Case Study: David and Julie file for bankruptcy
After talking with a Licensed Insolvency Trustee, David and Julie decide that bankruptcy is the most appropriate option to handle their debts. The trustee explains the way their creditors will be paid and what they will need to do during the bankruptcy process.
It’s been a tough time for David and Julie —David has been laid off, credit card payments have slipped and the other bills are also falling behind.
Thinking bankruptcy may be an option, he sits down and begins an online search to get information about the topic.
He finds the Office of the Superintendent of Bankruptcy Canada, the federal organization that licenses and regulates Licensed Insolvency Trustees, professionals who can provide the information he needs.
Using the search tool, David finds a Licensed Insolvency Trustee in his area and makes an appointment.
Seeing a Licensed Insolvency Trustee is a great first step. The trustee will explain the options to Julie and David, giving them the information they need to make a well-informed decision.
After an open and frank discussion about what they earn, what they own and how much they owe, Julie and David decide that bankruptcy is, in fact, the most appropriate choice.
The trustee then files the bankruptcy application with the Office of the Superintendent of Bankruptcy Canada.
Once the application is filed, the trustee will take care of legal obligations and Julie and David will stop making payments directly to their creditors.
As the trustee is now in charge of the file, any and all legal actions against them will stop and no one will be able to garnish their wages.
Julie and David will likely be able to keep some of the things they own, because those assets are protected by provincial and federal laws. However, some assets may be sold by the trustee and the proceeds used to help pay the debts they owe.
Their creditors will be notified of the bankruptcy and, if a meeting of creditors is called, Julie and David will have to attend.
They will also have to attend two counselling sessions to help them get back on their feet financially.
Finally, they may have to make payments toward their debt, called “surplus income payments.”
These payments ensure that people who declare bankruptcy and have sufficient income, contribute to paying off a portion of their debt.
Eventually, their debts will be discharged, relieving them from the obligation of repaying most of the debt they had on the day they filed for bankruptcy.
While this comes as a relief to both Julie and David, the trustee also explains that some debts cannot be discharged. These include alimony and child-support payments, court-ordered fines or penalties, debts arising from fraud and, in some cases, student loans.
While the bankruptcy will affect their credit rating for a number of years, the trustee tells them that once the debt is discharged, they can start to rebuild their financial future.
It’s not an ideal situation, but dealing with this does lift a weight off their shoulders.Case Study: Understanding the Bankruptcy Discharge »