How to Apply For Bankruptcy in Toronto

The prospect of filing for bankruptcy can feel quite intimidating if you don’t know what’s involved – so it’s useful to understand each step of the process.

This guide walks you through how applying for bankruptcy in Toronto works – so you can approach the next steps with a little more understanding of whether it’s going to be right for you.

In a nutshell, To apply for bankruptcy in Toronto, you must consult a Licensed Insolvency Trustee (LIT), who will assess your financial situation, explain your options, and prepare the necessary paperwork. Once filed, your bankruptcy legally protects you from creditors, and you’ll need to fulfill duties like attending credit counselling and reporting your income. After completing these steps, you can be discharged from bankruptcy, erasing your eligible debts.

Let’s take a more detailed look at the steps involved:

What is Bankruptcy? A Quick Summary

Bankruptcy is a formal process under the Bankruptcy and Insolvency Act (BIA) that allows individuals to discharge unmanageable debt.

If you declare bankruptcy the process is handled by a Licensed Insolvency Trustee (LIT) – sometimes referred to as an LIT or bankruptcy trustee – a government regulated professional who ensures the process is fair to both debtors and creditors.

Bankruptcy includes unsecured debt like personal loans, medical bills, payday loans, credit card debt and unpaid utility bills. Secured debts like mortgages and car loans don’t have to be included if you can keep up payments on them, and certain debts like student loans, child support, and taxes may not be discharged in bankruptcy.

Step-by-Step Process for Filing Bankruptcy in Toronto

To file bankruptcy, you must follow certain steps outlined in the BIA.

Let’s take a more detailed look at each one:

Step 1: Consult a Licensed Insolvency Trustee (LIT)

The first step in declaring bankruptcy is to schedule a consultation with a Licensed Insolvency Trustee (LIT). This is a requirement in Canada, as only LITs can administer bankruptcies. During the consultation, the trustee will:

• Review your financial situation.
• Assess your income, assets, and debts.
• Explain your debt relief options, including bankruptcy and alternatives like consumer proposals.

This consultation is usually free, and it helps determine whether bankruptcy is the best solution for your situation.

Step 2: Gather Your Financial Information

Before your bankruptcy can be filed, you will need to provide detailed information about your financial situation, including:

• Income: Pay stubs, income tax returns, and any additional income sources.
• Debts: Credit card balances, payday loans, tax debt, and other unsecured debts.
• Assets: Property, vehicles, bank accounts, investments, and household goods.
• Monthly Expenses: Rent, utilities, groceries, and transportation costs.

This information will help the LIT prepare the necessary paperwork and determine what assets (if any) may be exempt under Ontario law.

Step 3: Filing the Paperwork

If you and the trustee decide to proceed with bankruptcy, the LIT will prepare and file the necessary paperwork with the Office of the Superintendent of Bankruptcy (OSB).

Once your bankruptcy is officially filed, the automatic stay takes effect. This provides legal protection against creditors, who will no longer be allowed to contact you, take legal action, or garnish your wages. The trustee will notify your creditors that you’ve filed for bankruptcy, and any communication must now go through them.

What Duties Are You Commiting to When You Apply For Bankruptcy?

After filing for bankruptcy, you must fulfill certain duties to complete the process and be eligible for a discharge. These duties typically include:

Credit Counselling Sessions

Bankruptcy filers must attend two mandatory credit counselling sessions.

These sessions are designed to help you understand the causes of your financial difficulties and provide advice on budgeting and money management for the future.

Monthly Income Reporting

You will need to submit monthly income and expense statements to your trustee. This allows them to determine if you’re required to make surplus income payments (additional payments to your creditors if your income exceeds a government-set threshold).

Possible Asset Surrender

If you have non-exempt assets (assets not protected under Ontario’s bankruptcy exemptions), you may need to surrender them.

This is often an area that puts people off the idea of bankruptcy, not least because many poeple think this involves handing over everything you own – but this is not the case. In fact, assuming you can keep up with payments on your home and you don’t have a large amount of equity in the property, it’s likely that you’ll be able to keep it.

There are also many “exempt assets” that cannot be seized from you, including:

• One vehicle valued under a certain dollar value.
• Household goods and furniture valued up a certain amount.
• Tools of the trade up to a certain dollar amount.
• Registered Retirement Savings Plans (RRSPs) – except for contributions made in the 12 months before filing.

