Summary of the Steps in the Bankruptcy Process
- Contact one of Janes & Noseworthy’s six offices and file the assignment in bankruptcy.
- Appear before the Official Receiver to be questioned. This step is waived in most cases.
- If required, attend a meeting of creditors which is normally held at the Trustee’s office. This step is waived in most cases.
- Attend counselling sessions as required (by telephone in remote areas).
- Where required, make payments to the Trustee while awaiting discharge.
- Attend Court for the discharge hearing, if required.
Questions and Answers on the Bankruptcy Process
The following information will hopefully help you with any additional questions you may have regarding filing for bankruptcy and the bankruptcy process.
1. When will I be discharged from bankruptcy?
As noted in the Filing for Bankruptcy section, most people who file for bankruptcy are discharged in nine months. Either an automatic discharge will be granted or the Trustee will apply to the Court for a discharge hearing date i.e if there is an opposition filed by an interested party who feels that the discharge should not happen “automatically”. Generally nine months after the filing of the bankruptcy, the Trustee will apply to the Bankruptcy Court for an appointment to hear the application for discharge.
The Registrar reviews the Trustee’s Report and may issue one of the following orders:
- Absolute: Is effective immediately when it is granted by the Bankruptcy Court and means that you are no longer responsible for the debts you had, except for those Debts “not released” described below.
- Adjourned: Any objection to the granting of a discharge order will, in most cases, cause the hearing to be postponed to a later date.
- Conditional: Conditions may be imposed by the Court that will have to be met before your discharge becomes absolute. For example, you may have to pay a certain sum of money to the Trustee for distribution to your creditors.
- Suspended: Same as an Absolute Order but with a delay before coming into effect.
- Refused: While the Court has the right to refuse a discharge, it rarely exercises this power.
2. If I declare bankruptcy, what happens to my assets?
You may normally keep household furniture, clothing and personal effects, as well as a vehicle and principal residence in many cases.
Your assets, whether in your possession or in the possession of a third party, will belong to the Trustee for the benefit of your creditors. Assets belonging to others, in your possession, will be turned over to them once they have proven their claims to the Trustee.
Based on Newfoundland law, you may normally keep household furniture, clothing and personal effects, as well as a vehicle and principal residence in many cases. If you have any assets that are not exempt from seizure by Newfoundland law, they will have to be turned over to the Trustee who will sell them and distribute the proceeds among the creditors.
If your assets were mortgaged to any creditors, such as a finance company or bank, these creditors can sell the assets unless other arrangements can be made. In the case of your principal residence, if the value of your home is not more than $10,000 above the amount of a mortgage(s) on the home, and arrangements are made with the mortgage holder(s), you would be able to keep the home.
At the date of bankruptcy, any cash on deposit at a bank to whom you owe money may be taken by that creditor as it has the right to offset the cash against the amount it is owed. After bankruptcy, it is advisable to do your banking at an institution not owed money at the date of bankruptcy in order to avoid funds being offset in error after the bankruptcy.
3. Can I still be sued?
At the time of filing an assignment in bankruptcy, all legal actions such as garnishments, seizures or law suits are halted. If a creditor commences a court action against you during the period of bankruptcy, you should immediately inform the Trustee of the action and send any legal documents to the Trustee who will take steps to stop the action. Child support or spousal support claims are outside of the bankruptcy process and garnishment can still continue without a court order.
4. What happens to my credit rating?
In most cases a person’s negative credit rating can improve after bankruptcy.
Once your level of debt has become so great that bankruptcy is required, your credit rating is usually at its lowest. The ability to obtain and use credit after discharge will depend upon your ability to convince a potential lender of your future personal financial maturity. Therefore, in most cases a person’s bad and negative credit rating can improve after bankruptcy. If you are unable to pay your existing creditors, certainly no creditor will advance further funds. After discharge of debt obligations, your ability to re-establish yourself may be improved.
5. What happens to salary, wages and other assets?
When you earn income in excess of what is necessary to maintain a reasonable standard of living you may be required to make payments to the Trustee from that excess until the date of absolute discharge. These “surplus income” payments are made according to standards issued by the Superintendent of Bankruptcy. In the event of a disagreement with the standards, the Court or other mediator may be asked to decide on the amount to be paid.
Should there be any change in your financial situation during the bankruptcy period, the amount of the payment can be changed.
If you receive unexpected assets or windfalls, such as lottery winnings or an inheritance, after the date of bankruptcy but prior to discharge, they must be turned over to the Trustee as they are considered assets that should be shared among your creditors. The Trustee will pay your creditors and return any leftover to you. Certain sources of income such as pension plan benefits, welfare and disabled persons assistance, old age or family allowances are exempt from seizure.
6. How do I handle income tax returns?
The Trustee prepares a pre-bankruptcy tax return from January 1st to the date of bankruptcy and any refund for that period, as well as refunds of previous years not yet received, will be kept by the Trustee. A post-bankruptcy tax return for the period from the date of the bankruptcy to December 31st may be completed by the Trustee. Any refund resulting from this tax return may belong to the Trustee. Any taxes payable regarding this post-bankruptcy return must be paid by you whether you are discharged or not.
7. GST/HST Refunds?
Any GST or HST cheques based on the tax returns filed for the year of bankruptcy and for prior years will be kept by the Trustee.
8. What about special gifts, transfers of property, or special treatment?
Gifts or transfers of property by you to others during the twelve months or in some cases five years prior to your bankruptcy are subject to review by the Trustee and may be reassessed by the Court. If a creditor or a person related to you received special treatment (such as being paid while others were not) the Trustee may demand repayment from them. The Trustee must be advised of any such payments or transfers made during the twelve months prior to bankruptcy.
9. How does bankruptcy affect co-signers of my loans?
Bankruptcy will not cancel the liability of anyone who has guaranteed or co-signed a loan on your behalf.