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If you’re considering filing for bankruptcy, you must be having serious issues with paying down your debt. Bankruptcy is typically the last resort for Canadians who struggle with their debt and are unable to put a stop to all the collection calls from creditors or threats of lawsuits for monies owed.
However, while bankruptcy can certainly put a stop to these calls and protect you from impending lawsuits, bankruptcy also costs money. While you may be able to eliminate much of your debt through bankruptcy, it’s also important to understand that you’ll still have some financial responsibility while you’re bankrupt.
When you declare bankruptcy, your Licensed Insolvency Trustee (LIT) will order you to pay a monthly base contribution toward your bankruptcy estate. Normally, you’ll pay a minimum of $1,800 to file for bankruptcy ($200 a month for 9 months). Afterward, any additional fees will be federally legislated and applied based on your personal situation:
It’s helpful to calculate your bankruptcy payments in order to understand how much you will be paying each month. The amount that needs to be paid on a monthly basis will differ from one person to the next. The payments required generally vary based on family size, monthly income, assets, and expenses.
Consumers who file for bankruptcy will be obligated to make monthly contributions toward the administrative costs associated with filing bankruptcy. On average, the cost associated with monthly contributions to cover administrative tasks is approximately $200 per month. The cost is meant to cover a variety of administrative tasks such as counselling sessions, government fees, mailouts, preparing filings for tax returns and hiring a Licensed Insolvency Trustee.
If you go bankrupt, discharge occurs automatically once you fulfill any duties imposed by the government. Your payment term depends on how many times you’ve filed:
Part of your responsibility while in bankruptcy is keeping your trustee informed of your income. You will be obligated to submit income statements on a regular basis so that your income can be tracked. If you earn over a certain amount, you may have to pay surplus income.
The government establishes limits on how much bankrupt consumers are allowed to earn before they are charged surplus income. These limits are based on household size, so the more children are in a household, the higher the limit will be. That’s because the government wants to ensure that families are still able to maintain their lifestyle and pay their associated expenses, particularly childcare.
Here are Canada’s surplus income limits for bankruptcies declared in 2022:
Number of People In Your Household | Monthly Limit |
1 | $2,355 |
2 | $2,931 |
3 | $3,604 |
4 | $4,375 |
5 | $4,962 |
6 | $5,597 |
7 | $6,231 |
Surplus income is dependent on your net income, minus certain monthly expenses, such as child care, expenses associated with a medical condition, and penalties imposed by the court. Once that amount is determined, anything you earn beyond that threshold is then considered surplus income. You will need to pay 50% of that amount in the form of surplus income payments.
For example, if you have a spouse and 3 children at home, you’d have a household number of 5 people. Since your family consists of 5 people, your surplus income limit is $4,962 a month.
If your family income is $5,962, you’ll have $1,000 of surplus income. As such, you’ll need to pay half of that amount ($500) to your LIT, on top of your regular contributions.
Your surplus income payment term also depends on your number of bankruptcies:
When you file for bankruptcy, you may need to surrender many of your assets. While you may be able to keep some assets, you may still be required to give up a certain amount of equity in more valuable assets, such as your car or home.
Every province in Canada has its own set of rules regarding the assets that must be given up when someone files for bankruptcy. You will need to check with your specific province’s guidelines to find out what you can keep and what will have to be given up.
If you owe a significant amount of money toward your creditors, the bankruptcy court may choose to drain the funds from your properties. Assets you could lose include:
When it comes to bankruptcy, taxes work a bit differently. Your licensed insolvency trustee will provide you with any pertinent details that are applicable to you. For instance, any tax refunds or HST credits that you would typically get while bankrupt will go to your bankrupt estate.
If you happen to come upon a lump sum of money, whether by winning the lottery, receiving an inheritance, or winning a court settlement, you will probably lose that money too. Such loss of money could be considered some form of bankruptcy payment.
The fees associated with bankruptcy are similar in every province in Canada, but the rules still differ to some extent. While it may be bothersome to find out that there are fees associated with bankruptcy, the laws surrounding bankruptcy are designed to make sure that the costs are based on your specific situation. If you’re uncertain about which path to take, be sure to get in touch with a trustee to help you determine what your options are.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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