In this post, we explain the key differences between a bankruptcy lawyer and a licensed insolvency trustee. These two professionals play distinct but interconnected roles in the bankruptcy process.

What is a licensed insolvency trustee?

A licensed insolvency trustee (LIT) is federally regulated and provides advice and services to Canadians dealing with debt problems. LITs are required to be licensed by the Office of the Superintendent of Bankruptcy (OSB). The OSB administers the Bankruptcy and Insolvency Act and regulates the insolvency industry in Canada.

A licensed insolvency trustee is an officer of the court, and their main function is to ensure that a bankruptcy or consumer proposal follows the processes outlined in the Bankruptcy and Insolvency Act.

Licensed insolvency trustees are responsible for ensuring that creditors and the insolvent individual are treated fairly, and that the bankruptcy process is conducted in accordance with the law. LITs work for all the stakeholders in a personal bankruptcy or consumer proposal filing. These include both the creditors and debtors. They are also responsible for administering bankruptcy estates, investigating claims, and distributing assets. A licensed insolvency trustee is also a consumer proposal administrator and are the only professional legally allowed to file a Canadian consumer proposal for a debtor.

When it is necessary, trustees work closely with bankruptcy lawyers to ensure that the bankruptcy process is conducted properly. Trustees are required to report to the creditors and occasionally the bankruptcy court, and they are held accountable for any actions they take during the insolvency process.

What is a bankruptcy lawyer?

A bankruptcy lawyer is a legal professional who specializes in insolvency law and helping their clients with legal issues arising out of the bankruptcy process. They provide legal advice and represent clients in court proceedings. Unlike a licensed insolvency trustee, a bankruptcy lawyer does not administer debt relief options like a personal bankruptcy or consumer proposal. A bankruptcy lawyer may provide legal interpretation to the trustee, a debtor or creditor regarding issues in a bankruptcy or proposal.

In rare and complicated personal bankruptcy or consumer proposal filings, a licensed insolvency trustee can consult with a bankruptcy lawyer to represent them at bankruptcy court or to answer legal questions. But individuals looking for personal debt management advice and solutions will work with licensed insolvency trustees in Canada.

What is bankruptcy law in Canada?

The Bankruptcy and Insolvency Act (BIA) is the bankruptcy law in Canada. It is designed to allow an honest but unfortunate debtor to obtain relief from their debts. It also allows for creditors to be treated equally and fairly. The BIA sets out rules, processes, and standards that all parties must follow, and it is the licensed insolvency trustee who manages the process. Both bankruptcy and proposal law is contained in the BIA. To become a Licensed Insolvency Trustee, you must be knowledgeable and competent in bankruptcy law and pass several exams and an oral board made up of an LIT, bankruptcy lawyer and representative of the Office of the Superintendent of Bankruptcy.

The Bankruptcy and Insolvency Act provides debtors with protection from legal actions taken by their creditors, such as wage garnishments, asset seizures or frozen bank accounts. It also stops any legal actions that have already started taking place.

When would you need a licensed insolvency trustee?

A licensed insolvency trustee assists in making informed choices about how to deal with consumer debt such as credit cards, income tax debt, personal loans, and unsecured lines of credit, judgment debts from lawsuits, and even some student loans. The process begins with a free consultation and debt assessment to discuss your financial situation and review all your debt relief options. Legally, an LIT is required to tell you all your debt relief options which can include budgeting, credit counselling, debt consolidation, consumer proposals, and as a last resort, to file bankruptcy.

If you decide to file a bankruptcy or consumer proposal, part of the insolvency process includes two financial counselling sessions with a certified credit counsellor to work on budgeting and credit rebuilding after your discharge.

When would you need a bankruptcy lawyer?

There are times in the bankruptcy process where a creditor or a bankrupt individual would need a lawyer to advocate for them or to help them prepare and file materials for the Court.

For example, if a creditor is opposing a bankrupt’s discharge, the credit could look to a bankruptcy lawyer to assist them with that process and the court hearing. As a bankrupt, if a creditor is opposing your discharge and the matter is complex, it is advisable to obtain the services of a bankruptcy lawyer to represent you at court. Your Licensed Insolvency Trustee will advise you on whether you should have outside legal counsel represent you in court.

Another instance would be if you had a failed consumer proposal filing, but you wanted to revive the proposal to deal with your debts. In this case, you would need court approval to do so, and you would hire a bankruptcy lawyer to assist you with that process.

How do licensed insolvency trustees get paid?

Your initial consultation with a licensed trustee is always free. There are never any upfront fees when you work with an LIT. You only pay when you officially file, and your trustee gets paid out of the proceeds of payments you submit in your bankruptcy or consumer proposal filing.

For example, let’s say you officially decide to file a consumer proposal. You work with your trustee to determine an affordable monthly payment to eliminate all your unsecured debt. Your trustee negotiates with your creditors, and they agree to the monthly payment you have proposed. Your consumer proposal is then deemed accepted. Your trustee’s fees come out of the same monthly consumer proposal payment you make and that’s all you pay. There are no extra costs or set-up fees.

Beware of unlicensed debt consultants

Hopefully, by now you have a good understanding of bankruptcy lawyers and licensed insolvency trustees, and which professional can help you depending on your needs. I will caution that there are many seemingly reputable companies claiming to be able to help you deal with your debts. They primarily sell consumer proposals as the solution. Know that only a licensed insolvency trustee is licensed, as a consumer proposal administrator, to administer a proposal. Unlicensed debt consultants and credit counsellors cannot help you with filing a consumer proposal. If you are making payments under a proposal agreement, ensure all your payments are made directly to the licensed insolvency trustee and that payments do not start until your proposal is filed with the government.

Credit counselling agencies offer what they call a Debt Management Plan (DMP), and while this may be a solution for some people with small debt problems, know that you must repay 100% of the debts you owe, plus fees, and that this plan does not offer creditor protection. It may also not deal with all your debts.

Before agreeing to work with any debt professional, always ask for their credentials and verify whether they are in fact licensed to provide the services they are claiming.

If you are struggling with your debts, contact a licensed insolvency trustee today to discuss all your repayment options in a free consultation.

The post Do You Need a Bankruptcy Lawyer or a Licensed Insolvency Trustee? appeared first on Hoyes, Michalos & Associates Inc..

The treatment of debts is similar for both bankruptcy or consumer proposal in Canada, so while I mention bankruptcy below, the same principle applies to paying bills before making a proposal to creditors.

Unsecured creditors

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As a general rule, you can stop making payments to unsecured creditors or on debts included in your bankruptcy shortly before filing. So it’s safe to stop paying debts like credit cards or payday loans and avoid calls regarding collection accounts while preparing to file.

