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Filing for bankruptcy in Canada

Posted on by Behdad Hosseini

Filing for bankruptcy in Canada

There was a time when declaring oneself “bankrupt” would have been seen as the end of the world financially. However, over the years, there has developed a better understanding of what bankruptcy is, what it means, and what’s involved. Indeed, bankruptcy is nothing more than a process created to ensure the rights of both debtor and creditor when money is owed. Instead of the chaos involved in everyone simple demanding their money back, the formal process of bankruptcy sets out a path to creditors getting  as much of their money back as possible while giving debtors the space and time needed to do just that.

A trustee is mandatory

In Canada, there is a formal process involved in declaring bankruptcy. The first step is finding a trustee that will administer the bankruptcy process. Trustees are licensed by Canada’s Office of the Superintendent of Bankruptcy (OSB) and will evaluate your financial situation and consider options on proceeding. A person declaring bankruptcy may not be able to find a trustee willing to take on the case, or simply can’t afford a trustee. In such cases, the OSB has a process in place to help individuals get access to a trustee. Under Canadian law, a person declaring bankruptcy must do so through a trustee.

Once the services of a trustee are obtained, and bankruptcy is formally declared, the trustee then deals with the creditors directly. Upon declaring bankruptcy, a debtor stops making payments to unsecured creditors (lenders that have not secured collateral from the debtor), has garnishments to salary stopped, and is protected against any further legal action.

Counselling and examination

A debtor that has filed for bankruptcy is required to attend two financial counselling sessions to help assess the causes of the bankruptcy and avoid future financial problems. In addition, the OSB may formally examine a debtor under oath to further determine the precise circumstances of financial debt and bankruptcy.

The trustee will end up selling all the debtor’s assets and hold the money gained from the sale in trust. It will then be distributed to the creditors. Sometimes the creditors will request a meeting to give direction to the trustee, at which the debtor must be present. The debtor might also be required to make surplus income payments if family earnings are deemed to be more than what is needed to maintain a reasonable standard of living.

Light at the end of the tunnel

In the end, a discharge will release a person from bankruptcy, at which point a debtor’s legal obligation to repay debts will be over.

If you’re in need of professional legal advice, please phone us here at Hosseini Law Firm (HLF) for a 15 minute free consultation: 416-628-4635, or use the contact form provided on this page.

Thank you. 

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