Questions about bankruptcy

Uncertainties in the face of bankruptcy

Bankruptcy, consumer proposal, garnishments, legal proceedings… Many misconceptions exist concerning their impacts and options that help to get your personal finances back on track.

Here are 5 questions that licensed insolvency trustees are frequently asked by their clients.

Under what circumstances can my salary or house be seized by a creditor?

Except in some very specific situations, only the court can allow a creditor to garnish your salary or seize your house once said creditor has obtained a judgment against you confirming the debt. “A bankruptcy or a consumer proposal generally puts an end to the repossession of your home or the garnishment of your wages, unless the creditor is your mortgage lender and you are in default.” explains Pierre Fortin, Licensed insolvency trustee and president of Jean Fortin et Associés.

If I go bankrupt or make a consumer proposal, will my boss, family and friends know?

Only your creditors receive a copy of your bankruptcy or consumer proposal documents. However, personal bankruptcies and proposals will be recorded on your credit report and at the Office of the Superintendent of Bankruptcy. Only people you have authorized can consult your credit report (e.g. a lender from whom you are applying for a loan) but that the Superintendent’s registry remains accessible to anyone who searches for it and pays the requested fee. Fortunately, long gone are the days when the names of individuals who have gone bankrupt (except for files with more assets) are published in newspapers.

How much of my total debt do I have to pay as part of a consumer proposal?

For the trustee, determining the “fair” amount to offer creditors is about finding a balance between what your worth now and the “seizable” portion of your income and the value of your assets if you to file for bankruptcy. “For example, if your home has an equity of $40,000 ($200,000 minus the $160,000 mortgage), but in a forced sale, the probable equity would be only $10,000, creditors might be interested in accepting an offer of $25,000, to be paid over a 5-year period, without interest. Thus, they receive $15,000 more than in a bankruptcy proceeding and you get to keep your house whose net value is $ 40,000. It’s a win-win situation,” explains Pierre Fortin.

If I go bankrupt, will the property in my spouse’s name be affected as well?

Being married or in a common-law relationship does not make you responsible for your partner’s debts unless you have co-signed or guaranteed (endorsed). “It is not uncommon for one of the spouses to go bankrupt or make a consumer proposal, without the other knowing!” says Pierre Fortin.

Will I be able to keep my assets even if I go bankrupt?

In practice, you will be able to keep most of your assets, under certain conditions. If there is a risk, the trustee will let you know before you make the decision to go bankrupt. So, no surprise! RRSPs, except for contributions made in the last 12 months, furniture, household goods, your car if it is financed or leased, your salary except for contributions set out by law, and your house unless its value is significantly higher than the amount of the mortgage are all included in assets that you might be able to keep.