What is bankruptcy?

Bankruptcy is a process governed by the Bankruptcy and Insolvency Act that allows individuals and companies to put an end to their debt problems in a short period of time. Bankruptcy allows you to discharge a large portion of your debts by surrendering some of your assets.

There are two types of bankruptcy: voluntary and forced. Voluntary bankruptcy occurs when you decide to go bankrupt yourself, whereas forced bankruptcy occurs when your creditors force you to do so.

Conditions for filing for bankruptcy in Quebec

There are a number of conditions that must be met in order to file for bankruptcy in Quebec. In order to file for bankruptcy, a person must:

• Have debts of $1,000 or more
• Not already bankrupt
• Reside or own property in Canada
• Be unable to pay your debts on time
• Not being able to pay current bills (credit card balances, electricity bills, etc.)
• Have assets that are less than your liabilities, i.e. the value of all your assets is less than the value of your debts.
• Reach your borrowing limit and your bank won't provide any further financial assistance.

If you find yourself in this situation, be sure to consult a licensed insolvency trustee promptly to determine whether personal bankruptcy is the best solution for you.

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How do I file for bankruptcy in Quebec?

The procedures for filing for bankruptcy in Quebec are complex, requiring time and expertise. That's why we recommend consulting a licensed insolvency trustee.  

Here are the main steps in the bankruptcy process in Quebec:

1. Meeting with the syndic

The first step is to meet with a trustee to assess your financial difficulties and analyze your needs. The purpose of this meeting is to determine whether personal bankruptcy is the best option for you, or whether other options are more suitable. It is often possible to avoid bankruptcy by choosing an alternative option such as a consumer proposal.

2. The forms

Then, with the help of the trustee, you'll have to prepare a balance sheet detailing your debts and assets. You'll also need to fill out a form to assign your assets to the trustee and officially begin the bankruptcy process. The trustee is responsible for filing all documents with the official receiver. Once the bankruptcy process has begun, your creditors will no longer be able to pursue you.

3. Identification of goods for sale

You and your trustee will determine which of your assets will be sold to pay off your creditors. Some of your assets are protected by law, so they won't be seized or sold.

Here's what you can keep:

• Household and personal goods for you and your family up to $7,000.
• Your RRSP or RRIF contributions, except those made less than 10 months prior to bankruptcy.
• The cash surrender value of a life insurance policy, only if the beneficiary is your spouse, direct ascendant or descendant.
• Instruments that are necessary for your profession or daily life, such as a vehicle or a computer.
• Your home, provided that its net value is zero, or that an acceptable agreement is reached with the trustee if the net value is reasonably low.
• A portion of your salary determined by law.

The trustee will then proceed with the sale of the unprotected assets. The proceeds of this sale will be distributed to your creditors in the order set out in the Bankruptcy and Insolvency Act.

4. Notice to creditors

The trustee then sends a bankruptcy notice to your creditors. This notice contains full details of the value of your assets and the nature of your debts. In some cases, your trustee may call a meeting of creditors, which you must attend.

5. Examination by the Office of the Superintendent of Bankruptcy

The Office of the Superintendent of Bankruptcy may invite you to an examination where you will be asked questions regarding the causes of your bankruptcy or certain dispositions of your property.

6. Consultations with a financial reorganization advisor or trustee

You need to attend two types of consultation with a financial reorganization advisor or trustee. During the first consultation, you will receive advice on how to organize a budget.

During the second consultation, your trustee or advisor will explain the causes of your overindebtedness and offer advice and solutions. These two consultation meetings are mandatory to qualify for an automatic discharge at the end of the bankruptcy process.

7. Bankruptcy discharge

The final step is the discharge of your debts, i.e. the debts defined in your bankruptcy are erased. All you have to do is complete all the steps and meet all the conditions. Discharge is either automatic or requires a discharge hearing.

An automatic discharge is granted between 9 and 21 months after the date of your bankruptcy. You will be entitled to this if:

• This is your first bankruptcy
• No one opposes your release
• You have taken part in the statutory consultations

If this is your second bankruptcy, automatic discharge is still possible. However, discharge takes place 24 to 36 months after the date of your bankruptcy.

