How Do I Declare Bankruptcy?

As a Licensed Insolvency Trustee (LIT), I can tell you that the process is not as scary or complex as you may think, nor is it as simple as “declaring” it to a room full of people. Here are the main components of the process of an individual declaring bankruptcy:

1. You must meet with a Licensed Insolvency Trustee.

In Canada, only an LIT is able to provide this service. LITs are licensed by the federal government, and are highly trained in bankruptcy and have significant professional obligations in this regard.

There may be other parties you wish to speak to in the lead-up to bankruptcy, to get additional advice. This may include a lawyer, budget counsellor, or financial advisor. However, the best source of advice about bankruptcy is usually the LIT themselves, as they deal with bankruptcies every day and are subject to professional and ethics guidelines when discussing bankruptcy with you.

2. You will have an opportunity to consider other options and ask questions about bankruptcy before you do anything.

One of the requirements which is enforced by the federal regulator is for the LIT to perform an assessment of your financial situation before the bankruptcy is filed. This assessment must include a review of all options that are available to you, and requires that the LIT makes sure you are aware of the impact bankruptcy will have on you and others, and that you are aware of the duties you will have to perform in the bankruptcy.

You should not feel pressured into any particular option, and you can back out of the process at any time up until the LIT files the documents with the government.

3. You usually do not have to pay anyone for advice about bankruptcy.

As stated earlier, you may wish to hire a lawyer or other professional to give you advice, but this is not a requirement. You can go straight to an LIT and in most cases they will provide a free consultation to discuss your options. If you require multiple meetings with the LIT to prepare for a bankruptcy filing, they may ask you to provide a retainer to guarantee payment for their time to gather the information and prepare the documents, but this is not the norm and is usually only reserved for complex situations. Most often, you will not need to pay anything until such time as the bankruptcy is filed. The extent to which you will then be required to make payments and/or turn over assets is highly dependent on your personal situation, but this is something the LIT will discuss with you before the documents are filed.

4. You will have to provide personal information and details regarding your assets, debts, income, etc. and swear under oath that the information provided is accurate to the best of your knowledge.

This is probably the most difficult part of the process. The documents filed by the LIT must provide as full an accounting of your financial situation as possible, and you will need to do everything you can to cooperate and assist the LIT with gathering that information. You may face consequences if the information you provide to the LIT is incorrect, misleading or incomplete. That said, it’s not necessary that you have every piece of paper or bit of detail available when you first meet with the LIT – they can usually help you figure out what you might be missing and provide some assistance or advice in gathering the additional information required.

5. You may want to sort out some personal affairs before you file the bankruptcy.

While not always a factor, it isn’t entirely uncommon for an individual to have some things to sort out before they go ahead with a bankruptcy filing. For example, if your taxes aren’t up to date or you are involved in a legal dispute, it is sometimes in your best interest to get that sorted out first, so you know how much debt you really owe. As another example, if you are in the process of separating from a spouse, it can make sense to sort out custody and support arrangements before entering a bankruptcy, so that you can provide an accurate picture of your financial situation.

Again, this is not a reason to delay an initial meeting with an LIT. In fact, you may want to consider how a bankruptcy could impact those things before making decisions about them. A consultation with an LIT may help you identify things you might need to sort out prior to filing, and they may be able to provide you some information or a referral to another professional to discuss those things before you decide how to proceed. The point here is that if you’re looking for a true fresh start financially, there may be things besides bankruptcy that you need to consider concurrently or that might warrant temporarily putting off filing the bankruptcy.

As you can see, declaring bankruptcy is not as simple as proclaiming that you are bankrupt, but it usually isn't difficult, with the help of the LIT. However, simply filing a bankruptcy is not the end of the story. While it will immediately stop your unsecured creditors from taking action against you, it does not legally release you from those debts. For that, you will need a discharge from the bankruptcy process. This will occur after a period of time (as little as 9 months), assuming you’ve done everything you are supposed to do (such as relinquishing assets, making payments, attending 2 financial counselling sessions, and cooperating with the LIT) and there are no other objections which the court would need to consider before granting you a discharge.

Bankruptcy isn’t always the right option for an individual facing overwhelming debt, but when it is, LITs are there to assist you with filing the bankruptcy and navigating the process. Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals review their options for dealing with overwhelming debt, and where appropriate we support them through a bankruptcy filing and help them get set up for future success. If you'd like some advice, please reach out to us.

Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.