Bankruptcy in Ontario, Canada, is a legal process designed to provide relief to individuals (and businesses) who cannot meet their debt obligations. It is governed by the Bankruptcy and Insolvency Act (BIA), a federal law, which means the rules and procedures are consistent across Canada, including Ontario. However, the process is administered by Licensed Insolvency Trustees (LITs), who are professionals licensed by the Office of the Superintendent of Bankruptcy (OSB) to manage bankruptcy cases.
Key Features of Bankruptcy in Ontario
Initiation
Individuals can declare bankruptcy voluntarily by contacting a Licensed Insolvency Trustee (LIT) who will assess their financial situation and explain the options available, including the bankruptcy process and alternatives like a consumer proposal.
Automatic Stay of Proceedings
Once the bankruptcy is filed, an automatic stay of proceedings is in effect. This means that most creditors cannot initiate or continue lawsuits, wage garnishments, or even contact the debtor for payment. This provides immediate relief from creditor actions.
Assets and Exemptions
In bankruptcy, the debtor may have to surrender certain assets to the LIT, who will sell these assets to pay off creditors. Ontario has specific exemptions that allow individuals to keep certain assets up to a specified value, such as personal belongings, a motor vehicle (up to a certain value), tools of trade, and some of the equity in their home, among others.
Duties of the Bankrupt
Individuals declaring bankruptcy must fulfill certain duties, including attending two financial counseling sessions, providing monthly income statements to the LIT, and making payments based on their income and family size, known as “surplus income payments.”
Discharge from Bankruptcy
The discharge is the final step in the bankruptcy process, releasing the individual from the legal obligation to repay most of the debts they had at the time of filing for bankruptcy. The timing of the discharge varies depending on whether it is a first bankruptcy and whether there are surplus income payments required.
Impact on Credit
Bankruptcy significantly affects an individual’s credit rating. A first bankruptcy will appear on a credit report for at least six years after discharge in Ontario, making it more difficult and expensive to obtain credit in the future.
Alternatives
Before deciding on bankruptcy, individuals often consider alternatives, such as debt consolidation, a debt management plan, or filing a consumer proposal, which is a legally binding process to pay creditors a portion of what is owed over a period of time, up to five years.
Bankruptcy is considered a last resort due to its significant impact on one’s financial situation and credit rating. It’s advisable for individuals facing financial difficulties to consult with a Licensed Insolvency Trustee to explore all available options and understand the implications of each.