If you go before a release hearing for a court judgment, depending on your situation you may be judged for:

• Absolute freedom: You're debt-free and have nothing else to pay.
• Conditional release: You are released only under certain conditions (payments over a given period of time).
• Suspended release: You will not be released until a future date.
• Refused discharge: the court refuses to discharge you from your debts (which is rare).

What is the role of the syndic?

The role of a licensed insolvency trustee is to manage the bankruptcy process from A to Z. He or she assesses your financial situation and needs, based on your level of indebtedness, your assets, your family situation and your budget.

Based on his analysis, he determines whether personal bankruptcy is the best solution or whether other options are more advantageous for you. If bankruptcy is the right option for you, he will work with you to determine which assets you should sell and which you can keep.

We also offer counseling sessions on budgeting, credit and consumer affairs. The trustee also monitors your situation until you are released. He is responsible for monitoring your budget, income and financial situation.

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The advantages of bankruptcy

Filing for bankruptcy allows you to recover your peace of mind. It has many advantages, such as

• It puts an end to harassing calls from your creditors.
• No more wage garnishments
• Eliminate most of your debts
• You'll receive training to help you manage your finances and avoid falling back into this situation.
• You can start all over again. Bankruptcy allows you to rebuild your credit rating.

How long does bankruptcy last?

Several factors influence the duration of a bankruptcy in Quebec. It depends on whether it's your first or second bankruptcy, and on your surplus income. Surplus income is the portion of your earnings during bankruptcy that exceeds the income you need to maintain a reasonable standard of living.

For a first bankruptcy :

• No excess income = 9 months
• With surplus income = 21 months

For a second bankruptcy :

• No excess income = 24 months
• With surplus income = 36 months

The syndic will be able to explain the criteria in greater detail and calculate your excess income.

Which debts are affected by bankruptcy?

Bankruptcy does not discharge all your debts. Some debts are not dischargeable. Here is a list of debts included and not included in bankruptcy.

Releasable debts

• Personal loans
• Accumulated bills
• Late fees for professional services
• Tax liabilities
• Unpaid credit card balances
• Debts to collection agencies
• Debts on lines of credit
• Student loans (if a period of 7 years has elapsed between the end of studies and the date of bankruptcy).

Non-rechargeable debts:

• Alimony debts
• Debts arising from fraud, embezzlement or breach of trust.
• Fines, penalties and violations.
• Compensation payable in a civil case.
• Student loans with exception.
• Debts arising from misrepresentation, i.e. when a person lies about his or her employment income in order to obtain a personal loan.

How long does the bankruptcy stay on my credit file?

Filing for bankruptcy has a considerable impact on your credit file, as it allows banks and lenders to determine the value of the risk they run in lending you money.

The bankruptcy remains on your credit file for 6 years after your discharge date in the case of a first bankruptcy. For a second bankruptcy, it remains on your credit file for 14 years after the date of your discharge.

The Bankruptcy and Insolvency Act allows people to obtain new credit when they are discharged from bankruptcy. So you don't have to wait until bankruptcy is discharged to apply for new credit. Instead, you'll have to wait 2 to 3 years from the date of your bankruptcy discharge.

Here are a few tips to help you borrow after declaring bankruptcy:

• Adopt good financial habits
• Borrow a reasonable amount of money and pay it back within a short period of time.
• Make regular payments to improve your credit rating.

How much does bankruptcy cost in Quebec?

During your bankruptcy, you will have to make monthly payments to your authorized insolvency trustee. These payments vary according to your financial capacity. The amount to be paid varies from case to case, depending on a number of factors, such as income, seizable assets, and so on.

For a first bankruptcy, monthly payments vary between $150 and $200 for the duration of the bankruptcy. When you have people who are financially dependent on you, the amount is reduced. If you have special expenses such as health care or alimony, this will affect your monthly payments.
If you have any specific questions about your situation, please don't hesitate to contact us.

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