Understanding Bankruptcy Obligations
Vancouver debt professionals are at times met with surprises from clients who were unaware of the obligations they must meet during bankruptcy. If you declare bankruptcy, whether personal or corporate, certain obligations must be fulfilled to get discharged. If you or your business is struggling financially, filing for bankruptcy may be the best debt solution—but before you can make that decision, you first need to understand the main bankruptcy obligations.
The main obligations during personal bankruptcy
In Canada, the rules and requirements for personal bankruptcy are found in the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (the “BIA”). The BIA covers everything from the process for filing for bankruptcy (see here for our step-by-step guide), the rules for what property and income you can keep after declaring bankruptcy, and how long your bankruptcy will last. It also sets out the specific duties that you must fulfill to get discharged from bankruptcy. The essential duties include:
Disclose all property/assets in your possession, including vehicles and real property (e.g., house, condo, or cottage).
Surrender any non-exempt assets to your bankruptcy trustee. Exempt assets such as your clothing, household furniture, etc. are not subject to seizure.
Give all your credit cards to your bankruptcy trustee for cancellation. Provide all documents and information requested by your bankruptcy trustee. This will include forms, T4 slips, insurance policies, and information to file your pre-bankruptcy and post-bankruptcy income tax returns.
Attend two mandatory credit counselling sessions, the first within 60 days of the date of your bankruptcy, and the second within 210 days. These sessions are to help you recognize red flags, identify issues that cause your financial troubles, and provide you with money management strategies to avoid future debt problems.
Report your household income and expenses each month so that your bankruptcy trustee can calculate surplus income, if any.
Make all required payments to your bankrupt estate, including any surplus income payments you may be required to make based on your income.
Inform your trustee of any material change in your financial situation, and keep your trustee informed of your address throughout the bankruptcy process.
Attend any required meeting of creditors or examinations by the Official Receiver.
This is only a summary of your duties during personal bankruptcy. It is highly recommended that you speak with a Licenced Insolvency Trustee (“LIT”) to learn all the duties you must fulfill. Upon completing all duties, you will be eligible for an automatic discharge from bankruptcy, which means your debts are eliminated. If you fail to perform your duties during bankruptcy, there are serious consequences. Your discharge may be delayed, which prolongs your inability to access credit of more than $500 and hampers the rebuilding of your credit. Or worse, you may not be discharged at all, which means your debts are not eliminated and going through the process was all for naught.
The main obligations during corporate bankruptcy
If your business is structured as a sole proprietorship or a partnership, it is treated as if you as the individual is running the business, so the bankruptcy obligations discussed above apply to you personally. If your business is incorporated, the same general duties are imposed and the same consequences for non-compliance apply, but the answer to the question of who is responsible for fulfilling the duties is different. Where the bankrupt is a corporation, performance of bankruptcy obligations must be fulfilled by either the officer of the corporation who executed the assignment or a person who has control of the corporation, as specified by the Official Receiver. It is worth noting briefly here that because corporations are legally recognized as “persons” separate from the individuals who own them, they have business-specific debt options. These include informal corporate restructuring or formal restructuring under the BIA or the Companies’ Creditors Arrangement Act (“CCAA”). To find out whether restructuring, bankruptcy, or other business options are right for your corporation, contact our corporate debt professionals.
Do you have questions about bankruptcy obligations?
Vancouver debt experts at Crowe MacKay & Company are here to help if you or your business is struggling with debt and considering filing for bankruptcy. Our Licensed Insolvency Trustees can evaluate your current financial situation and suggest solutions to deal with your debt. Each option has its own pros and cons. If bankruptcy is the right solution, we will explain your bankruptcy obligations and guide you through each step of the bankruptcy process.