How to declare bankruptcy?

The word “bankruptcy” might strike fear in some, but for those who have gone through the process, the reality is that bankruptcy brings real relief. Clients we see in subsequent meetings after bankruptcy unanimously say, “If only I had known it wasn’t so bad, I would have done it much sooner!” To demystify bankruptcy, here’s an overview of the process:

The 4 steps of bankruptcy:

1. Assessment of your financial situation.
2. If it is the best option, filing for bankruptcy protection.
3. Monthly contributions, budget consultations, and income review.
4. Discharge.

Let’s delve into each stage of bankruptcy in detail:

1. Assessment of your financial situation:

   First and foremost, bankruptcy is never the 1^st option to consider. During the initial meeting with a personal finance advisor at Jean Fortin, we will explore the reasons for your financial difficulties, you will have the chance to share your concerns, and ask any questions you may have. The advisor will need to examine documents related to your home, car, and other assets, as well as details about your debts and income. The goal is to paint a complete picture of your financial situation and then present you with the available solutions.

   If bankruptcy proves to be the best or only solution, the advisor will ensure you understand the advantages and disadvantages of bankruptcy. Each case is unique, and the effects of bankruptcy can vary greatly from person to person. By taking the time to do a thorough analysis from the outset, you’ll be able to feel confident about your decision.

2. Filing for bankruptcy protection:

   Once you’ve decided to proceed, your advisor will prepare all the necessary documents, including your balance sheet, budget, list of debts, and general information about your financial situation.

   As soon as the bankruptcy is filed, you are automatically “under the protection of the law.” Your debts are then frozen, as are your creditors’ actions (with a few rare exceptions). Your creditors will be notified of your bankruptcy proceeding, and they will no longer have the right to communicate with you. Your Jean Fortin advisor will become the intermediary between you and your creditors, ensuring the rights of all parties, including yours, are protected.

   The amount that was used to reimburse your debts can be used to balance your budget. A portion of it will be used to make a monthly contribution to your file for the benefit of your creditors. These contributions are based on your financial capacity and take into account your family, personal, and professional obligations. This contribution may vary throughout the bankruptcy if your income, family situation (e.g., dependents), or expenses change. The advisor will explain this to you at the beginning of the file and will later review your situation at each of the 2 budget meetings.

3. Monthly contributions, budget consultations and income review:
   In the first 2 months, you will have a 1^st meeting with your advisor to work on a personalized and realistic budget. About 7 months later, a 2^nd meeting (either remote or in person) will take place to plan your Post-bankruptcy, providing advice on financial goal planning, establishing good spending habits, and finally, responsibly using credit. Additionally, there will be a discussion on tips for rebuilding your credit and addressing any questions you may have. It is during the 2^nd and final meeting that we will review your income and expenses from the beginning of the bankruptcy to determine if you have surplus income. The presence or absence of surplus income determines the total contributions you need to make for the benefit of your creditors and the duration of your bankruptcy (9 or 21 months for a 1^st bankruptcy and 24 or 36 months for a 2^nd).

4. Discharge:
   The bankruptcy process usually comes to an end automatically with the passage of time, after which you are released from your debts. For example, a 1^st bankruptcy will last for 9 or 21 months, depending on whether you have a net income above the standards set by the Superintendent of Bankruptcy. For a 2^nd bankruptcy, the period is 24 or 36 months. If your average net income during bankruptcy is higher than the Superintendent’s Standards, your bankruptcy will last longer to allow you to contribute more. At any time, it’s possible to convert your bankruptcy into a consumer proposal. Thus, a decision made based on your reality on day 1 of your bankruptcy is not irreversible if your situation improves later on.

Whatever solution you choose, the important thing is that you have taken control of your personal finances.

By Pierre Fortin
Jean Fortin & Associés
Personal Finance Advisor
Licensed Insolvency Trustee