What does it mean to be bankrupt?
Bankruptcy is a legal process. The purpose of which is to give an honest but unfortunate person a discharge from their unsecured debts. Therefore, you can voluntarily put yourself into bankruptcy provided you carry on business or reside in Canada, have more debts then assets and have at least $1,000 in unsecured debt. Because bankruptcy is a legal process, there is what is called a stay of proceedings in place that will prevent a garnishment or any legal action from continuing. If you have never been bankrupt before you may be entitled to an automatic discharge from bankruptcy in 9 months, the minimum time set by the Court to be bankrupt, provided you complete various duties and responsibilities.
By voluntarily making an assignment into bankruptcy you are eliminating all your unsecured debts and the court who will give you relief from the debts and a fresh start. There are certain debts that you will not get relief from such as, student loans that are less then 10 years old since you graduated or stopped going to school and/or any debt for alimony or child support. Secured debt, such as a car loan or mortgage are not included as the person you owe the money too has the asset as collateral. Therefore, if you do not pay for the asset they can take it back. Thus they do not need the bankruptcy process to recover the amount owing to them as they have other remedies available.
As part of the bankruptcy process you must also surrender any assets you have to the trustee, who will realize or sell same and distribute the funds to your creditors or the people you owe money to. In this way, your creditors can recover some of the debt owed to them. For most people this is any RRSPs, Investments and or RESPs. There are some assets that are exempt from seizure, thus the trustee will not take them from you. In Ontario, a car worth less then $5,650 is exempt, personal items such as clothing worth less then $5,650 and household items worth less then $11,300.
