|Bankruptcy is a legal process, which allows the discharge of debts, for people who can no longer make debt payments. The process, which is regulated by the Bankruptcy and Insolvency Act, involves turning over property to a trustee, who sells the property, and distributes the money among creditors. After bankruptcies are discharged, unsecured creditors will not be able to seize any property, or to initiate any wage garnishment, to try to collect unpaid debts.
Borrowers begin the process by contacting a trustee. Trustees assess the borrower's financial situation, and lay out a series of options, including becoming bankrupt. If the borrower decides to move forward, the trustee helps the client complete official forms, and then file them with the Official Receiver. In some situations, borrowers may be petitioned into involuntary bankruptcies, by creditors.
Bankrupts will be required to fill out two separate forms. One form, the Assignment, states that the bankrupt person is handing over all property to the trustee, for the benefit of creditors. Another form, the Statement of Affairs, includes a list of assets, liabilities, income, and expenses. The Statement also asks questions about family, employment, and disposition of assets.
A meeting of creditors is rare, but may be called. Either creditors, or the Official Receiver, may request a meeting, particularly if the borrower has a significant amount of tax debt. The borrower must attend if the meeting is called, and may have to answer questions, under oath, posed by the Official Receiver.
At the meeting, creditors have several options. Creditors will read a report of the borrower's financial situation, as prepared by the trustee. From that point, creditors will either approve the current trustee, or vote for a replacement of their choice. Also, creditors may give the trustee specific directions, regarding the disbursement of the borrower's assets, and may appoint inspectors, to supervise trustee compliance.
A first-time bankruptcy usually discharges automatically, after nine months. However, a trustee, a creditor, or the Superintendent of Bankruptcy may oppose the discharge. Opposition may occur if the bankrupt person has surplus income equal to more than $200 per month. In these cases, the bankruptcy is usually extended to twenty-one months. Second time bankruptcies may be extended to as long as thirty-six months, depending on income, and depending on the size of personal income tax debt.
Borrowers will have to pay several associated fees. Borrowers will be responsible for a filing fee, and for a payment to their trustee. Also, borrowers will be required to make a monthly contribution to repaying their creditors, and may have to turn over any surplus income, depending on the available amount. Additionally, bankruptcies remain on a credit report for up to seven years, making future borrowing difficult.
Borrowers will have to attend two mandatory financial counseling sessions as a result of their Bankruptcy. After those sessions, and after the discharge, all debts are cleared, with the exception of alimony, child support, student loans, court-imposed fines, or any debts arising from fraud. With the discharge of debts, borrowers are free to make a fresh financial start, and to begin to repair their credit.
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