Declaring bankruptcy in Alberta is a straightforward legal process countless Albertans navigate each year. For many people, declaring bankruptcy is the best option to handle debt and interest costs they have no practical means of paying.
The individual circumstances that lead to these financial challenges are unique and are often the result of compounding factors over time rather than a single event or action. Initiating the bankruptcy process is not an easy decision to make. Regardless of the circumstances, anyone embarking on this process deserves commendation for their strength in making a difficult yet reasonable decision.
- The federal government oversees filing for bankruptcy in Alberta
- What is the difference between insolvency and bankruptcy?
- Should you file for bankruptcy in Alberta?
- Four alternatives to bankruptcy
- Managing emotions before filing for bankruptcy
- 5 steps to file for bankruptcy in Alberta
- Step 5. Bankruptcy discharge
- Frequently asked questions about filing for bankruptcy in Alberta
The federal government oversees filing for bankruptcy in Alberta
The federal government's Office of the Superintendent of Bankruptcy administers the Bankruptcy and Insolvency Act for all Canadians filing for bankruptcy. If a person files for bankruptcy while living in one province and then moves to another, this will not impact their bankruptcy process. The notable bankruptcy differences between provinces and territories are the lists of assets that are exempt from seizure during bankruptcy.
Alberta bankrutcy asset exemptions
Alberta bankruptcy asset exemptions include the following:
- Food for the bankrupt and their dependents for a 12-month period
- Personal clothing valued up to $4,000
- Furniture and appliances valued up to $4,000
- A vehicle valued up to $5,000
- Up to $40,000 in equity in a principal residence
- Trade tools valued up to $10,000
- 160 acres of farmland if the individual's primary source of income comes from farming
- Required farm property for 12 months of operations
- Social allowances and benefits.
What is the difference between insolvency and bankruptcy?
People often use the terms insolvency and bankruptcy interchangeably and this is confusing. Here are the differences between them:
- Insolvency is a situation in which a person does not have the means to pay their financial obligations on time
- Bankruptcy is a legal process that allows a person to free themselves of most debts and offers protection from creditors.
Read more about debt consolidation
Should you file for bankruptcy in Alberta?
There are a few notable situations in which declaring bankruptcy is the best option for an insolvent person:
- They discussed their financial problems with their bank or credit card companies; these creditors are unwilling to provide further assistance
- Limited equity remains in secured assets such as a house or car
- They are continually late making payments and miss at least one payment each month
- Their credit rating is poor and they don’t understand what their credit report is telling them
- They are balancing debt payments with other forms of debt
- A person uses credit cards to make payments on other credit cards
- The person suffered a job loss with limited future job prospects
- No practical way of continuing to make debt payments exists.
Four alternatives to bankruptcy
A Licensed Insolvency Trustee can reviewan individual’s financial situation to determine the most beneficial path forward. There are four alternatives to bankruptcy. If none of them are feasible, then declaring bankruptcy might be the option.
Credit counselling is ideally the first step when someone is experiencing financial difficulty. It's an effective option for preventing or managing financial challenges. However, credit counselling is often no longer a reasonable option when someone is considering filing for bankruptcy.
A drawback of credit counselling is not all credit counselling services are the same and can have different motives. If you are looking for unbiased advice on how to get a handle on your finances, search for credit counselling organizations. Look for positive online reviews and are non-profits.
Consolidating all debt into a single loan with one payment is a common. Often, people have difficulty managing credit cards, lines of credit, student loans, etc.
There is a benefit to consolidating these debts. Having one payment each month reduces the stress of managing the cost and increases your likelihood of making debt payments.
When consolidating your debts, you move most of your debt to one loan. For example, when a consolidation loan pays off your credit card balances. If you had four credit cards with four payments each month, you would now have only one monthly loan payment.
For debt consolidation to be a reasonable option, you need to have a good credit score and assets to use as collateral. If you are not sure what your credit score is, you can get it from TransUnion or Borrowell.
Debt consolidation is an effective strategy to get out from under debt. However, it can also be another debt trap for Albertans. Having room on credit cards and lines of credit can lead to further spending and debt. For debt consolidation to be an effective long-term solution a person needs to change their spending and debt habits. There exists programs, like Consolidated Credit, that can walk you through the process of debt consolidation.
Informal debt settlement
Informal debt settlement with creditors is when a person and their creditors negotiate a settlement of outstanding debt with more favorable terms. This is a good option if a person has a positive payment history with their lenders, a good credit score and has the financial means to service the debt.