However, do not think this means you can stop paying your unsecured debts months before filing. An unsecured creditor won’t wait long for you to file before taking further action like seeking a wage garnishment.

Debt consultants often advise you to stop making payments months before completing a debt settlement or consumer proposal. This is not a good idea. Defaulting on payments if you do not eventually declare bankruptcy can have significant negative financial consequences. Your total debt will increase due to missed payments and additional interest charges. As I said, creditors may also send your account to collections, report defaults to the credit bureaus, and take legal action to enforce collection if they can. If you don’t file, you will have higher debt levels, and your credit score will fall.

Credit card debts

While you can stop making your minimum credit card payments if you know you will be filing bankruptcy, you should also stop putting new charges on those accounts. Taking on debts with the intent not to pay them back is a fraud. This is just one thing you should not do before filing bankruptcy.

If you know you will file imminently, do not take out a cash advance on your line of credit or credit cards, and stop using your cards for new purchases. Doing so could jeopardize your bankruptcy discharge and may lead to criminal charges if considered fraud. Your creditors can demand that you pay back that money even if your other debts are forgiven through bankruptcy.

Secured creditors

Bankruptcy does not deal with secured loans like a mortgage or car loan, and bankruptcy protection does not stop a secured creditor from repossessing your car or home if you are behind on payments.

That means you must keep up with your secured debt payments if you want to keep those assets.

If you are surrendering a leased or financed vehicle as part of your bankruptcy or proposal, you can contact the lender to arrange to return the car and stop making monthly payments. It’s a good idea to keep insurance on the vehicle until your auto lender picks up the vehicle.

Alimony and child support

Not all debts are dischargeable in bankruptcy or consumer proposal in Canada. Family support debts cannot be forgiven by filing bankruptcy. If you file, you will need to keep up with your monthly alimony and support payments and catch up on any arrears.

Student loans

Student loan debt is another complicated area to discuss with your trustee before filing. Private student loans, such as student credit card or line of credit, are unsecured debts. You can stop making monthly payments if you intend to file bankruptcy, and these debts will be discharged in your bankruptcy.

Canada or government student loans, however, have a waiting period. If you have not been out of school for seven years, these student loans will remain after bankruptcy. Due to the stay of proceedings provided in a bankruptcy, you can stop making payments while bankrupt (or in a consumer proposal), but interest will still accrue. In addition, Canada Student Loans may report these as late payments on your credit report. You will be required to continue payments upon completion of your proceeding.

Utility and other bills

Ongoing bill payments are a situation to be considered on a case-by-case basis. Technically utility arrears including hydro, gas, internet, cell phones and other recurring monthly payments are unsecured debt and, as such, can be wiped out when you file bankruptcy. However, some utilities will also shut off your services for arrears and may ask for a large deposit to reinstate your account.

If you need ongoing services, you will want to maintain monthly payments. When it comes to your cell phone or internet, talk with your trustee to determine the best course of action based on your situation. While Rogers or Bell will not generally cancel your service if you are up to date at the time you file, if you are significantly in arrears or want to choose a cheaper plan, it may make sense to stop paying and include those debts in your bankruptcy.

After filing

As soon as you file bankruptcy, you should immediately stop making payments to any of the unsecured creditors included in your bankruptcy. If your creditors contact you, let them know you have filed bankruptcy and give them the name of your Licensed Insolvency Trustee.

Speak with a Licensed Insolvency Trustee

If you are struggling with debt and considering bankruptcy, talk with your trustee about which debts you can safely stop paying and when. If you are certain you will file, it may make sense to stop paying your creditors and save money for necessary expenses like your rent, mortgage and living costs. If you are not sure you will file, continue to make minimum payments to avoid any further damage to your finances.

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1. Personal budgeting. Make a budget and pay off debts on your own.
2. Debt consolidation loan. Apply for a new loan to pay off multiple smaller debts.
3. Credit counselling. Work with a credit counsellor to arrange a repayment plan.
4. Debt settlement. Talk with your creditors to reduce interest or make a payment offer.
5. Consumer proposal. Make a legally binding debt settlement with your creditors to pay back less than you owe.

In this post, I’m going to review these different approaches to debt reduction.

DIY debt solutions

It’s possible to reduce your debt on your own if you are not already living paycheque to paycheque, and you can find ways to reduce your expenses drastically enough to funnel additional money towards debt repayment. The best place to start is with a list of your debts. You can use our free excel debt repayment worksheet as a start.

Next, you need to decide which debts to pay off first. There are two popular debt repayment methods to consider.

Avalanche method

With the avalanche method of debt repayment, you pay off your debts from the highest to the lowest interest rate. This is my preferred method of paying down debt. Paying off high-rate credit cards and payday loans first reduces the amount of money you are wasting on interest faster, allowing you to get out of debt soon.

Snowball method

The snowball method involves paying off debts from the smallest amount owing to the largest balance owing. The motivation of paying off some debts can help keep you on track with your goal to become debt free. If you have a series of very small debts, the snowball method can also help you get these payments out of the way, making managing your bills a little easier in future months.

The key to budgeting your way out of debt is to stop using your credit cards and lines of credit to pay for things. You want your balances to go down, which means you must stop putting new charges on these accounts. Use cash to pay for expenses while you pay off your credit cards.

Negotiating with your creditors

I generally advise against using a for-profit debt settlement company. These agencies do not have a good success rate and can do more harm to your credit than good.

However, there is nothing harmful in picking up the phone and negotiating with your creditors on your own. You can ask for more time to pay your debt, an interest rate reduction or even ask if they will accept less than the full amount due in exchange for erasing the rest of what you owe.

Here are some quick tips if you are going to negotiate with creditors on your own:

• Write down what you want to offer upfront
• Make sure you can afford what you offer
• Getting any deal in writing before you make a payment

Debt consolidation loan

A debt consolidation loan is a loan used to pay off multiple smaller debts. It allows you to combine multiple payments into one smaller monthly payment, generally at a lower interest rate and spread over a longer period of time. Of course, debt consolidation doesn’t reduce your debt unless you can pay more towards the principal each month.

To qualify for a debt consolidation loan, you will need to have a reasonable credit rating, sufficient income to support the monthly payments, and possibly some assets to pledge as collateral in case you default on the payments.

And that is the big risk with a debt consolidation loan. If you default on a secured debt consolidation loan, you may lose your car, house or other assets.

Credit counselling

A credit counsellor can negotiate a repayment plan where you pay your debts in full but at a reduced interest rate. This is called a “Debt Management Plan” and works well if you can repay your debts in full.

A credit counselling program will cost an additional 10% of what you owe. So if you repay $12,000 in debts through a debt management program, your total cost will be $13,200. 

The advantage of working with a credit counsellor is that they can set you up on a monthly payment program and help keep you on track with your payments. They cannot, however, negotiate a deal to pay back less than you owe.

