The topics in the Dial-A-Law series provide only general information on legal issues within the province of Alberta. This service is provided by Calgary Legal Guidance funded in part by the Alberta Law Foundation. The purpose is to make you aware of your legal rights and responsibilities. This is not legal advice. If you require legal advice, you should contact a lawyer.
This topic discusses personal bankruptcy.
If you are experiencing financial difficulty, there may be other ways to handle your financial problems before filing personal bankruptcy. For example, you may speak with a loans manager at a bank and try to get a consolidation loan for your debts. You may try speaking directly to your creditors to arrange new re-payment methods. Ask them if they will accept lower payments and give you more time to repay the debt. Your creditors may agree to a repayment plan if they are put in a better position of getting paid than if you file personal bankruptcy.
You may also contact Credit Counselling Services of Alberta at 403-265-2201 in Calgary, 780-423-5265 in Edmonton or 1-888-294-0076 toll-free in Alberta. They have counsellors who will assist you in finding other alternatives to pay your debts. They also have an Orderly Payment of Debts (OPD) program, which is a legislated consumer repayment program. The program identifies your debts and living expenses and assists you in developing a monthly repayment schedule. Your creditors may agree to the repayment schedule if they feel they are put in a better position of getting paid. If they do not agree, the Counselling Services can apply to Court for a Consolidation Order. Your creditors are advised of the Order and have 30 days to object. Once the Order is approved, you make monthly payments to the Credit Counselling Services of Alberta and they distribute the payments to the creditors. If you participate in the OPD program:
- You are protected from certain legal actions like garnishees.
- The payment schedules are based on your ability to pay.
- The interest rate is fixed
- You repay your debts in full
- You have the assistance of a debt counsellor.
Sometimes filing personal bankruptcy may be the only way for you to get a fresh start. You may file bankruptcy voluntarily or your creditors can force you into bankruptcy. This topic discusses the voluntary bankruptcy process only. To file personal bankruptcy, you must be insolvent. You must owe at least $1,000 and be unable to make your payments. Contact a bankruptcy trustee to see if you are eligible for bankruptcy. The services of the trustee are not free. The fees are based on the amount of time the trustee spends on your case.
If you have minimal assets your creditors are notified by mail. If you have significant assets, an advertisement is placed in the newspaper to notify creditors of the date of the meeting of the creditors. A creditor will not receive payment from the trustee unless the claim has been proven. Secured creditors maintain their rights over the property taken as security. Unsecured Creditors cannot continue or commence a legal action against you for the recovery of the debt without the Court’s permission.
All property or assets that you own must be turned to the trustee except for certain exempt property. If you hold property in trust for other people, this property is exempt. Exempt property includes the following:
- Food required for you and your dependents during the next 12 months
- Necessary clothing for you and your dependents up to a value of $4,000.
- Household furniture and appliances up to a value of $4,000.
- One motor vehicle not worth more than a value of $5,000.
- Medical and dental aides required by you and your dependents
- If you are a farmer and your main source of income is from farming, then 160 acres.
- If your income is mainly from farming, then the personal property you need to perform the farming operations for the next 12 months.
- The equity in your principal home, including a mobile home, up to $40,000.
- If you are co-owner of a residence, then amount of exemption is reduced to an amount that is proportionate to the share you own.
- Personal property required for earning income from your occupation up to $10,000. For example, your tools, equipment and books.
Any money that you receive except for a base amount allowed for everyday living expenses must also be turned over to the trustee to pay your creditors. If you earn more than the allowed amount for living expenses, that money must be turned over to the trustee. The trustee will file your tax returns while you are bankrupt and will take the income tax refund amount for debt payment. When your assets are sold and other money is collected, the trustee will pay out the claims to the creditors. The trustee will also take his fee from the proceeds.
During your bankruptcy, you must provide a monthly accounting of income and expenditures to the trustee. You must tell everyone you do business with that you are bankrupt. You must tell your existing creditors that you are bankrupt. If you do not obey these rules you are guilty of an offence and liable to imprisonment for up to 1 year.
The trustee will apply to the Court for the “discharge” of your bankruptcy between 3 and 12 months after the date you became bankrupt. The average length of bankruptcy is 10 to 12 months. The legal filing is a public document which the general public has access to. The Credit Bureau is notified and the bankruptcy is recorded and will remain on your credit record for 6-7 years. There are no legal restrictions on you obtaining credit after being discharged. However, practically speaking, you may experience some difficulty in obtaining credit. Your public record may be taken into consideration by some creditors when deciding to give credit.
Once you are discharged you no longer have any obligation to pay creditors with claims against you before your bankruptcy. However, the Court has wide discretionary powers in granting a discharge and could order you to pay certain preferred creditors or pay so much on a dollar to your trustee before they grant you an absolute discharge. Some debts cannot be discharged by bankruptcy. Court fines, child and spousal support, money obtained by fraud or false pretences and debts for the necessities of life, such as food and clothing must be paid in full. You must also pay for the debts you incurred during your bankruptcy.