?
If you do not complete the duties required of you in connection with your bankruptcy file, the Trustee must object to your discharge. If your creditors believe your conduct or actions prior to your bankruptcy require further scrutiny, or you have failed to disclose an asset, etc., in connection with your bankruptcy file, they may object to your discharge.
Although in the vast majority of cases, a bankruptcy is only nine months long, the length of time a person will be bankrupt if they file for bankruptcy protection depends on each person’s particular situation. For a complete assessment of your circumstances, and an explanation of the steps necessary to file personal bankruptcy in Alberta, you should contact a Consumer Proposal Administrator.
What happens to your debt when you file bankruptcy depends on the nature of the debts you hold. People’s debts generally fall into two categories, secured and unsecured debts.
Debts where creditors have taken or placed a lien on your asset(s), and who have a right of repossession, are considered secured debts. If you surrender, or give up, the asset liened by the creditor at the beginning of your bankruptcy, you no longer have an obligation to pay any portion of that debt.
If you want to keep a secured asset and you make payments to the secured creditor after filing bankruptcy, you have reinstated the contract and will have to pay the entire debt as previously agreed. A secured creditor may elect to enforce its security and repossess the asset, notwithstanding that you have filed bankruptcy.
In most cases, the majority of one’s debt, such as credit card debt, personal loans, unpaid utilities, trade creditors, etc., and yes, even income tax debts, are unsecured debts, and in a bankruptcy, are fully dischargeable or fully forgivable.
If you have a particular debt that is on concern to you, you should feel free to contact a Consumer Proposal Administrator.
Debts not Covered / Discharged
The Bankruptcy and Insolvency Act in particular, Section 178, defines certain debts which are not dischargeable or which will survive a bankruptcy, and which must be paid, even if a person has filed bankruptcy in Alberta. These debts include the following:
- Debts that originate as a consequence of fraud, theft, embezzlement or misappropriation;
- Debts related to fines or penalties imposed by a Court;
- Debts related to Restitution Orders for personal injury, assault, damage to property, theft, etc.;
- Monthly alimony, maintenance or child support payments and related debts for arrears, if any;
- Canada Student Loan or other Student Loans, if you attended school less than 7 years ago;
- Certain government overpayments, and monies received while ineligible, which typically include Employment Insurance overpayments, Human Resources Disability Payments, or WCB payments;
- The portion of the debt repayable after bankruptcy is generally limited to the principal overpayment received and generally does not include the interest or penalties assessed against you.
- As the law can be complicated in this area, we recommend that you contact an Alberta Licensed Insolvency Trustee, who can review these debts with you;
If you do not have any of the debts identified above as “Section 178 Debts”, it is very likely that all your debts can or will be fully dis-chargeable. Please do not hesitate to contact a Consumer Proposal Administrator for a complete assessment of your debts and an explanation of what happens to your debts when you file bankruptcy in Alberta.
In general a person does not need a bankruptcy lawyer to go bankrupt in Alberta, and in most bankruptcy situations, the cost of a lawyer can be avoided.
Although there are bankruptcy lawyers in Alberta who may, as a part of their general practice, specialize in bankruptcy law or in assisting people with certain aspects of a bankruptcy, bankruptcies in Alberta and Canada are overseen by the Office of the Superintendent of Bankruptcy, a division of the federal government in Ottawa, Ontario.
Who Administers Bankruptcy Law in Canada?
The Superintendent of Bankruptcy licenses qualified individuals to administer the provisions of the Bankruptcy and Insolvency Act, who are referred to as Licensed Insolvency Trustees in Bankruptcy.
Although Licensed Insolvency Trustees are not bankruptcy lawyers, they specialize in administering one aspect of the law in the form of The Bankruptcy and Insolvency Act. As bankruptcy involves finances and financial assessments, the majority of Licensed Insolvency Trustees are professional accountants who are members of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), and they are often members of the Canadian Institute of Chartered Accountants (CICA) or another professional accounting association.
The Bankruptcy and Insolvency Act does not allow an individual to practice as both a Trustee in Bankruptcy and a Bankruptcy Lawyer. The Superintendent of Bankruptcy considers Trustees and Lawyers as incompatible professions, because acting in a dual capacity may lead to a conflict of interest.
In the vast majority of cases, a bankruptcy lawyer is not required and most people proceed with and complete their bankruptcy without the need of a lawyer’s services. For further information on this or any other aspect of a bankruptcy, you can contact a Consumer Proposal Administrator for a free confidential no obligation consultation.
In most cases, a Licensed Insolvency Trustees will be able to assist you in determining whether a particular aspect of your bankruptcy requires legal representation and whether you need a bankruptcy lawyer to go bankrupt in Alberta.