A debt management plan will affect your credit rating, as any debts included in the program will be marked as included in a repayment program (R7).

Consumer proposal

A consumer proposal is a legally binding settlement between a debtor and a creditor. It typically involves the debtor making one monthly payment, on an agreed-upon settlement amount, over a period of no more than five years. At the end of the proposal period, the debtor is then released of any remaining balances, which may be left from their original amount of debt.

A consumer proposal is an option if you can’t pay your bills anymore. In other words, if you cannot pay back your debts in full, on your own or with the help of a credit counsellor, then a consumer proposal can provide needed debt relief.

A consumer proposal is a bankruptcy alternative that can eliminate more than credit card debt. As a government debt relief program, a consumer proposal can deal with tax debts, student loans, payday loans, and other unsecured debt.

As with a debt management plan, a consumer proposal is a repayment plan that will appear on your credit report as an R7.

Bottom Line

If you are struggling with debt, talk with a Licensed Insolvency Trustee early about your financial situation. Trustees are trained and licensed to discuss all ways out of debt, not just a consumer proposal or bankruptcy.

What you do not want to do is sell off assets, liquidate your RRSP or jeopardize other assets with a new loan. Discussing options like a consumer proposal with a Licensed Insolvency Trustee can ensure you preserve these assets while you eliminate your debt.

The post How to Get Out of Debt Without Filing Bankruptcy appeared first on Hoyes, Michalos & Associates Inc..

However, bankruptcy is a legal process, and your conduct before filing will be under review. There are some things that you should never do before filing for bankruptcy. Some of these mistakes may be considered offences under the Bankruptcy & Insolvency Act and can jeopardize your ability to obtain your bankruptcy discharge. Others are just not a good idea financially.

At the same time, if you are considering bankruptcy as an option to help you get out of debt, there are specific steps you can take before declaring bankruptcy that can make the bankruptcy process run smoother. In the second half of this article, I’ll provide some tips on what you should do before filing.

Mistakes to avoid before filing bankruptcy

Don’t max out your credit cards

One question your trustee will ask as part of their assessment is if you used your credit cards or lines of credit for any purchases or cash advances three months before filing. Using your card in the usual sense, to buy groceries for example, is not likely a concern. However, maxing out your credit cards right before filing with the intent not to pay them back, can be a problem.

A creditor can object to your discharge if you make unusual or excessive transactions, like running up your credit cards to buy things, prior to declaring bankruptcy.

Avoid new loans right before filing

It’s not unusual for someone struggling with debt payments to consider getting a new loan before filing to keep afloat. However, your trustee will ask if you applied for and received any new loans or credit right before your bankruptcy proceeding.

Borrowing money you know you can’t repay or you know will be forgiven when you file bankruptcy might be considered fraud. Any debts you take on fraudulently are not included in your bankruptcy. This means you would have to repay those creditors in full after your bankruptcy.

Don’t repay one creditor in preference to another

If you owe money to a friend, family member, or employer, you might be tempted to pay off those debts before declaring for bankruptcy. Many people see these as a moral obligation, but you should avoid paying creditors selectively.

Paying one creditor over another shortly before filing bankruptcy is known as a preferential payment. Your trustee can request preferential payments be set aside and may sue the person you paid to get the money back so the funds can be distributed equally among all your creditors.

Your trustee will ask about extra or full payouts you’ve made to ordinary creditors in the three months before filing but can look back as far as one year for preference payments to related individuals.

Don’t conceal assets, income or debts

Bankruptcy is a legal process, and you will be required to provide accurate information to your trustee. One of the bankruptcy documents you will sign is a Statement of Affairs, which is simply a list of the things you own, who you owe money to, and your monthly budget. You are signing this statement under oath under penalty of perjury if you lie.  It is submitted to the bankruptcy court, and a copy is sent to your creditors.

Making a false entry or hiding assets is an offence under the Bankruptcy & Insolvency Act and the Criminal Code. Your discharge may be affected, and penalties can include criminal conviction and possibly imprisonment for fraud.

Any funds you receive while bankrupt are part of your bankruptcy estate. You are required to disclose if you expect to receive future income, including an inheritance, bonus at work, or tax refund.  This is not the case for a consumer proposal, where future income is yours to keep.

Don’t transfer or sell property fraudulently

When you file bankruptcy, you surrender your assets in exchange for the forgiveness of your debts. It is not a good idea to transfer, sell or move assets out of your name to avoid having them seized as part of your bankruptcy.

Prior to filing, your trustee will ask if you sold, transferred or disposed of any assets within the last five years. This would include selling or transferring real estate or vehicles or cashing in RRSPs, life insurance, stocks, and bonds.

If you dispose or transfer assets to hide them from your creditors, you might be denied a discharge and maybe even be subject to criminal penalties.

If you have sold any of your assets before filing for bankruptcy because you needed funds or your expenses such as rent, utilities, or food, that is acceptable. Still, be prepared to explain all your transactions, including how you used any money and provide supporting documentation when needed.

Avoid selling assets or cashing in savings to pay off debts

It is not unusual for someone to sell off certain assets or cash in savings to stay afloat while dealing with hefty debt payments. While liquidating some assets to make regular monthly debt payments may not be illegal or may not affect your bankruptcy, it’s not necessarily a good idea for you financially.

For example, in Canada, most pensions, including RRSPs, are exempt from seizure in bankruptcy. It is not a good idea to cash in your retirement savings only to find it does not solve your debt problem. Similarly, it may not be a good idea to sell off assets to partially pay off debts if it still means you need to file bankruptcy.  An alternative may be to consider using the value of these assets to make a consumer proposal to creditors to repay what you can afford while preserving your assets for your future.

Don’t ignore collection actions

Filing bankruptcy provides protection from creditor actions. While you may have been dealing with collection calls for several months, your creditors may soon escalate their collection activity to suing you in court and obtaining an order to garnish your wages or freeze your bank account.

While bankruptcy protection can stop collection actions, like a wage garnishment, it cannot stop secured creditors from repossessing your car or foreclosing on your home if you are behind on your payments. However, declaring bankruptcy sooner can improve your cash flow, so you are able to maintain payments on your car loan or mortgage to avoid these actions.

If you owe money to the Canada Revenue Agency, they can act to freeze your bank account, garnish your wages or attach a lien against your property without first going to court. While personal bankruptcy can stop a wage garnishment or lawsuit, it cannot reverse a lien once one has been registered.

It is possible to stop making payments to creditors included in your bankruptcy if you are certain you will be filing bankruptcy. However, you must keep up with your mortgage or car loan payment if you intend to keep those assets.

What happens if you commit a bankruptcy offence?

