While there are many different debt relief options in Canada, bankruptcy may be the only option when you’re drowning in debt. Bankruptcy can help absolve you of most of your debts, but it comes at a cost. Find out how much it will cost you to file for bankruptcy in Canada.
What Is The Cost To File For Bankruptcy In Canada?
No matter which trustee you go with there are certain fees set by the government that you’ll need to pay. However, the overall costs of bankruptcy will depend on how much you make, how big your family is, your assets and more.
In total, there are three main costs associated with bankruptcy and they are:
First Cost To File For Bankruptcy: Base Contribution
In Canada, the minimum cost for filing for bankruptcy is $1,800. This can be paid at once or in $200 installments over 9 months. This fee is used to cover certain costs like administration fees, your LIT, government fees, and more.
Second Cost To File For Bankruptcy: Surplus Income
Surplus income payments are calculated using the income limits created by the Office of the Superintendent of Bankruptcy. To calculate your surplus income payment simply take the difference between your income and the income limit and then divide it by two. If your surplus income payment is less than $200, you can be discharged from bankruptcy after 9 months. All you’ll need to pay is the base contribution mentioned above.
However, surplus income payments are required if your surplus income payment is more than $200. Moreover, if it is, your bankruptcy (and the associated payments) will be extended for another year (9 months to 21 months). This basically means that those who make a lot of money will generally have to pay more for their bankruptcy than those who are barely scraping by.
For example, if you’re a family of 3 with an income of $4,000, you’ll be making $567 more than the income limit of $3,433. Your surplus income payment would be $283.5. Since your surplus income payment is more than $200, you’ll have to make these payments for 21 months instead of the base contribution for 9 months.
Third Cost To File For Bankruptcy: Assets You Lose
Of course, another huge cost of your bankruptcy will be the assets you lose. You will not only lose your tax return for the year of filing (and any others that haven’t been received yet) but all of your RRSP contributions from the last 12 months. You may also lose all of your other investments. Similarly, you can potentially lose the equity in your home and your vehicle but that depends on which province you live in and the individual rules for that area.
What Is The Process Of Filing For Bankruptcy In Canada?
Let’s take a closer look at the actual process of declaring and filing for bankruptcy in Canada.
Step 1: Meet With A Licensed Insolvency Trustee
Discussing your financial situation with a Licensed Insolvency Trustee is one of the first steps to filing for bankruptcy. These are the only professionals who are legally allowed to handle bankruptcies. They will provide all the information you need, and ensure you are treated fairly. They will also guide you during the entire process. When choosing a LIT, choose one you feel comfortable and confident with.
Once you choose a LIT, you and your trustee will have to meet and do a final review of your options to ensure that bankruptcy is the right move for you. After reviewing your finances, expenses, debts, and assets, they will give you their recommendation. Of course, the final choice of what to do is always up to you.
Step 2: Filing For Bankruptcy
Once you decide to proceed with the bankruptcy filing, your trustee will give you a form to fill out. You will need to provide all of your personal information, including:
- a list of all your creditors and debts, and:
- a list of all of your assets.
Once they have that, the initial paperwork will be filled and once you sign the forms, your bankruptcy will officially begin.
From that point on, any wage garnishments or lawsuits from creditors will stop. You also will not have to make any more payments to your creditors. During the bankruptcy process, your LIT will evaluate your assets and sell any items that aren’t exempted by provincial and federal laws. The proceeds will then be used to pay off your loans, such as your payday and personal loans. Your LIT will also evaluate your income in order to determine if you need to make any surplus income payments. These payments will be used to further pay off your creditors.
Step 3: Informing Your Creditors
From there, your trustee will send copies of the paperwork to your creditors so they will be able to file their claims. In some instances, your creditors may hold a meeting which you must attend. They do this to obtain more information about the bankruptcy, to give direction to your LIT and to watch over the administration of your estate.
Step 4: Your Obligations
During your bankruptcy, you will have certain obligations to adhere to which include attending credit counselling and providing a monthly income statement. Your bankruptcy should be discharged within 9 months or so and once it is, your debts will be cleared. Do note, a bankruptcy will stay on your credit report for at least 6-7 years. This may affect your credit score and ability to qualify for various credit products.
Alternatives To Bankruptcy
There are many different options for debt relief in Canada, so don’t just assume you have to declare bankruptcy. Some common alternatives to consider are:
- Consumer proposal – A consumer proposal is a legally binding agreement between you and your creditors to arrange for a partial repayment of your debts. Unlike a bankruptcy, your assets aren’t at risk and the effect on your credit score is not as large.
- Debt Management Program (DMP) – A DMP is a debt relief program you can undertake by speaking to a credit counsellor. Your credit counsellor will work to reduce your debt’s interest rate, fees, monthly payment amount (by extending the loan term) and sometimes the balance itself. This program also allows you to consolidate your debts by making a single payment to your credit counsellor who will then distribute the payments to your creditors.
- Debt Settlement – A debt settlement involves clearing your debt for less than what you owe. For example, your creditor may clear your debt for a lump sum payment of $5,000 even if you owe $8,000. This can be done by calling and negotiating with your creditors or by hiring a debt settlement company.
Bottom Line On The Cost Of Bankruptcy
Dealing with bankruptcy is never fun, but being prepared and knowing what to expect can soften the blow and make the entire process easier to handle and go through. Do keep in mind, that bankruptcy is an extreme debt relief solution and should only be used as a last resort. There are many alternatives to get a handle on your debts, so be sure to consider them all before a bankruptcy.
