Assets Co-Signer Costs Counseling Credit Cards Creditors

Creditors Meeting Debts Not Discharged Discharge Garnishment Payments Reports

Student Loans Surplus Income Tax Returns Wages Windfalls Why?

A. Assets

Will I lose all my assets?

Generally in bankruptcy proceedings, all of your assets are assigned to a Trustee for the benefit of creditors. These assets include cash, investments, retirement savings plans, antiques, works of art, valuable collections, personal effects, cars, tools and real estate.

You may have noticed that friends who go into bankruptcy do not seem to lose anything. That is because they do not have anything except assets that are exempt from seizure or assets that are fully encumbered.

You are entitled to retain assets that are exempt from seizure. This means that creditors through a Sheriff’s seizure or a Trustee cannot take the assets from you.

In the Province of BC, you are entitled to keep:

• Personal Effects to a garage sale value of $4,000. In the case of a married couple, that means $4,000 each.

• Motor Vehicle: You are entitled, as exempt from seizure, a motor vehicle to a value of $5,000 or equity in a motor vehicle of up to $5,000. Equity means the realizable value after paying off the secured creditor. If for instance a vehicle is worth $15,000 and you owe the lender $10,000 then the equity, the value to you, is $5,000. This is exempt from seizure.

  If you happen to be in arrears under the Family Maintenance Enforcement Program then the $5,000 is reduced to $2,000 as exempt from seizure.

• Tools of Trade: Persons in business for themselves, such as mechanic, contractor or accountant are entitled to retain from seizure tools of trade to a value of $10,000. This would be, in the case of the mechanic, who is in business for himself, a service vehicle and tools. The accountant would retain computers etc.

• Home: You are entitled to keep equity in your principal residence at the date of bankruptcy to a value of $12,000 in the Vancouver and Victoria Regional Districts. In the case of a married couple where the home is owned jointly, the equity retained would be $24,000. Outside of Vancouver and Victoria Regional Districts the equity exempt from seizure is $9,000, or $9,000 each.

  If there is no equity in your car but you owe approximately its value (the same would apply to your residence) the Trustee will not deal with the car. It will be released to the secured lender. You may be able to make an agreement with the secured lender whereby if you continue your payments they will not seize your vehicle or commence foreclosure proceedings against your home. This would be negotiated on an individual basis because under most contracts, bankruptcy is a breach of the contract, which would allow repossession.

  Medical devices, pension plans and certain life insurance policies are exempt, as well as RRSP's, with the exception of contributions made within the 12 month period preceding the bankruptcy.

B. Co-Signer

What happens to someone who co-signs a loan for me when I go bankrupt or make a consumer proposal?

The co-signer, usually a friend or family member, will be called upon to pay the outstanding debt. You cannot exclude a debt from bankruptcy because it has been co-signed and you seek to protect the co-signer. All creditors must be included in your bankruptcy and treated equally.

C. Costs

What does a proposal and a bankruptcy cost?

The Superintendent of Bankruptcy licenses trustees in bankruptcy. Although the program is under a Federal Statute it is in no way subsidized by the government. The Trustee in the bankruptcy is in business to provide a service and to be compensated.

MacKay & Company Ltd. is prepared to accept monthly payments. We must be assured you have a stable income sufficient to provide for your family’s expenses and our fee. If this is not the case then the costs of the bankruptcy must be paid in advance. This is often paid by a family member or close friend and referred to as a Third Party Retainer.

The costs of a bankruptcy or proposal for consumers with minimal assets are set out by a tariff under the Bankruptcy and Insolvency Act. Essentially this means that the government sets a prescribed rate. On June 9, 2001 the Government increased the filing fee which has resulted in an increase in costs.

The prescribed rate for a first time bankruptcy now is approximately $1,740. For those going bankrupt for a second time the cost is $1,950. The prescribed rate for a proposal is a little more complex, but you should expect to pay a small deposit, the amount of which we will negotiate with you.

D. Counseling

What is counseling?

Individuals who make a consumer proposal or file an assignment in bankruptcy are required to attend two counseling sessions. The sessions deal with causes of insolvency, budgeting and dealing with credit. Each counseling session takes approximately one hour.

E. Credit Cards

Do I have to turn in my credit cards?

Yes. A bankrupt is required to deliver to the Trustee all credit cards issued to and in possession or control of the bankrupt. If you require a credit card for business travel then you can hold a credit card in another person’s name. Perhaps your spouse can get a credit card with you as an authorized user. Alternatively, your employer may provide you with a credit card.

F. Creditors

Must I include all my creditors, even my friends and family members?

All creditors must be declared in a proposal or bankruptcy. The objective of the Bankruptcy and Insolvency Act is that all creditors will be treated equally.

G. Creditors Meeting

Will I have to attend a creditor’s meeting?

There will be no creditors meeting unless sufficient creditors request it. In the vast majority of cases there is no creditor’s meeting, however, if one is requested, you will have to attend.

H. Debts not Discharged

Are there any debts that are not discharged by a bankruptcy or proposal?

Yes there are debts that are not discharged by bankruptcy. Generally these are debts arising out of fines, dishonesty, for maintenance of spouse or children, and student loans. With respect to student loans, see below.

