Legal Tips You Should Know if You File for Bankruptcy

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If you see bills piling up and have no hope for work on the horizon, bankruptcy might seem like a good way to fix your financial situation. Bankruptcy is a legal process that can help people who can’t pay their bills to get rid of their debt and start from zero. However, there are a few things that you should know before jumping into bankruptcy.

Three Common Types of Bankruptcy

If you choose to file for bankruptcy in Canada, you have three options available to you. These options are personal bankruptcy, small business bankruptcy, and corporate bankruptcy. A Customer Proposal is a tool that can help you deal with your debts. The difference between bankruptcy and a Customer Proposal is that with bankruptcy, your debts are eliminated. With a Customer Proposal, you will need to pay back a set amount of your debt over a longer amount of time.

The Bankruptcy & Insolvency Act regulates all types of bankruptcy in Canada. There are several intricacies and nuances that the different types of bankruptcies have. It is good to take the time to thoroughly understand them as this can save you time and energy in the long run.

Understanding The Bankruptcy Options

Personal, small business, and corporate bankruptcy each follow their own rules and have their own intricacies. Personal and small business bankruptcies have a lot in common. This is true only if the small business is structured as a sole proprietorship or a partnership. Things change if the small business is incorporated. Before you can file for bankruptcy in Canada, you will need the help of a bankruptcy trustee. This individual will review your financial situation and help you see the type of bankruptcy you qualify for. Some of the basic qualifying parameters that influence if a person can declare bankruptcy include:

• Being a Canadian resident

• Owing more than $1,000 to creditors

• Having debt greater than the value of your assets 

• The inability to pay bills when they are due

Personal Bankruptcy

Most who file for bankruptcy in Canada seek personal bankruptcy. These individuals typically have experienced:

• A loss of income

• An inability to decrease debt even though they are making their payments

• The inability to get more credit because their credit is maxed out

• Using credit cards to cover household bills, groceries, and other daily expenses

When working with a licensed insolvency, you will determine the type of personal bankruptcy you qualify for. Options include Summary Administrative Bankruptcy and Ordinary Bankruptcy.

With Summary Administrative Bankruptcy, once sold, a person’s assets cannot be over $15,000. This type of bankruptcy is typically done by individuals or incorporated businesses. The plus side is that there is no requirement to advertise the bankruptcy.

Ordinary Administrative Bankruptcy also sets a max on the value of assets once sold at $15,000. This is more commonly filed by businesses and requires advertisement in the newspaper and a creditors meeting.

Small Business Bankruptcy

For all sakes and purposes, small business bankruptcy and personal bankruptcy are the same thing. However, if your business is incorporated, the process is more challenging and does not follow the rules for personal bankruptcy. With personal bankruptcy and small business bankruptcy, you will be offered one of four discharge types. These include:

• Absolute – You are completely released from all legal obligations on your debt.

• Conditional – There are conditions that must be met before receiving an Absolute Discharge.

• Suspended – Your Absolute Discharge is neither automatic nor immediate. Instead, you get it at a future date.

• Discharge Refuse – This is a less common outcome. However, if a discharge is refused, you will need to work with a trustee to find another way to get your discharge. Or you may need to wait and apply later.

Corporate Bankruptcy

Corporate bankruptcy filings are unique and require working with a trustee who understands the laws surrounding them. Corporations are their own legal entity. Their owners are shielded from liability. The only assets given up are those of the business. The exception to this is if the owner uses their personal property as collateral or security for their business. At that point, it is subject to forfeiture.

Conclusion

The bankruptcy options discussed here are the main options people avail themselves of. There are alternatives to filing for bankruptcy. These should be scrutinized by anyone before beginning the bankruptcy process.