Bankruptcy in Ontario

Question: We are going to claim bankruptcy due to my husband being unemployed for 2 years, and we have no savings left, and find it difficult to pay all our creditors. If my husband finds another job before we are discharged from bankruptcy, what effect will this have?

Answer: Each month that you are bankrupt in Ontario you are required to report your income to your trustee. If you earn surplus income, you are required to pay half of your surplus income to your trustee, who will then distribute it to your creditors.

So, the answer to your question, is that if your husband’s income increases, the amount he pays while bankrupt may increase.

Questions: My question is as to what happens to somebody that has filed for bankruptcy in Ontario and then decides to immigrate to a different country. I read about the new rule that if a person makes a significant SURPLUS INCOME that their bankruptcy will be extended for an additional 12 months. The way I see it is to either to declare your bancruptcy just before you are ready to leave or either make sure you are making only a specific amount of money. Is this correct?

And what happens if you are rated as excessive surplus and your case is extended but in the meantime you lose your job do you go back to the original 9 months for a discharge?????

Another question is to what happens when you declare bankruptcy and then leave the country before its finalized. I know you don’t have to be residing in the country but for arguments sake lets say your trustee needs something from you and your not available. Will one ever get a discharge granted or will ones case forever stay open?

Thanks
P.S. Excellent job on the web-site. Very helpful.

Answer: Your questions raise a number of issues.

First, the main reason people declare bankruptcy in Ontario is to protect them from having their creditors take them to court, sue them, and garnishee their wages. If you are leaving the country, creditors in Ontario won’t know where you are, so it’s unlikely they will be able to garnishee your wages. So, for you, a bankruptcy may not be necessary.

Second, as for surplus income, you are correct. If you are required to pay the trustee more than $100 per month due to your surplus income, your bankruptcy will be extended for an additional twelve months. You are required to report your income to the trustee each month, so if your income drops, your required payments may drop. The calculation is not based on your income when the bankruptcy starts. The calculation is done each month. So yes, if you decided to not work overtime, for example, that would keep your surplus income lower. Prior to the end of the first nine months the calculation is completed, and if you are over the limit your bankruptcy is extended for 12 months. If then in month number 14 you lost your job, your bankruptcy would still continue until the end of the 21 months, but your payments could be adjusted and probably lowered based on your new, lower income.

Finally, if you leave the country, as long as you complete your duties, you can still be discharged. For example, you can fax your paystubs to your trustee from anywhere in the world. Before you leave the country you would want to complete your required counselling sessions, and provide the trustee with any other required information. If a court discharge hearing is required, you may need to return to the country to get discharge.

Each situation is different, so for a more detailed answer we suggest you contact a licensed Ontario bankruptcy trustee.

Question: Hi…
I’m self-employed, with over $165k in unsecured debt with cc, Income tax, GST and one client owed $60k debt too. I live with my wife, adult daughter and teenage son, so there are 4 of us.

I’d like to know, if I file, what the ’surplus’ income levels would be for me, as my monthly income fluctuates by 50% some months. Plus how long till discharge?

Plus, what about the fact that I owe my current bank more than $13k, and I think that if I do file, they’d “close” my bank accounts…so how would I cash my client’s cheques that is my income? Can you “have” a bank account during bankruptcy? Can you just verify that yes, they would close my accounts?

Plus the GST collections has already put a Request to Pay on that biz account and I’m told by the bank that any $ that I might deposit, would NOT be given to me and they’d have to turn it over to the GST collections.

So, your best advice here pls? I can not think of any way to get back to a level playing field, without filing…can you just confirm this for me?

Herb

Answer: Herb, you need professional advice! To properly answer the questions you are asking would require more information from you, and many hundreds of words in this response. You should contact an Ontario personal bankruptcy trustee and make an appointment for a no charge initial consultation.

Here are some quick thoughts to get you started:

Here’s a link to some information on surplus income in a bankruptcy; your trustee can help you with the math, and help you determine whether or not your adult daughter is considered a dependent.

Second, yes, you can have a bank account while bankrupt in Canada. You should open a new bank account at a new bank to prevent problems, but again, your trustee will explain this to you in more detail.

Your situation is complicated, so contact a trustee today.