I. Discharge

How do I get my discharge from bankruptcy?

Assigning into bankruptcy or filing a proposal does not discharge your debts. You still owe the money. What you are doing by assigning your assets and liabilities to the Trustee is getting a stay of proceedings. A stay of proceedings means that your creditors can not garnishee your salary or seize assets. They must deal through the Trustee and wait for the process to be completed. However, secured creditors, as an example those who finance your vehicle, will have the right of repossession after they satisfy the Trustee that they have a valid and enforceable charge against your vehicle. All other debts are covered by the bankruptcy but you still owe the money. It is not until you receive your discharge that the debts are discharged.

If you file a proposal you will be discharged when you satisfy the terms of the proposal; that is when you make the payments you said you would make under the proposal.

A first-time bankrupt with no surplus income is eligible for an automatic discharge in nine months. A first-time bankrupt with surplus income is required to contribute part of the surplus income to their estate for 21 months after which they are eligible for an automatic discharge.

A second-time bankrupt with no surplus income is eligible for an automatic discharge in 24 months. A second-time bankrupt with surplus income is required to contribute part of the surplus income to their estate for 36 months after which they are eligible for an automatic discharge.

If no one, including your creditors, the Trustee, or the Superintendent of Bankruptcy opposes your discharge, then you will receive your automatic discharge and will no longer owe the money. If however somebody does file an objection to your discharge, then there will be an application to the Court for the discharge.

If there is a Court application for discharge, the Court will consider all circumstances including your conduct, family responsibilities, and your income. It will also consider your responsibility to creditors and the request from a creditor that you not be discharged. The Court will then make one of three Orders:

1. Conditional Order – a Conditional Order is an Order from the Court whereby you are discharged upon satisfying the terms of the Order. The Order might provide that you should pay a sum of money either in a lump sum or monthly for a period of time. We can only recommend the terms of such an Order but bear in mind that your family obligations will be the first consideration of the Court.

2. Suspended Order – the Court may suspend the Order for a period of time. This means that you will not be required to make payments but for whatever reason, the Court believes that you would benefit by remaining in bankruptcy. During that period you would be required to account on a monthly basis to the Trustee. (See Payments below). This could go on for a period of months or a year or more.

3. Order Absolute – this is where the Court Orders that, in spite of any objections from creditors, you are discharged. At this point you no longer owe your creditors anything.

J. Garnishment

Will a bankruptcy or proposal stop creditors from garnishing my salary?

As soon as a bankruptcy or proposal is filed, all garnishing Orders are stopped. The garnishee creditors are stopped from taking action just like all other creditors and they will deal with the Trustee.

K. Payments

Am I required to make payments during the period of my bankruptcy?

You are required to make payments on a monthly basis only if there is surplus family income. Surplus family income is set out in a schedule prescribed by the Superintendent of Bankruptcy. The surplus is calculated by taking your net income and deducting any prescribed medical expenses, maintenance, and certain other expenses. To encourage you to improve your income, only half of the surplus is to be paid to the Trustee for the benefit of your creditors; you get to keep the other half.

L. Reports

Do I have to report to the Trustee on a regular basis?

Yes, you are required to report your monthly income received and your expenses paid by the 15th of the month following. It is from this report that the surplus income, described above under the heading “Payments”, is calculated. Failure to make these reports on a regular basis will jeopardize your chances of getting your discharge from bankruptcy.

M. Student Loans

Will my student loans be discharged by my bankruptcy or proposal?

Generally no. Unless you completed your studies or left the education institution more than 7 years from the date of your proposal or bankruptcy, your student loans will survive and you will have to repay them.

N. Surplus Income

What is surplus income?

Surplus income is defined by the Bankruptcy and Insolvency Act as income over and above what the Federal Government prescribes as the minimum amount to support an individual or family of a particular size. The calculation is provided under the heading above “Payments”.

O. Tax Returns

Do I have to file all my tax returns?

We encourage you to file all your tax returns up to date.

In the year of your bankruptcy there will be two tax returns. MacKay & Company Ltd., will file the return from January 1 to the date of your bankruptcy and for the period from the date of your bankruptcy to December 31. Income tax refunds are an asset of the bankrupt estate and must be turned over to the Trustee for the benefit of your creditors. Any amount owing on the post-bankruptcy tax return must be paid by the bankrupt.

P. Wages

Do I get to keep my wages or will creditors be able to seize them?

Creditors may not seize your wages after proposal or bankruptcy. You are required however to pay surplus income, see above, to MacKay & Company Ltd., to be distributed to your creditors in accordance with the Bankruptcy and Insolvency Act.

Q. Windfalls

If I win a lottery or am named in a will, do I get to keep the money?

Any assets that you acquire such as windfalls after your bankruptcy but before you are discharged from bankruptcy are subject to the claims of creditors. Yes, they have to be turned over to MacKay & Company Ltd. Any windfalls after your discharge from bankruptcy or any bequests from a deceased estate are yours to keep.

R. Why?

Is it all worth it?

MacKay & Company Ltd. does not persuade anyone to file a proposal or to make an assignment into bankruptcy. However, we would be pleased to meet with you to discuss all options available to debtors.

We do want to make a difference in your life and the life of your family. Yes, there is a light at the end of the tunnel.