A drawback is either the individual or their Licensed Insolvency Trustee has to contact each lender to negotiate new terms. This can be difficult for individuals to do on their own. They might feel embarrassed doing it.
However, remember that a person is doing their lenders a favour by getting ahead of their debt and working to avoid insolvency. Receiving payments with different terms is better for a lender than having a borrower default on the loan principal.
A consumer proposal is a good option if a person is struggling to meet their financial obligations but doesn’t want to file for bankruptcy. A Licensed Insolvency Trustee manages and negotiates a consumer proposal on your behalf.
The terms of an agreed consumer proposal with lenders is oten considerably better than current terms. It reduces overall payments. Your payments never go up, and have an agreed fixed schedule.
A benefit of a consumer proposal is that a person is likely to keep their secured assets such as a home and car. Also, unlike with bankruptcy, a Licensed Insolvency Trustee doesn't manage and liquidate the person's assets to pay off any debts. When payments are set, they don't increase if the individual's income does.
Consumer proposals appear your credit report and negatively impact your credit rating. There are certain credit cards that help rebuild credit.
Managing emotions before filing for bankruptcy
Before we get into the five steps to file for bankruptcy in Alberta, let's acknowledge the many emotions that come with financial insolvency and bankruptcy. People question their self-worth, fear disappointing family members, and experience general dismay around the new reality of their financial situation. It is important to remember these emotions help us make difficult but necessary decisions to keep us from insolvency.
Let’s be clear: declaring bankruptcy is a positive step that ultimately provides an insolvent person with a fresh financial start. In time, negative emotions become positive. You gain hope for the future and can start over with a clean financial slate.
5 steps to file for bankruptcy in Alberta
Step 1. Find and select a Licensed Insolvency Trustee in Alberta
The first step to start the bankruptcy process is to find an insolvency expert to review your financial situation and provide you with professional advice on the best way to handle your debt. A Licensed Insolvency Trustee in Alberta is a person licensed by the federal government’s Office of the Superintendent of Bankruptcy. The simplest way to find a Licensed Insolvency Trustee near you is to search the Federal Government's directory of Licensed Insolvency Trustees. Five companies with Licensed Insolvency Trustees on staff are: BDO Canada, Deloitte, MNP Ltd, Grant Thornton, and Allan Marshall & Associates Inc.
When a person has an initial conversation with a Licensed Insolvency Trustee, it is important to be open and honest about their current financial situation.
It is completely normal to be apprehensive about sharing information an individual may find embarrassing; however, they need to remember a Licensed Insolvency Trustee has heard and seen it all before. Like medical professionals, they need their clients to be open and honest so they may provide them with the best advice. Declaring bankruptcy in Alberta may not be the best option for them to get a handle on their debts. A Licensed Insolvency Trustee is legally and ethically obligated to provide a person with objective advice and guidance, and that may be an option other than bankruptcy.
Step 2. Gathering and preparing bankruptcy documents
Filing for bankruptcy isn’t something a person can do on their own, they will need to work with a Licensed Insolvency Trustee to administer the process. A Licensed Insolvency Truste determines the total value of all assets, such as a residence, vehicle, Registered Retirement Savings Plan (RRSP), company pension, and cash on hand.
Furthermore, they total both secured and unsecured liabilities will, such as mortgages, credit cards, lines of credit, and past legal judgments. The Licensed Insolvency Trustee prepares the necessary bankruptcy documents using this information, as well as other data outlining all sources of income and expenses. The trustee prepares the necessary bankruptcy documents that to submit to the government.
Step 3. Licensed Insolvency Trustee files bankruptcy documents
A person filing for bankruptcy in Alberta signs the bankruptcy documents provided by the Licensed Insolvency Trustee, who then files them with the federal government. Once submitted, the beginning of bankruptcy is confirmed and the Licensed Insolvency Trustee informs the court and all creditors that a Stay of Proceedings is in effect.
Once the Stay of Proceedings is filed, creditors may then only deal with the Licensed Insolvency Trustee. A Stay of Proceedings protects a person from the following:
- Enforcements of past court judgments;
- Further legal actions
- Creditor phone calls
- Ongoing interest charges
- Wages withheld by an employer for payment of a debt.
Step 4. Bankruptcy
Once all required documents are filed with the government by the Licensed Insolvency Trustee, a person is bankrupt for a standard period of time. This time is 9 months for a first-time bankruptcy and 21 months if the bankrupt person has surplus income.
