You can not hire a Trustee to work for you or represent only your interests

The first thing that you may not know about a bankruptcy trustee is that the trustee does not represent a bankrupt individual. Many people believe they are hiring a trustee to work for them. A bankruptcy trustee does not work for you. While the bankruptcy trustee is there to help guide you through the bankruptcy process they act as an officer of the court. The trustee is not the agent of the bankrupt or the creditors, although he does have responsibilities to each.

What is the true cost of a bankruptcy?

When you file a bankruptcy there are a number of things that can be involved that generate possible recovery for the benefit of your creditors. In most cases when you decide you are going to file a bankruptcy you will be quoted a fee from the trustee for the cost of the bankruptcy. This should be written up in the form of a payment agreement. The payment agreement should outline the amount of fees being paid, the payment schedule of required payments, whether income tax refunds are being applied and whether Surplus Income payments, or asset repurchase are part of the payments.

There are a few important things that you should ask about to ensure you have all of the details about what the true cost will be for the bankruptcy. For example:

Income Tax Refunds:

-An income tax refund for the year prior to the bankruptcy or for the current year up to the date of the bankruptcy would be considered part of a bankruptcy. It would be sent directly to the bankruptcy trustee from CRA for the benefit of the creditors. In some cases a tax refund can be applied towards the bankruptcy fee. This must be clarified prior to the filing of the bankruptcy. An important question to ask is whether or not a tax refund received by the trustee will be applied to your bankruptcy fees.

Our Policy

-In some cases we will apply tax refunds to the payment agreement. We are not able to apply tax refunds if you have surplus income, or are repurchasing assets from the bankruptcy. This should be discussed prior to the signing of the bankruptcy so it can be written on the payment agreement if tax refunds will be applied.

GST Refunds

-The quarterly amount sent out to individuals as GST Credit is not classified as an asset that belongs to the bankruptcy. However, the GST credit will be sent directly to your bankruptcy trustee while you are in bankruptcy. You should ask whether this GST credit will be applied towards your bankruptcy payments and if any extra GST credit received that is not used towards your bankruptcy fees will be returned to you at the end of the bankruptcy.

Our Policy

-We will always apply GST credit to your payments. This includes situations where there is surplus income or assets being repurchased. Any GST that we receive that is not applied towards your payments will be returned to you once the administration of your bankruptcy is complete. We are able to do this because GST is not considered property of the bankruptcy estate. Therefore we can apply it to the repurchase of assets.

Non-exempt assets

-Assets that are not classified as exempt (click on word exempt to be taken to listing of exempt assets) would need to be delivered to the trustee to be sold for the benefit of creditors or bought back (by the bankrupt individual) from the bankruptcy estate. Before you sign any bankruptcy documents it is important to be clear about what is going to happen to any assets you may own. It is sometimes possible to repurchase assets from the bankruptcy estate. When a payment agreement is being drawn up for your bankruptcy be sure to ask if you are able to buy back any smaller assets from the bankruptcy fees being paid or if you would have to pay for these assets in addition to your fees.

Our Policy

In most cases we will allow the repurchase of assets from the payments being made for the bankruptcy. This is possible when the value of the asset is less that the amount being paid for the bankruptcy fees. If the value is more that than the bankruptcy fees it is still possible to buy the asset back, however, the amount to be paid into the bankruptcy would be the value of the asset. If there is surplus income this will change things. We are not able to apply surplus income payments to the repurchase of assets. These issues should be clarified prior to the signing of your bankruptcy. If you are repurchasing assets this should be written right into your payment agreement.

Surplus Income

-The Superintendent of Bankruptcy sets standards for surplus income (link to OSB website – Superintendents Standards) based on the number of people in your household. These standards set out the amount of net family income you can make before you have surplus income. It is important to discuss whether you have surplus income and how this will affect the required payments in a bankruptcy before you sign a bankruptcy. Surplus Income can also extend length of time it would take to complete a bankruptcy. If you have a fair amount of surplus income a proposal may be a better option for you than a bankruptcy. This should be discussed in detail before you make a decision.

Our Policy

The amount of surplus income a person has is determined by the guidelines set out by the Superintendent of Bankruptcy. If you have surplus income under the guidelines you will be required to make payments on this surplus for the period of 9 months. At the time of the application for discharge (at approximately the 8th month) all information will be reviewed. If the surplus income continues the trustee will be required to recommend payments of the surplus income for an additional 12 months. If you have surplus income we will allow the bankruptcy fees to be paid from the surplus income payments. If you have assets you would like to repurchase this can not be done from surplus income payments. A separate payment would need to be made to cover any repurchase of assets. In addition tax refunds can not be applied to reduce the amount of surplus income payments. If you think you have (or will have) surplus income this should be discussed prior to the filing of your bankruptcy. We will provide you with detailed information regarding the requirements and your obligations. This will also be addressed in our payment agreement.