What Can You Not Do After Filing Bankruptcies?

Immediately after filing bankruptcy in Canada, certain restrictions will apply. For example, you may lose some assets, you’ll be expected to surrender your credit cards, attend credit counseling, and report your monthly income and expenses.

There are also some limitations on obtaining new credit, spending surplus income, and running a business.

As well as restrictions, there are lots of myths and misconceptions about what you cannot do after filing bankruptcy – many of which aren’t true.

While this is a quick overview of what you cannot do after filing for bankruptcy, it’s useful to learn a little more about each restriction.

In this guide, we’ll clearly explain the limitations that filing for bankruptcy creates – both immediately and in the longer term.

Although these restrictions are important to understand, we’ll start by looking at some of the common misconceptions about personal bankruptcy and the next steps you might want to take – so you can separate fact from fiction when considering your next steps.

Bankruptcy Filing: Myths and Misconceptions

Bankruptcy comes with a lot of misunderstandings – often from people who have not been through the process or are not qualified to discuss the complex legal proceedings surrounding bankruptcy.

Here, we’ve listed a series of misconceptions and myths you may hear presented as fact when you discuss bankruptcy.

We’ve also explained why these are not necessarily true.

Of course, bankruptcy impacts everyone differently – which is why it’s essential you speak to an Licensed Insolvency Trustee about your specific circumstances.

Myth: “You Will Lose Your Car”

Many people won’t lose their car in bankruptcy if it’s for work or if they can continue to make car loan payments around their debt repayment plan.

Exemptions will protect a car up to a certain value so you can keep necessary transportation.

Myth: “You Will Lose Your Home”

Most people won’t lose their home in bankruptcy if they don’t have equity in it. Provincial exemptions will protect some of the equity in your home so you can keep your home if it’s worth less than a certain amount, so your family has stability.

Myth: “You Can’t Travel”

There’s a myth that filing for bankruptcy means you can’t travel. While there are some travel restrictions, especially for longer periods, it’s not a total ban – it’s just a requirement that you don’t impede the bankruptcy process.

Myth: “You Can’t Have a Bank Account”

There’s a myth you won’t be able to have or open a bank account after filing for bankruptcy.

While you may lose overdraft protection, you can still open and maintain a basic bank account.

Myth: “All Your Debts are Gone Immediately”

People think that filing for bankruptcy will wipe out all types of debt. But certain debts like student loans (under specific conditions), child support, alimony, some tax debts, and court imposed fines can’t be discharged through bankruptcy – but many unsecured debt can.

Myth: “Your Credit is Ruined Forever”

It’s a common myth that bankruptcy ruins your credit forever. While it’s a big hit in the short term, you can start rebuilding your credit after discharge.

The bankruptcy will be on your credit report for 6-7 years for a first bankruptcy.

Many people can begin repairing their credit long before this though – especially with products that are designed for people with poor credit ratings – a secured credit card for instance.

Myth: “You Won’t Be Able to Get a Job”

Some people think bankruptcy will keep them from being employed. Employers don’t have access to your credit report unless you consent and bankruptcy doesn’t necessarily affect your employability – unless you’ll be handling large sums of money, for example, in a financial management role.

The Bankruptcy Process: Restrictions

When you file bankruptcy proceedings, a Licensed Insolvency Trustee – also referred to as an “LIT” – will take control of your ‘bankruptcy estate’ – your financial affairs and your possessions. This process ensures that both you and your creditors are dealt with fairly.

While bankruptcy offers a fresh financial start in the longer term, it does mean some restrictions are placed on you in the shorter term.

This means the following restrictions will be put in place:

1. You Can’t Keep Everything

When you file for bankruptcy, some assets will be taken and managed by the Licensed Insolvency Trustee (LIT).

While you can keep some assets (like basic household items, personal effects and tools of the trade up to a certain value), luxury items, investments and secondary properties will be sold to pay off your debts – these are known as non-exempt assets.

Despite this, very few bankrupt individual’s lose their home or vehicle – we’ll explain this more in the myths and misconceptions section below.