When you go bankrupt, your trustee will review your financial situation before and during your bankruptcy. Bankruptcy law provides your creditors with the right to request a creditors’ meeting at which they can ask questions about your conduct before bankruptcy. You may also be subject to an examination by the Official Receiver as part of your personal bankruptcy duties. With all this possible oversight, you can see that it is not a good idea to attempt to circumvent the bankruptcy process.

If you are found to have committed an offence under the Bankruptcy & Insolvency Act, you will unlikely be eligible for an automatic discharge. You may have to attend bankruptcy court, at which time the court can issue an absolute discharge, conditional discharge requiring you to pay more, for example, suspend your discharge until a future date or refuse your discharge entirely.

If severe enough, penalties, including imprisonment, can be imposed by the criminal courts.

What to do to prepare to file bankruptcy

Now let’s look at what you should do before bankruptcy, so the process goes smoothly, and you can start getting back on track as soon as possible.

Find a Licensed Insolvency Trustee. You do not need to pay for a referral. Most reputable trustees will offer a free consultation, and you should not have to pay any fees until you sign your bankruptcy documents. Make sure that you feel comfortable talking with and asking your trustee questions, mostly because you are going to have conversations about very personal issues.

When you meet with your trustee:

• Discuss other debt relief options, including taking out a loan to consolidate your debt or filing a consumer proposal.
• Get copies of your credit report to ensure that you include each creditor in the information you provide to the trustee.
• Make a list of your assets. Bankruptcy forms group together some categories, which means that you won’t be required to list every piece of clothing or household item you own. For items that are more expensive, such as vehicles and real estate, it’s always a good idea to have them appraised so you can determine the value of the property as accurately as possible.
• Your trustee will help you build a budget by looking at your income and expenses. They’ll use this information to help you assess alternatives to bankruptcy and, if you file a consumer proposal, determine what settlement payments you might wish to offer to your creditors.

One of the most critical steps a Licensed Insolvency Trustee will likely advise will be to open a new bank account before you file. If you have an account with the bank where you also have debts, your bank may take money from that account to satisfy unpaid debts. This is known as your bank’s right of offset. Additionally, if your creditors have a wage garnishment in progress, opening a new account ensures that your funds are protected. Even though your stay begins as soon as you file, your creditors and banks will take a few days to process this information in their systems.

Once you have agreed with your trustee to proceed with filing bankruptcy, you will need to complete the appropriate forms using the information you have already gathered about your creditors and assets. Your Licensed Insolvency Trustee will prepare the initial paperwork and review the process with you before you sign.

Once signed and filed with the government, your bankruptcy begins, as does your fresh start.

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Small business bankruptcies on the rise

Back in March, when COVID-19 uncertainty wreaked havoc across the globe, the number of small businesses filing bankruptcy in Canada declined significantly.

As with the decline in consumer insolvencies during COVID-19, the drop in business bankruptcies was due to the array of government support programs and a closed court system. Businesses were on hold, but so too were their debt payments and actions by their creditors.

However, supports won’t last forever. They also don’t eliminate the underlying problem many small businesses face – a drop in revenue and an increase in debts due to COVID-19.

We are already seeing a rise in small business insolvencies. The Office of the Superintendent of Bankruptcy began reporting on individual versus corporate bankruptcies in their 2019 online statistics. Those stats show an uptick in individual businesses filing insolvency beginning in the fall of 2020. We expect these numbers to rise significantly in 2021 as more restaurants, local stores, hair salons, tradespeople, and other small businesses close permanently because of losses incurred during extended social distancing and lockdowns.

That means now is the time for struggling Canadian business owners to familiarize themselves with small business bankruptcy nuances.

The more you know about the bankruptcy process, and the earlier you reach out to a debt professional for advice, the less stressful and financially damaging it will be. There’s even the chance that you can keep your business alive.

With that said, read on as I discuss the notion of filing for bankruptcy if your business debts are overwhelming and what your options are if your small business closes.

What happens to debt when a business closes?

If your business closes and it owes money, does this mean you need to file personal bankruptcy? The answer depends on whether you are personally liable for business debts.

The type of business you operate will partially dictate whether business debts become personal debts as well.

Sole Proprietorship or Unlimited Partnership

Sole proprietors and unincorporated partnerships don’t have separate legal status from the business. As a sole proprietor, you do not have limited liability. Business creditors can pursue your personal assets in addition to any business assets.

A sole proprietor assumes all business risks and is personally liable for all business debts. In a partnership, although you may share profits based on your partnership agreement, each partner can be held personally liable for 100% of any business debts.

If your sole proprietorship or partnership closes its doors, your business creditors can and likely will look to you personally for payment. To eliminate that debt, you may need to file for personal bankruptcy. Filing for personal bankruptcy eliminates both the business debts and any personal debts you may have. 

It’s worth noting that bankruptcy does not deal with secured debts. If you have business or personal assets pledged as security for a business loan, the bank may take possession and realize on those assets to recover the loan balance. They can then pursue you for any shortfall, which can be included in your personal bankruptcy.

Many small businesses fall into this category. They are unincorporated. In this situation, a small business bankruptcy is treated in the same manner as a personal bankruptcy.

It’s not uncommon for a sole proprietor to mix personal and business debt. For example, they often use personal credit cards to fund their business. This is another reason why personal bankruptcy becomes necessary to gain a fresh start.  Both personal and business debts can be taken care of through the same filing.

Corporation

A business that is incorporated is a separate legal entity on its own. If a corporation files bankruptcy, its assets are sold, subject to any rights of secured creditors, and the money is distributed in satisfaction of any business debts. A corporate bankruptcy is costly (professional fees can be $20,000 or more) and usually involves both a Licensed Insolvency Trustee and a bankruptcy lawyer.

An incorporated business can be closed without filing bankruptcy if there are no assets involved. The business can simply close and walk away from any company debt. This is the case for many incorporated small businesses that are not asset-heavy (for example companies in the service industry or trades) and something we see often.

Personal Guarantees

Whether your business was incorporated or not, you are also personally liable for any business debt you have personally guaranteed.

Directors can also be held personally liable for specific statutory obligations, including unremitted HST or GST under the federal Excise Tax Act, unpaid payroll source deductions under the federal Income Tax Act and certain wages under provincial Employment Standards Acts. These types of debts are typically called Director’s liabilities. Businesses that have been using tax remittances as operating cash often cannot catch up on these obligations before the business ends up failing.

Can you restructure the business?

Suppose your business is viable but struggling with a lot of debt (which will be common after COVID-19). In that case, it is possible to restructure your debts through an insolvency proceeding and carry on operating your business.

Declaring bankruptcy or making a proposal to creditors can provide you with creditor protection while restructuring and reorganizing.

For an unincorporated business, we once again look to personal insolvency options to restructure.