Question: My wife and I are unfortunate victims of the Nortel fraud to the tune of $250,000. We have not been able to surmount this loss and face imminent bankruptcy. We have secured debts of $200,000 and unsecured debts over $300,000 mosty credit card debt and have been in default for about a year. Two judgements have already been granted to two credit card companies and I believe registered as liens against out principle residence. We had a number of collector cars which we have sold off over the months but still are in possession of two which the time of year makes quite difficult to sell.
My main question is what actually happens after we have declared bankruptcy. My wife is a retired teacher so her pension income exceeds the income level allowed by a considerable amount. I realize 50% of the overage will be taken for 21 months. My income is minimal as it’s Canada Pension but I turn 65 in half a year so that amount will increase somewhat.
Again, day to day, what does out new routine become and is it the bankruptcy trustee who dictates it?
Regards Jim and Donna

Answer: You are in a difficult situation. As to the process in a bankruptcy in Ontario, you do not necessarily experience any changes in your day to day life.

As you stated, each month you are required to submit to the trustee proof of your income, and you are required to pay to the trustee, for the benefit of your creditors, 50% of the amount your income exceeds the surplus income guidelines. So, practically, you are keeping close track of your income and expenses each month.

You are also required to attend two credit counselling sessions, and to provide information to the trustee to file your taxes for the year of bankruptcy, and to assist the trustee if you have any assets that will be included in the bankruptcy.

Beyond that, your day to day life is not significantly impacted. We do recommend that before you decide to file bankruptcy you meet with a licensed Ontario bankruptcy trustee and ask them to review with you in detail the bankruptcy process, so that you fully understand your obligations.

Question: I am considering filing bankruptcy in Ontario. I have 1 room mate and everything is split 50/50. The trustee stated that it is based on the entire household income, and that if the 2nd person did not wish to disclose information that the allotted amount of income per month would be the 2 person rate divided in half. Why does it matter how much my room mate makes as we split 50/50. It is not their debt but mine. Even on the work sheets it states spouse’s income. No spouse here, so why are they included? This than makes my surplus payments outrageous that I still won’t be able to pay those off, but it is too expensive to live on ones own.

Answer: It would appear there is some confusion here. Yes, surplus income is based on your family income, which in most cases is the same as your household income. If you live with your spouse, their income is factored in to the calculation. But if you live with a room-mate who is not a member of your family (ie. they are not your spouse), then their income is irrelevant. It is not included in your family income for household purposes.

Here is an explanation of surplus income payments in bankruptcy. If the person you met with did not explain it to your satisfaction, you should consult another bankruptcy trustee.

Question: What is the criteria for extending surplus payments beyond the 9 months ? My trustee extended the payments with no real explanation . THANKS

Answer: You ask a very interesting question. First, some background. When you are bankrupt, you are required to report your income each month to your trustee. If your income exceeds a set amount, you are said to have surplus income.

Directive 11R issued by the Office of the Superintendent of Bankruptcy explains this calculation. The trustee is then required to determine if an extension to the bankruptcy is required.

Directive 12 states that if:

1. the bankrupt refuses to comply with the requirement to make surplus income payments to the estate;
2. the total amount paid to the estate by the bankrupt is disproportionate to the bankrupt’s indebtedness and financial resources; or
3. at the time of assessment, the bankrupt could have filed a viable proposal but chose instead to file an assignment in bankruptcy,

then the trustee is required to recommend a conditional discharge, which can last up to a further 12 months.

In practice in Ontario, if the bankrupt has a small amount of surplus income, the discharge from bankruptcy will not be opposed by the trustee. However, if the bankrupt has significant surplus, then the trustee may extend the bankruptcy for a period of up to 12 months, and require the bankrupt to make additional payments, on the basis that with that level of income the bankrupt should have filed a consumer proposal.

The problem, unfortunately, is that the application of these rules are left entirely to the discretion of the trustee. There are no set standards as to when a bankruptcy should be extended, or how long the extension will last.

In the last round of bankruptcy reform, the government proposed changes to the way the surplus income rules are applied. As of today the new rules are not yet in force. Under the new rules if you are a first time bankrupt and you have surplus income you are automatically bankrupt for a minimum 21 months.

So, what does this mean today? If you have surplus income, you should meet with your trustee and ask them to explain how they did the calculation, and how long they propose as an extension to your bankruptcy. If you don’t agree with your trustee’s decision, you may request mediation, or a discharge hearing in bankruptcy court, at which time the Bankruptcy Registrar (a type of judge) will decide on the terms of your discharge. Given the length of time required to arrange the court hearing, and the unpredictability of the judge’s decision, it is usually best to work out an arrangement directly with your trustee.