Income taxes owed before the date of bankruptcy are almost always dischargeable. You therefore will not have to pay them.
Assets you can keep if you declare personal bankruptcy varies by Province.
Exemptions — assets you can keep in bankruptcy, by Canadian province. Click on a link below for details on what you can keep when you file bankruptcy.
For all Canadian provinces:
RRSPs - effective October 1, 2009 RRSPs are exempt from seizure in a bankruptcy.
See also Secured creditors in bankruptcy.
Other Legislation also allows you to keep:
all registered retirement savings plans (RRSPs)
cash surrender value of life insurance policies where the beneficiary named is the spouse, child, parent or grandchild.
generally, pension plans.
For further details on what you can keep, see Directive 11-R2 (from the Superintendent of Bankruptcy)
Income during bankruptcy (The Meaning of Directive 11-R2)
When a person files bankruptcy, a portion of their take-home pay may be payable to the Trustee for the benefit of all creditors. The actual amount payable depends on several factors, such as the take-home pay of the family unit, the number of people in the family and whether the family has non-discretionary expenses such as child care or child support. Any questions you have with respect to surplus income can be addressed with the Trustee your initial meeting.
No. In fact, personal bankruptcy in Canada prevents your creditors from garnishing your wages and protects your income to ensure a reasonable standard of living.
Your employer was already contacted by your creditors so they could garnish your wages. In order to stop this wage garnishment, we will have no choice but to inform your employer of your bankruptcy. To avoid this, you should consider declaring bankruptcy before one of your creditors garnishes your wages.
When a person files an Assignment in Bankruptcy in Canada, a portion of their take-home pay may be payable to the Trustee for the benefit of all creditors. The actual amount payable depends on several factors, including: the take-home pay of the family unit, the number of people in the family and whether the family has non-discretionary expenses such as child care or child support. Any questions you have with respect to surplus income can be addressed with the Trustee when you first meet with us.
Under the new bankruptcy Canada surplus rules (effective On September 18, 2009), if you have surplus income greater than, on average, $200 per month, your bankruptcy is automatically extended for a further 12 months. Under the old rules a person who had never been bankrupt before would be automatically discharged in nine months in most cases. Under the new rules, a first time bankrupt with surplus income is now bankrupt for 21 months, and they are required to make surplus income payments for the entire 21 months. It's easy to see how the new rules increased the cost of a bankruptcy in Canada for many people.
If you earn over the limit, you pay more, and your bankruptcy lasts for an extra year.
The surplus income in bankruptcy rules in Canada are very complicated. There are an infinite number of possible outcomes depending on your personal situation.
Before you decide to file bankruptcy in Canada, you need to have a detailed consultation with a licensed bankruptcy trustee, and you ask them to explain how your surplus income payment will be calculated in your case. Spending some time with a trustee and a calculator will help you prepare for your bankruptcy. The rules are complicated, and there may be cases where they don't appear to be fair, but with proper research you can understand how the rules will affect you, and you can be prepared for all possible situations.
For more details on Income During Bankruptcy see Directive 11R2-2013 from the Office of the Superintendent of Bankruptcy Canada
Tax refunds for the bankruptcy year may be seized by the Trustee. GST refunds will be sent to the Trustee during your bankruptcy. In some cases, they may be returned to you.
Federal tax credits will be sent directly to the Trustee. Provincial tax credits for the year of your bankruptcy will have to be transferred to the Trustee.
No, family allowances will never be seized.
In Canada RRSPs cannot be seized and there is no requirement to forfeit the last year's contributions. Pensions are exempt from seizure.
If you finished school more than seven years ago, you will not have to pay off your student loan because it becomes a dischargeable debt in the event of bankruptcy.
Otherwise you will have to continue paying off your loan.
Your share of an inheritance may be seized in the event of bankruptcy, but there are some exceptions.
For a first bankruptcy, you are eligible for an automatic discharge after nine months or 21 months if you have income exceeding a reasonable standard of living. For a second bankruptcy, it may take 24 to 36 months. In any case, if you are an individual with tax debt of over $200,000 that totals more than 75% of your total debt, you cannot receive an automatic discharge. The Trustee in bankruptcy will have to file an application with the court. Company debt obligations are not included in the $200,000 calculation for directors.
It varies by credit agency. In general, your credit score will be affected for 6 years after discharge for a first bankruptcy and for 14 years for a second bankruptcy. You may be able to rebuild your credit earlier, though. Our experts can show you how to fix your credit.
However, if you make a consumer proposal your credit score will be affected for 3 years after you have paid the full amount promised to your creditors in your proposal.
The law sets no limit. However, if you have declared bankruptcy repeatedly (3 or more times) the application for discharge must be filed with the court. The bankruptcy court may then issue a discharge judgment extending the bankruptcy period or a conditional discharge judgment ordering the payment of an additional amount.
To annul your bankruptcy, you have to pay your creditors back in full and file a petition with the court. It could also be annulled if you make a proposal to creditors while in bankruptcy and the proposal is accepted by creditors.
When you are in bankruptcy, you cannot be the director of an incorporated company. You may continue to be self-employed, however. During your bankruptcy, you may also run an unincorporated sole proprietorship.
A person who has declared bankruptcy cannot be the director of an incorporated company. However, if the company is not incorporated, the bankrupt person may continue to manage it. If the bankrupt person is self-employed, he or she may continue to run the business.
These answers to frequently asked questions are provided as general information only. Each individual's situation is unique. To speak to someone now call us at 310-8888 for a free, no obligation, confidential consultation.
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