If your total debts (both personal and business), not including your home mortgage, fall below the $250,000 debt limit, you may be able to file a consumer proposal. Under this option, you make a deal to repay a portion of your debts to your creditors. If your debts exceed this limit, it is still possible for an individual business owner to file a Division I Proposal to creditors. A Division I proposal has the same result in terms of restructuring your debts but has a slightly different administration structure and, if not accepted by your creditors, it has the added risk that you will automatically be declared bankrupt.

Since a bankruptcy or consumer proposal does not deal with secured debt, you will want to ensure you can keep up with secured payments if you file insolvency to deal with unsecured creditors. While your car loan lender and mortgage lender cannot demand payment of your loan just because you filed bankruptcy, this is not always the case with a secured business loan. Read your loan agreement carefully for any default clauses that might need to be addressed.

A corporation can also restructure its debts via a Division I Proposal or by filing an arrangement under the Companies’ Creditors Arrangement Act. This process is much more expensive, involving the courts, a bankruptcy attorney, and a Licensed Insolvency Trustee.

Avoid creating preference payments

If you are facing financial difficulty and your business is at risk, it’s important not to pick and choose your favourite creditors to repay.

Under bankruptcy law, a trustee is required to inquire into payments, or transfers of property, made in the three months prior to the date of insolvency (12 months in the case of non-arm’s length transactions).  Make a payment to one creditor in preference to another, and your trustee may ask to have this transaction set aside. Such an act is called as a preference under the Bankruptcy & Insolvency Act, and can jeopardize your discharge.

If you have some business assets and are thinking of filing personal bankruptcy, discuss the right course of action with your trustee. They will help you decide if you should liquidate these assets at fair market value before filing with the funds distributed in proportion to your creditors to maximize returns or whether it is best to surrender these assets into your bankruptcy. In either case, be aware that all transactions immediately prior to your filing will be under review, so talk to your trustee before making any decisions.

This is also why it is key to seek advice from a debt professional as early as possible if you are struggling. It is usually much easier to prevent a bad move than it is to try to undo one.

Can you file bankruptcy for government debts?

Tax obligations

Almost all small business bankruptcies involve tax debts. The reason is simple. As stated earlier, often the first payments to be deferred for cash flow purposes are GST or HST remittances and payroll deductions.

Government debts are considered unsecured debt in a bankruptcy or consumer proposal and are dischargeable business debts. The key is to act before Revenue Canada places a lien on any assets converting an unsecured debt into a secured debt.

CEBA loans and CERB

What about debts related to COVID-19 support programs?  The federal government provided several programs to help businesses through the pandemic, notably the Canada Emergency Business Account or CEBA loan and Canada Emergency Wage Subsidy.  Some small business owners (or self-employed workers) may also have collected CERB while their business was subject to shutdown restrictions.

It is possible to include CEBA loans and other government pandemic debts in your bankruptcy as long as those payments were not received through fraud.

We have already filed our first small business insolvency with a CEBA loan and expect to see a significant number of self-employed workers file insolvency for CERB repayment and taxes owing on CERB income.

Can you still run your business after filing bankruptcy?

Yes, people who file for personal bankruptcy can still run their own business.

First and foremost, you make your living running your business. Taking that away from you wouldn’t be fair. The whole idea behind bankruptcy in Canada is to give you a fresh start. That can’t happen if you’re no longer allowed to earn the only way you know how to.

It’s not all cut and dry, however. You’ll need to re-evaluate if it’s possible to get your business back on track. What caused the business’s financial difficulty?  For many business owners in 2021, their business was probably thriving before COVID-19. They may only be facing a business closure due to the prolonged negative impact of shutdowns designed to control the coronavirus.  As I said earlier, it’s possible to file personal bankruptcy or a consumer proposal to eliminate or restructure debts accumulated during the pandemic and start over.

One problem that stems from filing for personal bankruptcy and running your business is you may struggle with access to new credit. Suppliers may or may not be willing to offer financing options since you’re no longer classified as a trustworthy borrower. It’s something to consider before filing. You may be able to change vendors, and you will be able to take steps to restore your credit once your debts are eliminated.

What are the implications of filing personal bankruptcy?

Province-to-province, the rules differ. But regardless of where you live, there are consequences to filing insolvency.

First, you may lose some personal assets. There are provincial and federal bankruptcy exemptions, including essential personal and household assets (e.g., clothes, furniture, other personal items), a small car and most RRSP and pension savings. However, if you have equity in your home or non-registered investments, these will need to be liquidated to satisfy your creditors. In these situations, most people choose to file a consumer proposal as an alternative to bankruptcy as a consumer proposal allows you to keep possession of all your assets.

If you are a shareholder in a company and file personal bankruptcy, your shares become property in your bankruptcy estate to be sold for the benefit of your creditors. This may be a consideration if you own other companies.

One area of concern for tradesperson is tools of the trade. Most provinces have exemptions that allow you to keep a certain dollar value of tools and equipment or business assets necessary to operate your business and earn a living. In Ontario, you can keep up to $14,405 in tools and equipment (at resale value, not new cost).

Most provinces, including Ontario, have legislation prohibiting someone who is bankrupt from being a director of a company until they are discharged. Upon filing bankruptcy, you must resign. Once you are discharged, you may be appointed as director again. You can file a consumer proposal and remain a director since you are not bankrupt.

Pragmatically, you’ll face fulfilling specific duties during the bankruptcy process. For instance, you must report your income to your trustee each month. The government sets a level of what you’re allowed to earn – and if you go above this amount, you must pay more. These extra earnings are called surplus income. If your future income is uncertain, discuss this with your Licensed Insolvency Trustee. They will help you with the decision of whether it makes more sense to file bankruptcy or a consumer proposal to better structure these surplus income payments over a longer period, reducing your monthly payments.

And as noted, either a personal bankruptcy or consumer proposal will be reported on your credit report and will affect your ability to gain new credit for a short period of time.

The main advantage of filing for bankruptcy, of course, is that your problem debts are eliminated.

How do I file personal bankruptcy for business debts?

If your business is struggling financially due to excessive debts, talk with a Licensed Insolvency Trustee about your options. Your accountant can give you a picture of what your balance sheet and cash flow will look like, but a trustee can advise if eliminating old debt through a bankruptcy or consumer proposal is a good option for you.

Sole proprietors and partnerships with nowhere to turn, mounting debts, and non-existent revenue for the next while might have no choice but to file for personal bankruptcy or make a proposal to their creditors.

The key here is that every situation is unique and often complicated. A Licensed Insolvency Trustee will ask questions to help you narrow down the options and possibilities. They will explain the implications of filing insolvency and help you determine the most appropriate way to move forward. They will help you achieve your goal to either close the business and walk away with a fresh start or start over with a restructured balance sheet that will ensure your business returns to profitability down the road.

