There are numerous misconceptions about bankruptcy and insolvency in Canada. The Bankruptcy and Insolvency Act; the major act that governs all bankruptcy proceedings in Canada, has undergone many changes over the past few decades. Consumer Bankruptcy filing procedures have been streamlined, and certain measures have been taken in order to streamline the bankruptcy process, in order to minimize cost, and to protect the right of consumers and creditors. Examples of these misconceptions include:

1. It used to be that all bankruptcies required a notice in the local newspaper and a mandatory Court appearance. This was true 25 years ago, but now, almost all consumer bankruptcies DO NOT require a notice in the local newspaper and never see the inside of a court room. In most consumer bankruptcies, the only people who know about the bankruptcy are the creditors, the government and your Trustee.

2. The notion that bankruptcy implies a 7 year punitive period. Again this is false information. For a first-time bankrupt, bankruptcy lasts a minimum of 9 months and a maximum of 21 months. For a second time bankruptcy, the respective terms are 24 and 36 months, not 7 years !

3. Just because YOU go bankrupt it DOES NOT mean your spouse has to. Sure, under certain circumstances your spouse can get roped into the bankruptcy if all of your debt is co-signed by your spouse or if your spouse has guaranteed your debt. But, that is usually not the case. Legally, your spouse is NOT automatically responsible for your debt.

4. I will lose all my assets in a bankruptcy. Again, not true!  There are prescribed exemptions in every province – In Ontario you keep:

  1. Food, fuel, household furniture, appliances: up to $11,300. (most households do not come close to this value as used furniture is virtually worthless)
  2. Clothing: up to $5,650.
  3. One motor vehicle up to $5,650 (unless it is subject to a car loan in which case the Trustee usually has no interest in the vehicle)
  4. Tools of your trade: up to $11,300.
  5. Farm property: seed for up to 100 acres, feed and bedding for the current winter, 14 bu. potatoes, other up to $28,300.
  6. Most pension plans and life insurance policies.
  7. RRSPs (except for any contributions made in the past 12 months)

5. Tax Debts and Student loans are non-dischargeable debts in a bankruptcy. False! The facts are: Tax debt is no different than credit card debt, and Student loans can also be discharged as long as you have been out of school for at least 7 years.

6. Only irresponsible or unreliable people resort to bankruptcy. Wrong ! The most common causes of insolvency in this country are related to marital breakdowns, loss or change of employment, and health issues. The majority of people seeking debt relief are simply unfortunate or may have perhaps made an unfavorable decision. It says nothing about the integrity of the individual.

There are a lot of other misconceptions about bankruptcy and proposals. If you have questions or concerns, we suggest you take the time to learn about the facts. Don’t make an uninformed decision because you didn’t have the necessary information and you relied on hearsay. If you want to know more, please contact us by phone, by email or search our site for topics that relate to your questions.