If you do have to surrender non-exempt assets, the trustee you’re working with will manage the sale, with the proceeds going to your creditors. Equally, they will explain to you exactly what you can keep.

How Much Does Applying for Personal Bankruptcy Cost?

Generally, bankruptcy fees range from about $1,800 to $2,500 for a first-time bankrupt. This fee is typically paid in monthly installments during the bankruptcy process.

Of course, beyond the cost of the application and handling of your bankruptcy, there are other costs associated with the process – but they will depend on your personal financial circumstances, the value of your assets, and whether or not your income means you’ll have to make monthly payments to the creditors you owe money to.

Since everyone’s circumstances are different, the LIT you work with will calculate exactly what your costs will be before you decide whether or not to proceed with bankruptcy.

How Long Does Bankruptcy Last Beyond Your Application?

The length of time you’re bankrupt depends on your situation:

• First-time bankruptcy: Generally lasts 9 months, but can extend to 21 months if you have surplus income that allows you to make additional payments to your creditors.
• Second-time bankruptcy: Lasts 24 months without surplus income or 36 months if surplus income payments apply.

During this time, you must continue fulfilling your duties, including attending credit counselling and making any required payments.

When Should You Consider Bankruptcy?

Bankruptcy is usually considered a last resort for most people – with other debt solutions available that impose fewer limitations and duties. However, you may need to file for bankruptcy if:

• You owe a substantial amount of debt – often much more than the minimum $1,000 required by the BIA – and cannot keep up with your payments.
• Your debts exceed the value of your assets.
• You are unable to meet your debt payments, even after exploring alternatives like a consumer proposal or a debt consolidation program.

It’s crucial to weigh your options carefully with an LIT or similar service, as bankruptcy can significantly impact your credit and financial situation for years to come.

What Are Some Bankruptcy Alternatives?

Before filing for bankruptcy, your LIT will likely recommend that you explore alternatives – which may be more suitable depending on your financial situation.

The most popular alternatives to bankruptcy include:

Consumer Proposals

A consumer proposal is a formal agreement between you and your creditors to repay a portion of your debt over a longer period (usually 5 years). This option allows you to keep your assets and generally has a less severe impact on your credit rating than bankruptcy. Like bankruptcy, filing a consumer proposal is done by an LIT on your behalf.

Debt Consolidation Loans

A debt consolidation loan combines multiple debts into a single loan, simplifying repayment and potentially lowering interest rates. This option is only viable if you can qualify for a loan and afford the payments – but, if you can, it will have less of an impact on your credit report than bankruptcy.

Debt Management Plans

Non-profit credit counselling agencies offer debt management plans (DMPs), which help reduce interest rates and consolidate payments. DMPs do not offer the legal protections of bankruptcy or consumer proposals, but they can be an effective way to manage debt without significant damage to your credit score.

The Bankruptcy Application Process in Toronto: A Summary

Applying for bankruptcy in Toronto starts with a consultation with Licensed Insolvency Trustees, who will assess your financial situation and help determine whether bankruptcy is the best option for you. You’ll need to provide detailed financial information about your income, assets, debts, and expenses to prepare the necessary paperwork.

Once the bankruptcy is filed, you’ll be legally protected from creditors, but you’ll also need to fulfill certain duties like attending mandatory credit counselling sessions and reporting your monthly income.

Depending on your assets and income, you may need to make surplus payments or surrender non-exempt property. The process generally costs between $1,800 and $2,500, with additional fees depending on your financial situation. After completing these steps, most of your unsecured debts will be discharged, and you will be debt-free.

Key Takeaways:

• Licensed Insolvency Trustees (LITs) handle all bankruptcies in Toronto and will help assess your financial situation to determine the best course of action.
• Bankruptcy legally protects you from creditors but requires fulfilling duties like attending credit counselling and reporting your income.
• Unsecured debts such as credit cards and personal loans are discharged, but secured debts (like mortgages) and certain debts (e.g., student loans, child support) may not be included.
• Costs generally range from $1,800 to $2,500, with potential additional payments if you earn surplus income.
• Bankruptcy typically lasts 9 to 21 months for first-time filers, depending on your income level.