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Bankruptcy is a way to get out from under overwhelming debt payments and obtain debt relief. In 2019 alone, more than 45,000 Ontarians and 138,000 Canadians filed some form of bankruptcy to deal with a debt problem and get a fresh start.

The bankruptcy process begins with a meeting with a Licensed Insolvency Trustee who will perform a debt assessment. They will ask you questions about who you owe and how much, what you earn and what assets you have. The purpose of this assessment is to ensure that bankruptcy is the right solution based on your financial situation. Your trustee will review several alternatives to bankruptcy, including credit counselling and a consumer proposal.

If you choose to file bankruptcy, here is what that means to you.

What happens when you declare bankruptcy?

Bankruptcy in Canada is a legal process administered by a Licensed Insolvency Trustee, who ensures that all parties – both debtors and creditors – follow the rules set out in the Bankruptcy & Insolvency Act.

When you become bankrupt, you assign, or surrender, certain assets to the trustee and make specified monthly payments during the term of your bankruptcy. All money received is deposited in trust for your creditors in what is called your bankruptcy estate.

Assigning assets doesn’t mean you lose everything. When declaring bankruptcy, most personal belongings are exempt from seizure by the trustee. You can generally keep your car, RRSPs are exempt from seizure as are most personal belongings.

When you file bankruptcy, you get an automatic stay of proceedings against your unsecured creditors that:

• stops collection agencies from calling or suing you,
• can stop a wage garnishment,
• eliminates most unsecured debts.

As soon as you file bankruptcy, you stop paying your existing unsecured debt obligations. Your trustee will notify your creditors that you have declared bankruptcy. If creditors continue to call, you can tell them you have gone bankrupt and advise them to contact your trustee.

During your bankruptcy, you make your monthly payments, provide a monthly statement of income and expenses, and attend two credit counselling sessions.

Here’s what will not happen:

• your bankruptcy will not affect your spouses’ credit report
• your spouse does not have to file bankruptcy just because you do
• your employer will not be told unless you need to stop a wage garnishment
• your neighbours and friends won’t find out unless you tell them
• bankruptcy does not mean you will never get credit again.

Many agencies like to make bankruptcy sound like the end of the world. It is not. Bankruptcy means a fresh financial start. One of the most common bankruptcy myths is that it will ruin your credit score so much that you will never be able to borrow again. Nothing could be further from the truth.

Bankruptcy will remain on your credit report for 6 to 7 years after your discharge.

You can often get a credit card while bankrupt. We recommend you apply for a secured credit card; however, some credit card companies will offer a high-cost unsecured credit card depending on your payment history before bankruptcy.

If you get a credit card while bankrupt, be sure not to max out this card. Keep your balances low (no more than 30-40% of your credit limit) and pay off your balance in full each month. Doing so will help you rebuild your credit even while the bankruptcy notice remains on your credit report.

What happens to your debts?

The primary benefit of bankruptcy is the elimination of your debts.

Common dischargeable debts include credit card balances, bank loans, and lines of credit. Bankruptcy will eliminate payday loans, and bankruptcy will clear tax debts.

Student loan debt can also be included in a bankruptcy if you have been out of school for seven years.

Bankruptcy will not eliminate support payments and court fines.

Bankruptcy does not affect secured debts like a mortgage or car loan. You will be required to keep making your monthly payments to secured creditors unless you voluntarily give up those assets as part of your bankruptcy.

Your creditors are entitled to file a claim against the money in your bankruptcy estate. Once your trustee approves this claim, they will be entitled to their pro-rata share of any money available in your bankruptcy. Trustee fees are included in your bankruptcy costs and come out of the monies paid to your creditors.

Just how expensive is bankruptcy?

Bankruptcy will relieve debts you can’t pay, which means you have more available cash flow from your income to pay for living expenses. There is, however, a cost to file bankruptcy.

If you have never been bankrupt before, have few assets and earn below the government surplus income threshold, bankruptcy will generally cost around $1,800 – or $200 a month for nine months. You will also lose at least one tax refund. If you file early in the year, you can lose two refunds, which is why timing matters when filing bankruptcy.

Bankruptcy is based on the concept that the more you earn, the more you pay. If you earn above the legislated surplus income limit, you will have to pay an extra penalty into your bankruptcy estate. Having surplus income also affects the length of your bankruptcy, which means you will be making these higher payments for longer.

Here’s the thing. Very few people pay this much in a bankruptcy. The reason being most people choose to avoid the surplus income penalty with a consumer proposal.

Should you file for bankruptcy?

The decision to file bankruptcy should be a financial one. If you can’t pay your debts as they become due, you are insolvent, which means you are eligible to file bankruptcy.

For you, bankruptcy may mean

• an end to harassing creditor calls
• no need to visit one payday lender to pay off another
• the elimination of high-interest debt
• a reduction in your monthly debt payments
• peace of mind and a fresh financial start.

Bankruptcy is always an option of last resort, but if you have more debts than you can repay, it is worth exploring. Book a free consultation with a Licensed Insolvency Trustee to learn more about how bankruptcy works and how it may help you get out of debt.

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Personal vs Business Bankruptcy

If you operate a small business as a self-employed contractor, sole proprietorship or unlimited partnership, any business debts are also owed by you personally. Filing personal bankruptcy in Canada will eliminate both debts from the business and any personal debts you owe.

If you file bankruptcy, any non-exempt personal assets would be forfeit to your trustee for the benefit of your creditors. In most provinces, including Ontario, there are bankruptcy exemptions for tools of the trade which can be essential to contractors.

Filing a business bankruptcy as a corporation would only deal with business debts and would only result in the seizure of business assets. If you are incorporated and have personally guaranteed your business debts, you may need to file personal bankruptcy as well.

What business debts are cleared if I file personal bankruptcy?

If you borrowed money to fund business operations, any unsecured loans, lines of credit or credit card debt will be eliminated through bankruptcy. Filing bankruptcy will also deal with any outstanding utility bills and unpaid suppliers.  

When you file bankruptcy, credit card companies will review all transactions you have made over a minimum of the last three months, so it is important to stop using your personal credit cards for business purchases as soon as you realize that you may be filing bankruptcy.

Secured creditors are not included in a bankruptcy; they retain the right to seize any assets pledged as collateral for the loan.

Landlords have specific rights in a bankruptcy which can affect your right of occupancy if you want to carry on the business and who has a claim against business assets. If you lease a premises for your business, it is important that you discuss your lease with your trustee before you file.

Does bankruptcy clear tax debt?

