How to Declare Bankruptcy in Canada

Latin descent couple paying monthly bills at home. Frustration.
••• Sometimes, despite all a person's best efforts, their finances get out of control and they can't pay their business or personal debts. Pamela Moore / Getty Images

I don't know a single person who wants to declare bankruptcy – but it happens. Sometimes, despite all a person's best efforts, their finances get out of control and they can't pay their business or personal debts. This article explains the bankruptcy process in Canada, the steps you need to follow if you're going to declare bankruptcy.

The Bankruptcy Process

1) Meet with a Trustee.

In Canada, a bankruptcy can only be filed through a Trustee in Bankruptcy, an individual licensed by the Office of the Superintendent of Bankruptcy (OSB) to administer the bankruptcy process.

So the first step in bankruptcy procedures is to find a Trustee in Bankruptcy in your area by consulting the Yellow Pages or searching the Internet (enter 'Trustee Bankruptcy ___________ (your province)' into any search engine) and making an appointment to discuss your financial situation.

(At this free meeting, the trustee will review your financial situation and discuss the options available to you. There are alternatives to bankruptcy, such as filing a proposal that you may want to try first.)

2) The trustee files for bankruptcy.

Once the trustee files for bankruptcy with the Office of the Superintendent of Bankruptcy, you are declared bankrupt.
You will stop making payment to your unsecured creditors.
Creditors will not be able to take any legal action against you.

3) The trustee notifies your creditors.

He or she will let all your creditors know that you are bankrupt. A meeting of creditors may be called for, depending on the size of your bankruptcy or if your creditors or the Office of the Superintendent of Bankruptcy call for such a meeting.

4) The trustee sells your assets.

When you are bankrupt, all of your assets are turned over to the trustee for disposal except for those exempted by federal and provincial laws. For instance, in Ontario, you will get to keep a motor vehicle worth up to $5,650, household goods worth up to $11,300 and business tools and equipment worth up to $11,300.

Note that the assets bankrupts get to keep vary from province to province in Canada; your Trustee in Bankruptcy will advise you.

5) You make monthly payments.

Part of the bankruptcy process involves working towards your bankruptcy discharge by making monthly payments to the trustee who will then distribute the money to your creditors.

How much these payments are varies; the trustee will take your total income, personal and family situation into account and come up with an amount based on OSB standards.

6) You attend a meeting of creditors if one is called.

The main purpose of this meeting is to give your creditors a chance to learn the details of your bankruptcy and give directions to the trustee if they wish. Meetings of creditors are not usually part of the bankruptcy process as most people who declare bankruptcy are automatically discharged.

7) You get examined by an officer of the Office of the Superintendent of Bankruptcy (OSB).

This is another step of the bankruptcy process that doesn't normally happen, but after you file for bankruptcy, an officer of the OSB could examine you under oath about "your conduct, the causes of the bankruptcy and the disposition of your property" (OSB).

8) You attend two financial counselling sessions.

All bankrupts must do this as part of the bankruptcy process. These sessions, held at the trustee's office, are intended to help you understand the causes of your bankruptcy and better manage your finances.

9) The trustee prepares a report to the OSB.

The trustee's report describes your actions during the bankruptcy and recommends whether or not you should be discharged from your debts. If you have performed all your duties well, the trustee will recommend that an absolute discharge be given in the ninth month, the discharge is granted and you are sent a copy. This is what happens to the majority of people who declare bankruptcy.

10) You attend a discharge hearing, if required.

Bankrupts are not always discharged at the end of nine months. If a person has been bankrupt before or if a creditor, the trustee or the SOB objects to the discharge, a court hearing will be set to investigate the circumstances of your bankruptcy.

The result of this hearing can be an absolute discharge, a conditional discharge, a suspended discharge or even a discharge refusal.

In the case of a conditional discharge, you will be given additional conditions that must be met before you can receive an absolute discharge, such as paying a certain amount of money over time.

The Result of the Bankruptcy Process

As you can see, the bankruptcy process is quite straightforward. Once you are discharged from bankruptcy in Canada, your debts will be cleared, except for certain types of debts that are excluded, such as alimony payments, child support, student loans, court-imposed fines and debts arising from fraud. You will be ready to make a fresh financial start.