2. You Will Not Be Able to Keep Your Credit Cards

When you file for bankruptcy, you must turn over all your credit cards to the LIT.

You can’t use any existing credit cards and can’t apply for new ones during the bankruptcy period, so you can’t incur any more debt.

3. You Cannot Obtain New Credit

After you file for bankruptcy in Canada you can’t get new credit over $1,000 without disclosing your bankruptcy to the lender.

This applies to all credit, including personal loans, credit cards, and lines of credit, so you can’t accumulate more debt during the bankruptcy process.

You will also find that bankruptcy has a significant effect on your credit report since the different credit bureaus are obliged to record your bankruptcy on your credit history.

4. You Must Report Income

During the bankruptcy period, you will need to report your monthly income and expenses to the LIT.

This will ensure that any changes in your financial situation are monitored and that surplus income payments are calculated and paid correctly.

5. You Must Attend Mandatory Credit Counselling Courses

During the bankruptcy process, you will need to attend two credit counselling courses.

These courses will help you understand what caused your financial problems and how to avoid future ones.

6. You Must Not Spend Surplus Income

If your income is above a certain government-set threshold after you file for bankruptcy in Canada, you can’t spend it freely.

You must make surplus income payments to the LIT. The amount is calculated based on your income and family situation, so a portion of your income goes toward paying your debts, not personal spending.

7. You Cannot Continue Running a Business in Your Name

After declaring bankruptcy, you will have significant restrictions if you own a business. You can’t run the business in your own name and must tell the LIT about your business activities.

The trustee will manage your business assets and debts so you may not be able to make business decisions and run the business as normal.

8. You Must Not Make New Major Purchases

After you file for bankruptcy, you can’t buy big-ticket items like a new car or property without telling the LIT.

You may also need to get approval from the LIT for big purchases so you can’t spend so much that it will jeopardize the bankruptcy or your ability to pay your debts.

9. You Can’t Start or Continue Legal Proceedings

Once you file for bankruptcy, an automatic stay of proceedings is put in place. Most significantly, this means creditors cannot start or continue legal action against you.

In some cases, where a debtor is pursuing legal action against a creditor – this too must be stopped.

Bankruptcy Filing: How Do You Know What Will Apply to You?

There are many different restrictions listed here – along with an equal number of misconceptions about bankruptcy.

As such, it’s absolutely essential that you speak to a professional about how bankruptcy could impact you before you make any decisions about the best way forward financially.

Speaking to a Licensed Insolvency Trustee is a positive first step. Not only will an LIT be able to give you the facts about your situation, they’ll also be able to discuss with you alternatives to bankruptcy, potentially including Consumer Proposals, debt consolidation, debt management plans, and informal settlements with your creditors.

Summary: What Can’t You Do After Filing for Bankruptcy?

Bankruptcy can put some significant restrictions on your financial life. Typically, they will include:

• Losing some assets
• Handing over your credit cards
• Not being able to get new credit
• Having to attend credit counselling sessions
• Handing over surplus income to your LIT
• Not being able to continue running your own business
• Not making new large purchases
• Halting any legal action you’re taking against your creditors

However, there are many misconceptions about bankruptcy – for instance, many people will be able to keep their home and their car.

You will still be able to keep a bank account – and you will typically be able to keep you job.

If you’re considering bankruptcy, it’s essential that you speak to a qualified professional to sort the facts from the fiction.

They will be able to talk to you about your specific circumstances and advice you of the best next-steps.

Key Takeaways:

• Loss of Non-Exempt Assets: Some luxury items and investments will be sold, but many essential items and tools of the trade are protected.
• Surrender Credit Cards: All credit cards must be turned over to the LIT, and new credit applications over $1,000 must disclose your bankruptcy.
• Report Income and Expenses: Monthly income and expense reports are required to monitor financial changes and calculate surplus income payments.
• Mandatory Credit Counseling: Attendance at two credit counseling sessions is required to help understand financial issues and avoid future problems.
• Business and Major Purchases Restrictions: Running a business in your name is restricted, and major purchases require LIT approval to avoid jeopardizing the bankruptcy process.