What is the Cost of Filing Personal Bankruptcy in Ontario, Canada?

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The Cost Of Filing Personal Bankruptcy?

It seems weird but it actually costs money to file personal bankruptcy in Ontario.  If you don’t have any money, how can you afford to file bankruptcy? In the vast majority of the cases we deal with it is not that a person does not have any money.  In most cases, the person does not have enough money to repay their debts. That is, they have some money, just not enough to repay their debts.

If a person (actually) does not have any money, then in reality, there is no need to file personal bankruptcy because there is nothing for their creditor(s) to get.  Sure, the creditors can take them to court but if the person has no money, what will the creditors get? Nothing.

Typically, a simple bankruptcy costs $200 per month for 9 months (a first time bankrupt where the monthly income is below the government guideline) for a total of $1,800.  This cost is to cover the various administrative costs such as government filing fees, the bankruptcy trustee’s time, mailing documents to creditors, providing mandatory credit counselling sessions, etc.

However, the “cost” of filing personal bankruptcy is not straightforward and can vary from person to person depending on each person’s individual situation when the person’s income is higher than the government guideline, has a prior bankruptcy or has assets that are not exempt from seizure by a trustee.  This is where it gets very complicated on what a bankruptcy costs in Ontario.

There are four main factors that impact the “cost” of a bankruptcy.  They are:

  • The (net) monthly income of the person;
  • The size of the person’s family; 
  • What assets (if any) that person owns; and
  • Has the person previously filed bankruptcy.

The Bankruptcy Income Test (aka Surplus Income Payments)

In Canada, the cost of a personal bankruptcy is based on an income test.  In this test, the more that you earn, the more that a bankruptcy will cost you.  The actual term is called Surplus Income.

If your income exceeds a set government amount (that is based on the size of your family), you will have what is called surplus income.  As a result, you will be required to make surplus income payments over an extended period of time (from 21 to 36 months). The surplus income payment is 50% of the surplus income.  For example, let’s say you have surplus income of $400 over the government limit, you will be required to pay 50% of that surplus to the trustee for that particular month. In this case, $200.  If your surplus income remains the same for the term of your bankruptcy, you will be required to pay that for 21 months.

Surplus income also affects how long your bankruptcy will last.  Here is a breakdown:

  • First bankruptcy and no surplus income = 9 months
  • First bankruptcy with surplus income = 21 months (an additional 12 months)
  • Second bankruptcy and no surplus income = 24 months
  • Second bankruptcy with surplus income = 36 months (an additional 12 months)

Non-exempt Assets

Another item that impacts the “cost” of a bankruptcy are assets that are not exempt. Certain assets would need to be surrendered to the trustee or purchased from the trustee.

Assets that are exempt from seizure by a trustee are:

  • Vehicles worth less than $6,600 (after taking into account the vehicle loan, if any)
  • Equity in your residence less than $10,000
  • RRSP (excluding recent contributions)
  • Furniture and appliance of $13,150
  • Most pension plans and life insurance policies
  • Tools and equipment up to $11,300 (that are used to earn a living)

Person’s that have assets and surplus income will find that a consumer proposal is a more effective way to deal with their debts.

As you can see from above, the cost of filing personal bankruptcy in Ontario is not straight forward. Want to know how much a bankruptcy would cost you? Contact us and we will go over how much your bankruptcy would cost and if you wanted to file a consumer proposal instead how much it would cost. This way you can make a more informed decision on the right debt relief solution for you.

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