Surplus income is income earned during bankruptcy that is beyond what the Licensed Insolvency Trustee determines the bankrupt person needs to maintain a reasonable standard of living. If this is the second bankruptcy, the bankruptcy standard period of time increases to 24 months and 36 months if there is surplus income.
Obligations during bankruptcy
A bankrupt person is required to perform specific duties during bankruptcy, which include but are not limited to: surrender of non-exempt assets to the Licensed Insolvency Trustee; provide all credit cards to the Licensed Insolvency Trustee; attend at least two credit counselling sessions to learn how to avoid the same financial mistakes; provide the Licensed Insolvency Trustee with proof of monthly income and certain expenses; provide the Licensed Insolvency Trustee with all material required to file the bankrupt person’s tax return; and make monthly payments to the Licensed Insolvency Trustee to cover administrative costs.
Step 5. Bankruptcy discharge
A bankrupt person is automatically discharged from bankruptcy after the time periods noted in step #4. At this point, the person is no longer considered bankrupt, and they no longer have a legal obligation to pay the majority of the debts they had at the time of filing for bankruptcy in Alberta. There are a few types of debt that the recently bankrupt person is still responsible for after disrcharge: debts from perpetrating fraud; spousal and child support; monetary penalties imposed by the Court; and student loans from within 7 years of being a part-time or full-time student.
A person risks not being discharged from bankruptcy if they fail to meet their obligations during bankruptcy or have committed an act of misconduct under the Bankruptcy and Insolvency Act.
Frequently asked questions about filing for bankruptcy in Alberta
Bankruptcy will show on your credit report for a period of 6 years.
The following assets and items are protected while you are bankrupt: food for the bankrupt and bankrupt’s dependents for a 12-month period; personal clothing valued up to $4,000; furniture and appliances valued up to $4,000; a vehicle valued up to $5,000; up to $40,000 in equity in a principal residence; trade tools valued up to $10,000; 160 acres of farmland if the primary source of income comes from farming; required farm property for 12 months of operations; social allowances and benefits.
A Licensed Insolvency Trustee is a regulated professional who provides advice and services regarding debt problems. Licensed Insolvency Trustees are the only professionals authorized by the federal government to administer regulated insolvency proceedings.
Bankruptcy typically lasts 9 months for a first-time bankruptcy and 21 months if the bankrupt person has surplus income. If it is a second bankruptcy, the standard period of time increases to 24 months and 36 months if there is surplus income.
A bankrupt person is required to perform specific duties during bankruptcy, which include but are not limited to: surrender of non-exempt assets to the Licensed Insolvency Trustee; provide credit cards to the Licensed Insolvency Trustee; attend at least two credit counselling sessions to learn how to avoid the same financial mistakes; provide the Licensed Insolvency Trustee with proof of monthly income and certain expenses; provide the Licensed Insolvency Trustee with all material required to file the bankrupt person’s tax return; make monthly payments to the Licensed Insolvency Trustee to cover administrative costs.
A person will need to meet with a Licensed Insolvency Trustee to evaluate if declaring bankruptcy is the right course of action. If it is, the Licensed Insolvency Trustee will guide the person on what they need to provide in order for the Licensed Insolvency Trustee to submit the required bankruptcy documents to the government.
Yes, you can keep your house and up to $40,000 in equity.
Typically, a person can apply for a mortgage from a major lender 1.5 to 2 years after being discharged from bankruptcy. At this point, the Canada Mortgage and Housing Corporation will review and consider your mortgage. Other factors that will determine if a lender will provide a mortgage include the credit score and the overall debt servicing ability of the applicant.
A bankrupt person can begin rebuilding their credit history immediately after they have been discharged from bankruptcy.
A person who has been recently discharged from bankruptcy can apply for credit cards and loans but may have reduced options. Lenders may require the person to have a co-signer or a secured credit card.
Take out a line of credit, pay it off on time and build your credit history. We'll be with you every step of the way.
About The Author: Arthur Dubois
Passionate about personal finance and financial technology, Arthur Dubois is a writer and SEO specialist at Hardbacon. Since his arrival in Canada, he’s built his credit score from nothing.
Arthur invests in the stock market but doesn’t pay any fees because he uses National Bank Direct Brokerage online broker and Wealthsimple’s robo-advisor. He pays for his subscriptions online with his KOHO prepaid card, and uses his Tangerine credit card for most of his in-store purchases. When he buys bitcoins, it’s with the BitBuy online platform. Of course it goes without saying that he uses the Hardbacon app so that he can manage all of his finances from one convenient place.
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