Filing personal bankruptcy as a small business owner will also eliminate back tax debts including unpaid income taxes, source deductions and HST owing to the CRA. It is important if you owe money to Canada Revenue Agency that you file your tax returns (to determine how much you owe) and act quickly to avoid potential adverse collection actions. The CRA has strong collection powers including registering a lien on your assets, garnishing your wages (if you are now working) and freezing your bank account.

Filing a consumer proposal to deal with business debts

It is also possible to deal with small business debts by making a proposal to your creditors to reduce and change the payment terms on your small business debts.

If your debts, excluding the mortgage on your personal residence, do not exceed $250,000 you can make a consumer proposal to your creditors. A consumer proposal allows you to make an offer to repay your creditors a portion of what you owe. At the completion of your proposal payments, all debts are forgiven. A consumer proposal is a viable alternative if you have assets to protect or are earning income high enough to generate significant penalty payments in a bankruptcy.

If your personal and business debts exceed $250,000 you can make what is known as a business proposal or Division I proposal.

Contact a Licensed Insolvency Trustee to discuss your situation. A review of your business, who you owe money too and how you want to carry forward will help you determine the best option.

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You can discharge payday loans through bankruptcy

Payday loans are a short-term, unsecured loan available to those with poor credit or who need quick access to cash to pay a bill.  

Because they are an unsecured debt, payday loans are dischargeable under the Bankruptcy & Insolvency Act in Canada meaning payday loans can be eliminated when you file bankruptcy.

Most clients we help with payday loans carry other debt as well.  They often turn to payday loans as a way of keeping up with their existing debt payment.

Borrowing money through a payday lender when you have significant other debt typically only delays bankruptcy, it does not eliminate the need to do something to deal with the underlying debt.

Filing bankruptcy for payday loans has two big advantages:

• You eliminate payday loan debt and any other unsecured debt you have, and
• because you are no longer making debt payments, you have more of your pay left each pay period for personal living costs. This means you won’t have to rely on payday loans to balance your budget in the future.

If bankruptcy is the right solution for you, it is better to file early. This allows you to begin saving money and start the process of repairing your credit sooner so that eventually you will qualify for better credit options than high cost payday loans.

Filing a consumer proposal for payday loan debt

It is not true that those who use payday loans only have a low income. More than half the people we help with payday loan debt have income over the government set threshold requiring extra payments in their bankruptcy (called surplus income). 

A consumer proposal will also eliminate payday loan debt.  A consumer proposal may be a viable alternative to deal with payday loans if:

• You have at least $10,000 in total debts including payday loans, credit cards, bill payments and bank loans
• You have an income above the government set surplus income threshold
• You have other assets you wish to keep like equity in your home

A proposal is binding on all payday loan lenders if more than half of your creditors vote in favour of your proposal. If your only debts are payday loans it may be hard to get above 50% approval, so a bankruptcy may be necessary however in our experience most clients carry significant other debt on top of payday loans, so a proposal is a good option to consider.

Will credit counselling deal with payday loans?

In our experience credit counselling cannot eliminate large payday loan debt.

A debt management plan, which is the program offered by credit counselling agencies, is a voluntary program.  Payday lenders typically do not agree to participate because they are not willing to waive such high interest on their loans and they are not willing to take payment voluntarily over 4 to 5 years.

A consumer proposal is generally a better option than credit counselling if you have high payday loan debt, along with other debts, since it is binding on every payday lender whether they vote yes or no, if your proposal is approved.

Tips to ensure your payday loan debt is eliminated

By law, once you file a bankruptcy or consumer proposal, any debts owing at the time you file are included in your proceeding and will be eliminated once you are discharged.

You can stop making payments to your creditors once you file, including those to the payday loan company.  To ensure you receive the full benefit of this discharge we recommend:

• You change bank accounts before you file. This is particularly important if you have signed a voluntary wage assignment, agreed to an automatic pay withdrawal or provided post-dated cheques with the payday loan company. Changing bank accounts stops the payday lender from taking an automatic withdrawal claiming they were unaware of the bankruptcy. The automatic stay provided by bankruptcy law means that creditors are not legally allowed to collect payment after you file, however, it does take a couple days for them to process the bankruptcy documents they receive.
• Do not listen to requests for payment after you file. We have found that some payday lenders aggressively attempt to persuade clients to pay back the loan for moral reasons (after all, they say, you borrowed the money). However, you filed bankruptcy or made a proposal to eliminate your debt, so you should not agree to send them any funds after you file. You can simply remind them you filed bankruptcy and that it is against bankruptcy law to pay one creditor over other creditors included in your bankruptcy or proposal.
• And as always, complete your bankruptcy duties on time so you can obtain your discharge or certificate of completion as soon as possible.

Getting payday loan help

If, like many of our clients, you are using payday loans to keep up with other debt repayment, this is a cycle that is best broken by filing insolvency with a Licensed Insolvency Trustee. 

Bankruptcy will eliminate payday loan debt. Contact us today to talk with an experienced trustee about your payday loan debt relief options.

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Short answer: Your current employer doesn’t need to know that you declared bankruptcy, except in very special cases. There may be situations, however, when filing bankruptcy may affect your application to take on a new job.

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Will My Current Employer Find out I’ve Filed for Bankruptcy?

As part of the usual bankruptcy process, your employer is not told that you’ve filed a bankruptcy. If they want to, they could do an insolvency search, but they’d have to have a specific reason to do so.

The only time your trustee will notify your employer that you have filed a bankruptcy or consumer proposal is if you are facing a wage garnishment and want it stopped. In that case, your Trustee would notify your employer’s payroll department to put a stop to the garnishment deductions taken from your paycheque.

Can I Lose My Job If I File Bankruptcy?

It is illegal in Canada for an employer to fire someone simply because they filed bankruptcy.

Certain professions, however, have professional conduct standards that require someone to disclose if they are bankrupt.  Often these are professions that involve management of money and trust accounts such as an insurance/investment broker, lawyer or accountant. In some cases, their professional designation may be affected. In others, the type of work they can do is limited until after the bankruptcy is discharged. 

We explain later in this post how a consumer proposal can remedy the employment challenges faced by a bankruptcy filing.

In general, if the debts you owe are personal in nature and not the result of fraudulent or irresponsible business activity, an insolvency filing shouldn’t impact you professionally, but it’s still important to check.

If I File for Bankruptcy, Will I Be Able to Get a Job?

In most cases, your ability to obtain employment should not be impacted by an insolvency filing, whether that’s a consumer proposal or bankruptcy.  While in general you are not required to disclose that you have filed bankruptcy or a consumer proposal, some employers may ask if you are currently bankrupt as part of the application process. They may also choose to conduct an insolvency search or credit check as part of the hiring process. This is more common if you are applying for a position that involves significant financial trust.

Can I Still Be Bonded If I Declare Bankruptcy?

