How to Declare Bankruptcy in Nova Scotia: Navigating the Bankruptcy Proceedings

Declaring bankruptcy can be a daunting decision, but for some, it may be the best solution to manage overwhelming financial burdens.

This post aims to provide a clear, step-by-step guide on how to declare bankruptcy in Nova Scotia, making the process as straightforward as possible.

It is important to note that this information is for general purposes only and should not replace the advice of a qualified financial professional.

Understanding Bankruptcy

A. Definition of bankruptcy

Bankruptcy is a legal process designed to provide relief to individuals who are unable to pay their debts. It is governed by the Bankruptcy and Insolvency Act in Canada. When an individual declares bankruptcy, their non-exempt assets are liquidated, and the proceeds are distributed to their creditors. In exchange, most of the individual’s unsecured debts are discharged, providing them with a fresh financial start.

B. The Role of a Licensed Insolvency Trustee (LIT)

A Licensed Insolvency Trustee (LIT) is a professional regulated by the Office of the Superintendent of Bankruptcy (OSB). LITs are responsible for guiding individuals through the bankruptcy process, helping them understand their options, and ensuring that all legal requirements are met. They act as impartial administrators, representing both the debtor and the creditors. LITs are responsible for the liquidation and distribution of non-exempt assets, the collection of any required payments, and the final discharge of the bankruptcy.

C. Alternatives to Bankruptcy

Before considering bankruptcy, individuals should explore all available debt relief options. Some alternatives to bankruptcy include:

Consumer Proposal: A legally binding agreement between a debtor and their creditors, facilitated by a Licensed Insolvency Trustee. The debtor agrees to pay a portion of their debt over a specified period (up to 5 years), and the remaining debt is forgiven upon completion.

Debt Consolidation: This option involves taking out a new loan to pay off multiple debts, often resulting in a lower interest rate and a single, manageable monthly payment.

Debt Management Plan: A voluntary agreement between a debtor and their creditors, facilitated by a credit counsellor. The debtor agrees to repay their debts in full, typically over an extended period, with reduced interest rates and waived fees.

Informal Debt Settlement: Direct negotiations between a debtor and their creditors to agree on modified payment terms, reduced interest rates, or a lump-sum payment to settle outstanding debts.

D. Consequences of Bankruptcy

While bankruptcy can provide relief from overwhelming debt, it comes with several consequences:

Credit Score Impact: A bankruptcy will significantly lower your credit score and remain on your credit report for six to seven years for a first-time bankruptcy or 14 years for a second-time bankruptcy.

Asset Loss: Non-exempt assets will be liquidated to pay off your creditors. Exempt assets vary by province, but often include basic household items, personal belongings, and a modest vehicle.

Difficulty Obtaining Credit: After a bankruptcy, obtaining new credit or loans may be challenging, and you may face higher interest rates or need a co-signer.

Public Record: Bankruptcy is a matter of public record and will be listed in the OSB’s searchable database.

Employment Impact: Some professions may be affected by a bankruptcy, particularly those involving financial responsibilities or security clearances.

It is essential to weigh the consequences of bankruptcy against its potential benefits and consider all available alternatives before deciding on the best course of action for your financial situation.

Determining if Bankruptcy is Right for You

A. Analyzing your financial situation B. Seeking professional advice (credit counsellors, financial advisors, LITs) C. Weighing the pros and cons of bankruptcy

The Bankruptcy Process in Nova Scotia

1. Consult with a Licensed Insolvency Trustee (LIT): An LIT is a professional who can help you navigate the bankruptcy process, assess your financial situation, and provide guidance on your options.
2. Complete the necessary paperwork: Your LIT will help you complete various forms, including a Statement of Affairs that details your assets, liabilities, income, and expenses.
3. File for bankruptcy: Your LIT will file your bankruptcy documents with the Office of the Superintendent of Bankruptcy (OSB). Once filed, you will receive an automatic stay of proceedings, which provides immediate protection from your creditors.
4. Attend credit counselling sessions: As part of the bankruptcy process, you are required to attend two credit counselling sessions. These sessions aim to help you better manage your finances in the future.
5. Perform bankruptcy duties: Throughout the bankruptcy process, you will be required to complete various duties, such as reporting your income and expenses, providing updated contact information, and paying any surplus income as required.
6. Discharge from bankruptcy: Once you have completed all your bankruptcy duties and the necessary time has passed (usually 9 to 21 months for a first-time bankruptcy), you will be eligible for a discharge. A discharge effectively releases you from your legal obligation to repay the debts included in your bankruptcy.

Life After Bankruptcy

A. Rebuilding your credit score B. Developing and maintaining a budget C. Practicing responsible financial habits

VI. Conclusion

While declaring bankruptcy can be a challenging decision, it may provide relief for those struggling with insurmountable debt. By understanding the process and working closely with a Licensed Insolvency Trustee, you can successfully navigate bankruptcy in Nova Scotia and work towards a fresh financial start. Remember, it is always advisable to consult with a qualified financial professional to ensure you make the best decision for your unique financial situation.