Bankruptcy in Ontario

Question: Does the trustee in a bankruptcy in Ontario work for you or the creditor? How do I know the trustee is working in my best interest??

Answer: This is an excellent question.

A bankruptcy trustee is a private business person, licensed by the Federal Government. As a business person, they are working for themselves, like every other person in business.

Generally it is the person who needs to go bankrupt in Ontario who finds the trustee, and “hires” them to administer their bankruptcy. For that reason the trustee wants to give you good advice, so you understand you options, and so that your bankruptcy proceeds without unnecessary problems. In that respect the trustee works for you.

During the bankruptcy, the funds collected by the trustee, after paying for the trustee’s fees and expenses, are distributed to the creditors. In that respect the trustee is working for the creditors.

However, once the bankruptcy officially begins, the trustee is, in effect, appointed by the court, and is therefore working for all parties. Think of it like this: A trustee is like the referee in a hockey game. The referee isn’t working for Team A or Team B; he is working to ensure that all teams follow the rules.

In essence, that’s the role of a trustee. To ensure that all parties are fulfilling their responsibilities and following the rules.

Our advice is that you contact a trustee, and then meet with them and ask them lots of questions, because only you can decide whether or not you have found the right trustee for you.

Question: When you have decided to go bankrupt and give up your present house that you own, how long should you wait before you rent another house?

Answer: If you are surrendering your house and going bankrupt, in most cases you will find a place to live immediately. If you are giving up your house you will also stop making the mortgage payments, which gives you the money necessary to pay rent.

Every situation is different, so contact a trustee for further information.

Question: hi, I have a managed rrsp to which I have contributed for 20 years. I have a legal judgement against me and am appealing it, but if I lose and I may go bankrupt. Can I protect the RRSP now by making it into an insurance. Thanks

Answer: That is a difficult question. If you file for personal bankruptcy in Ontario you are required to disclose any assets you disposed of in the prior year (and in some cases in the past five years). Therefore if you converted your RRSP to a creditor-protected RRSP, and then went bankrupt, it is possible that your creditors or your trustee would attack the transaction. They probably cannot seize the RRSP, but they may extend your bankruptcy and require you to repay some or all of the value of the RRSP as a condition of your discharge.

There are many other factors to consider, including the value of the RRSP, and whether or not a consumer proposal was a viable option, so we suggest you contact a bankruptcy lawyer, or a bankruptcy trustee, to review your options in detail before deciding on whether or not to attempt to convert the RRSP.

Question: As a result of heavy debt and a drastic cut in income, I recently spoke to a bankruptcy trustee. We determined that bankruptcy is the only realistic option available to me, and I’ve decided to take that step. In the meantime, however, day-to-day bills and expenses have been piling up. I have a bank-issued credit card that’s been sitting around unactivated for several months (the only one that isn’t maxed out, I hate to admit); is it fraudulent if I activate the card and use it while I know full well that I’ll be declaring bankruptcy two or three weeks later? Can it affect the bankruptcy process in any way?

Answer: Yes, using a credit card that you have no intention of repaying is fraud. It is a criminal offense, and if the amounts are significant you could face severe penalities. If the amounts are not large, it is likely that the creditor would request that you repay the money you spent on the credit card in the three months before your bankruptcy. If you don’t repay the money, the credit card company could pursue you for fraud after your bankruptcy is finished.

If you are going to go bankrupt, stop using your credit cards immediately. You will also stop making payments on your debts, which should free up enough cash for you to pay your day to day living expenses.

Using credit cards before a bankruptcy is a serious issue, and one you should discuss with your bankruptcy trustee.

Question: can I redeem an rrsp before going bankrupt in Ontario?

Answer: When you file for bankruptcy in Ontario, you are required to disclose to your bankruptcy trustee all assets you have disposed of or redeemed in the previous twelve months (or up to five years in certain cases). Thus if you cashed in your RRSP today, and went bankrupt tomorrow, you would have to provide your trustee with details of how much you received, and what you did with the money.

If you cashed in a $500 RRSP because you were behind on your rent and were about to be evicted, it probably won’t create any issues.

However, if you cashed in a $10,000 RRSP and gambled the money away, your creditors will probably oppose your discharge from bankruptcy and ask the bankruptcy court to extend your bankruptcy until you have paid some or all of the money back.

Since your RRSP is on file with Revenue Canada, there is no point in hiding something like this from the trustee; they will find out directly from Canada Revenue Agency. We suggest you discuss this with your trustee prior to making the decision to file for bankruptcy.