If you are an undischarged bankrupt, it might also be hard for you to get bonded. If you handle money for clients as a part of your employment, your job might require what is known as a fidelity bond. Fidelity bonds protect your employer from a loss for their clients as a result of an employee’s behaviour. Being an undischarged bankrupt can make it difficult to be bonded if this is a job requirement. If you are unable to be bonded, an employer may choose not to hire you for these types of positions.

As an undischarged bankrupt, you can also be prevented from holding certain roles such as a director of an incorporated company, a credit union, a co-operative, or a condo corporation.

What Happens to My Wages in Bankruptcy?

You keep your wages in a bankruptcy. Your Trustee does not seize or control your income directly. However, you are required to submit a monthly income and expense report to your Trustee. This information is used to calculate if you earned enough to go over the government set income limit in a bankruptcy. If you do go over this limit, you will be required to make additional surplus income payments. 

Consider a Consumer Proposal

Many concerns regarding the impact of a bankruptcy on employment do not apply in the case of a consumer proposal. A consumer proposal is a repayment arrangement made with your creditors, to repay a portion of what you owe.

In fact, professional designation holders often file a consumer proposal as an alternative to bankruptcy. Since someone who has entered into a repayment arrangement through a consumer proposal is not bankrupt, they are generally excluded from professional guidelines. As such, a proposal can often solve some of the situations that arise in terms of your employment and looking for debt relief solutions. However, any professional should first check any regulations with their professional designation body or society.

Unlike in a bankruptcy, a consumer proposal filing can also allow you to hold director or executor roles.

Every situation is unique, which is why it is important to discuss your personal debt relief needs with a Licensed Insolvency Trustee. Your trustee will carefully review your financial situation and provide you with the best course of action without unduly affecting your employment.

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Below we provide information into how bankruptcy can impact designations and licenses for accountants, lawyers, human resources professionals, certified financial planners, real estate agents, insurance brokers and insurance agents, and medical doctors. In all cases, the key is to be honest with your licensing body or board about your filing.

Bankruptcy Impact on CPA Designation in Ontario

Filing a personal bankruptcy or consumer proposal as a chartered professional accountant (CPA) in Ontario does not mean you will necessary be suspended from membership. You are required to report your bankruptcy to the Office of the Registrar at CPA Ontario. Every case is reviewed on its merits. The Registrar will consider the reasons why you filed insolvency and will then decide whether to do nothing, impose restrictions, remedial activities, or suspend.

Learn more about what happens when you file for bankruptcy as a chartered professional accountant in Ontario.

Bankruptcy Impact on Lawyer License in Ontario

As a practicing lawyer in Ontario filing for bankruptcy, you will need to report your filing immediately to the Law Society of Upper Canada (LSUC). A lawyer filing for bankruptcy will face certain restrictions in their ability to practice. While bankrupt, a lawyer may not receive or hold money in trust; have signing authority or co-signing authority on any trust account; or practice real estate law. You will also need to report on your financial situation to LSUC during your filing.

There are less restrictions if you are filing a consumer proposal, however, LSUC does encourage you to report a consumer proposal in any case. Find out more about what happens when a lawyer files for personal bankruptcy in Ontario.

Bankruptcy Impact on a Human Resources Professional

As a CHRP, CHRL, or CHRE designate filing for bankruptcy or a consumer proposal, you must notify the Office of the Registrar of the Human Resources Professionals Association (HRPA) immediately of your filing. This requirement applies to both new and existing members.

A bankruptcy or proposal filing does not necessarily mean you will have your membership revoked or suspended. The Review committee will consider your cause of bankruptcy and your conduct as a Member. They will also consider whether your bankruptcy puts any client, employer, or any other parties’ interests at risk as a result of your filing. After carefully reviewing your case, the committee can decide whether to take further action.

Read our specific article for more about the potential impact of a bankruptcy or proposal on human resource professionals.

Bankruptcy Impact on Certified Financial Planner Certification

A certified financial planner (CFP) in Canada filing bankruptcy or a consumer proposal does not necessarily mean you will lose your certification with the Financial Planning Standards Council (FPSC). You are required to notify the FPSC within 15 days of your filing.

If you’re a new applicant or a CFP applying for renewal, you will need to declare your bankruptcy or proposal when you fill out the Declarations and Professional Obligations section of the renewal form. The FPSC will consider your reason for filing and situation and decide whether to deny a new or continued certification.

For more information, read our post about what happens when a certified financial planner files for bankruptcy.

Bankruptcy Impact on Real Estate License in Ontario

Filing a personal bankruptcy or consumer proposal in Ontario as a real estate agent does not necessarily mean your registration with the Real Estate Council of Ontario (RECO) will be revoked. You must inform the Registrar’s office within five days of your filing. RECO will consider, in detail, your overall financial picture and reason for filing in order to determine whether you can perform successfully as a real estate agent.

Learn more about the process for a real estate agent filing for bankruptcy.

Filing for Bankruptcy as a Medical Doctor in Ontario

Filing for bankruptcy as a medical doctor in Ontario will have no impact on your ability to practice medicine. However, given your high monthly income, a consumer proposal is a more sensible option to eliminate your debt obligation than to file for bankruptcy. Surplus income rules make bankruptcy a costly option for medical professionals.

As an alternative, a consumer proposal allows for lower monthly payments and ensures you keep any assets you own.

For more information on why a consumer proposal is a better option for doctors, see our article on filing bankruptcy and doctors.

Filing for Bankruptcy as an Insurance Broker in Ontario

Filing a personal bankruptcy or consumer proposal as an insolvent insurance broker in Ontario will not necessarily have a negative impact on your registration with the Registered Insurance Brokers of Ontario (RIBO). The Qualification and Registration Committee at RIBO will review your file and determine whether your insolvency filing will impact your licensing.

For more details, read our post about what happens if an insurance broker files a bankruptcy or consumer proposal.

Bankruptcy Impact on Insurance Agent License in Ontario

Filing for personal bankruptcy as a life insurance agent in Ontario does not necessarily mean your license with the Financial Services Commission of Ontario (FSCO) will be terminated, nor does it mean you cannot become a life insurance agent. A life insurance agent is required to report a personal bankruptcy filing to the FSCO immediately. The FSCO reviews bankruptcy filings on a case-by-case basis and will decide on the future of your licensing based on your reason for filing, your creditors, and your financial situation.

Learn more about what happens if you file bankruptcy as an insurance agent in Ontario.

Always confirm with your professional board or body

If you are considering filing bankruptcy or making a proposal to creditors, it is always prudent to check with your professional designation licensing board or governing body to determine the potential implications before filing.  Talk with a Licensed Insolvency Trustee to see which option, a consumer proposal or bankruptcy, might make sense in your specific situation.

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