Every person that files bankruptcy in Toronto with me asks the same question: What’s involved? What do I have to do to make sure my bankruptcy finishes as quickly as possible.

I realize how nerve wracking and stressful bankruptcy can be, so I try to simplify the process by giving every person who files bankruptcy a sheet that lists their duties and responsibilities. Here’s a quick summary:

1. In a bankruptcy, the individual must report their family income to their trustee for us to determine how much, if any, must be paid to their creditors as part of the bankruptcy process. These rules are referred to as “Surplus Income” rules. Simply put, the more you earn, the more you pay while you are bankrupt in Toronto. Each month you will send my office copies of your pay stubs, and based on your actual earnings we will calculate your required payment.
2. There are two mandatory financial counselling sessions to attend. They last about an hour and focus on budgeting and credit repair. Most people tell me these are great sessions, and help them learn how to budget so they don’t get into financial problems in the future. That’s why I call bankruptcy a "fresh start".
3. It is a requirement that the Trustee file the tax returns for the year of bankruptcy and the previous year, if it has not already been filed.
4. Each month the bankrupt person will also make a contribution to their estate to cover basic administration costs. The cost of your bankruptcy will depend on a number of factors, including what you earn, and the size of your family.

This is a quick summary of your duties as a bankrupt in Toronto. For a more detailed explanation, and to find out what would happen in your specific situation, please call our office in Toronto at 310-PLAN, or e-mail us for more information.

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One of the most common questions I am asked is “What does it cost to go bankrupt in Toronto?” It may surprise you to learn that the cost of bankruptcy is different in Toronto than it would be in other cities in Canada, even though the bankruptcy process is legislated by the federal government, and therefore the rules are the same for everyone in Canada.

There are four basic costs of bankruptcy.

First, in most cases there is a monthly payment you will make to the trustee each month to cover the administrative costs of the bankruptcy process, such as mailing costs, filing fees, and trustee’s fees.

For most trustees in Toronto the typical minimum payment would be in the range of $160 to $200 per month. Many trustees may also charge an up-front fee before they will begin work on your file. (At our firm, we typically don’t require an up front fee; you will make your first month’s payment when you sign your bankruptcy paperwork). A first bankruptcy can usually be completed in nine months; a second bankruptcy will take longer, so the number of months for which you will be making payments will depend on your circumstances.

Second, if your income is over the allowable limit, you are required to pay a portion of your surplus income. Each month during your bankruptcy you will send us copies of your pay stubs and proof of any other income you receive. We will then compute whether or not you are required to make an additional payment.

For example, a single person is allowed to earn $1,797 per month after taxes. Someone who earns $1,897 in a month is $100 over the limit, so they would be required to make an extra payment of half of that amount, or $50.

The surplus income limit ($1,797 for a single person in my example above) is the same all across Canada, and is based on what the federal government believes you require to live. This is often unfair to Toronto residents who face much higher living costs than people in other cities, but unfortunately that’s how the rules work. (That’s why a large number of Toronto residents with financial problems choose to file a consumer proposal in Toronto instead of bankruptcy). The surplus income limit changes each year, and is based on the size of your family and certain other factors, like medical expenses and child support payments, so I suggest you contact us to show you how the calculation would work in your situation.

Third, you will also lose your GST credits and tax refunds while you are bankrupt. When you meet with one of our professionals we will explain in more detail how taxes are impacted by bankruptcy.

Finally, you must surrender certain assets when you go bankrupt, including certain RRSPs, and valuable cars and houses. Again, these rules are complex, so we will explain them to you in more detail when we meet.

When you ask many trustees how much will my bankruptcy cost? they tell you about the monthly payment, but don’t explain about surplus income, GST and tax refunds, and assets you may lose. Be sure you understand the full costs before you file for bankruptcy, which is why we always explain the entire bankruptcy process in detail, and then let you decide whether or not personal bankruptcy in Toronto is the correct solution to your financial problems.

To find out how much it would cost for you to file bankruptcy, call our Toronto team at 310-PLAN (that’s 310-7526, no area code required) or E-mail us to arrange a free initial consultation. There is help available, so give us a call, and let’s get started.

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