Practice Tip: Declaring Bankruptcy and Your Next Steps

Advice from your Mortgage Broker Practice Advisor, Gary Siegle

Industry professionals often work on commission. Making an income can be uncertain even though expenses seem constant. Industry professionals are more likely to experience financial hardship than individuals in other professions where income is stable and predictable. As a result, industry members often have to make some tough financial decisions.

If you or someone you know is considering declaring bankruptcy, there are obligations and implications that must be considered.

Bankruptcy proceedings include:

• consumer proposal or division 1 proposal
• bankruptcy

What happens when you declare bankruptcy?

In a bankruptcy proceeding, you would work with a Licensed Insolvency Trustee (LIT). The LIT sells your non-exempt assets—such as recreational vehicles, rental or vacation properties, original artwork, and other assets that go beyond your basic needs—and creates repurchase arrangements between you and your creditors, so that funds resulting from the sales are appropriately distributed among your creditors.

You can protect some assets including equity in your home (up to a certain amount), some vehicles, furniture, and retirement accounts. However, it’s not a bad idea to sell any furniture or vehicles not in use in order to pay down your debts faster.

The payment amounts and timeline of the bankruptcy proceedings will depend on factors such as your income and family needs, and the amount of your debts. Once you have fulfilled the repurchase agreements and your bankruptcy proceedings are complete, you’ll receive an official discharge. The official discharge releases you from the legal obligation to repay any remaining named debts you had when you filed for bankruptcy.

Note: You will still be responsible for financial obligations such as alimony, court-ordered fines, student loans (when it has been less than seven years since you finished your studies), and any debts arising from fraud.

Your obligations when declaring bankruptcy?

You must immediately—within 5 business days—notify the executive director through your myRECA account, whenever you or a company you own (or are a partner, director, or officer of) is the subject of bankruptcy proceedings. Follow the directions for submitting all required information.

After you notify the executive director

RECA will review the information you submit to determine if the situation creates potential harm to the public or impairs your ability to provide competent service.

If you’re a broker, entering bankruptcy proceedings creates a possible conflict of interest when holding funds in trust for clients. As a result, you cannot practice as a broker until you are given your discharge from bankruptcy.

Your other options when facing financial hardship

• the Credit Counselling Society offers debt repayment and debt settlement solutions, as well as financial planning education programs
• Money Mentors is authorized by the Alberta government will manage its Orderly Payment of Debt (OPD) program

Additional details are outlined in Information Bulletin: Financial Hardship—Options and Obligations.