How Do I Declare Bankruptcy?

How Do I Declare Bankruptcy?

One of my favorite tv show scenes is the bankruptcy declaration scene from The Office. If you don’t know the scene, Michael Scott (arguably the main character of The Office) falls into some financial difficulties and decides that he needs to declare bankruptcy… by walking into the office bull-pen and yelling “I DECLARE BANKRUPTCY!”

Needless to say, this is not how bankruptcy works, but to be fair most people probably don’t know what the actual process of declaring bankruptcy looks like. It’s no surprise. Most people who have gone through the process are a little secretive about it; they typically aren’t out posting play-by-plays about it on social media or spreading the word at cocktail parties. It’s a shame, because the stigma and secrecy surrounding bankruptcy is part of the reason that people sometimes get bad advice or even become victims of scams when they are looking for help with their debt. But that’s a blog for another day…

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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

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Frequently Asked Questions

Bankruptcy is a legal way to get some or all (depending on your financial situation) of your debt forgiven when you can't pay it. For more information, see our bankruptcy page or contact us.

Often no one finds out unless you tell them. Most bankruptcies do not have to be advertised in the newspaper and, while any bankruptcy filing goes on the public record, someone would have to search for it (and pay a fee) to find that record.

Sometimes it helps to know how much your creditors would get in a bankruptcy, as this can help you figure out what a fair settlement with your creditors looks like. The amount your creditors could expect to receive if you made a bankruptcy filing is very much dependent on your situation.

A Licensed Insolvency Trustee will review your assets, debts, income, and family situation, while considering the applicable provincial laws about exempt assets, in order to determine what impact bankruptcy would have on your creditors. Be careful taking advice from anyone else about bankruptcy – only a Licensed Insolvency Trustee can provide bankruptcy filing services, so they have the training and experience to provide information you can rely on. 

For more details on the features and benefits of Bankruptcy, visit this page or contact us.

There's a common misconception that if someone becomes bankrupt, everything they have gets sold to pay creditors and they're left with nothing. 

The truth is, people often don't lose their assets in bankruptcy for one or more of the reasons we've discussed in What I Wish People Understood About Bankruptcy: Will I Lose All Of My Assets? :

There are many factors unique to your situation which must be considered to determine what you could keep in a bankruptcy. To be sure, the best way to find out is to contact a Licensed Insolvency Trustee for a free no-committment assessment.

It can be hard to identify a debt consultant when you're viewing their advertising or website. Sometimes you might think you are dealing with a LIT. Debt consultants often refer to Consumer Proposals and sometimes imply that this is a service they can provide, even though they cannot.

According to Directive 33, issued by the Superintendent of Bankruptcy, "Licensed trustees shall identify themselves using the professional designation “Licensed Insolvency Trustee” or the acronym “LIT” in all communications or representations falling within the purview of a licensed trustee under the BIA".

Therefore, if it is not immediately clear that the company or individual is a Licensed Insolvency Trustee, chances are they are not. For a list of valid Licensed Insolvency Trustees, try the Find an active Licensed Insolvency Trustee page on the Government of Canada's website. Or, contact us and we can help you make sure you're dealing with a legitimate company.

Absolutely. A Licensed Insolvency Trustee can talk to you about an array of options, including a Consumer Proposal. There may be some options that are not realistic for you, based on your situation. A Licensed Insolvency Trustee will meet with you and go over the options, helping you figure out which options are realistic for you and which one is the best to deal with your debt. Contact us to book a meeting to find out more.

Typically the only impact on your spouse occurs if they have co-signed any of your debt. In that case, if you are not able to pay the debt your spouse may become fully responsible for it. Often, people bring their spouse along to our consultation meetings, in which case we are able to discuss their situation as well, and the impact your options might have on them. Contact us to set up a meeting.

If you don't get discharged from your bankruptcy, your Trustee will eventually apply for its own discharge. Once your Trustee gets its discharge, your creditors' rights to collect the pre-bankruptcy debt are revived, so you are no longer protected from asset seizures, wage garnishees or any other collection action.

You also remain responsible to disclose the fact of your bankruptcy in situations where you are requesting credit, and your bankruptcy will continue to show up on your credit report. Because of this, you may find you cannot get credit when you need it, or you may find that the interest rate you are offered is very high, making it difficult to buy assets.

Review our blog Getting Back On Track: How Not To Stay An Undischarged Bankrupt for information on how to get discharged frm your bankruptcy so that you can move on with your life.


With our experience and our caring approach, we will help you find the best option for debt relief based on your unique situation - from advice on talking to your creditors to a consumer proposal or bankruptcy, and everything in between. We are here to lift the burden caused by overwhelming debt. 

Contact us today at 1-403-899-3890‌ for a FREE, no-commitment meeting, and let us guide you to regaining your financial footing.

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