Guelph Resident’s Ask: How Much Does it Cost to go Bankrupt?

by Adam Rauf on January 18, 2011

My name is Adam Rauf and I’m the associate who manages the Guelph office for Hoyes, Michalos and Associates Inc. and I’m currently in the process of becoming a licensed Trustee In Bankruptcy.

The most common question I’m asked is: How much does it cost to go bankrupt?

Unfortunately, this is not a straightforward answer.

There are 4 costs associated with the bankruptcy process (they don’t apply to everyone); the administration fees, tax refunds for the year you file, Assets and finally a complicated thing call “Surplus Income”.

For the majority of people that I see that declare Personal Bankruptcy (versus a consumer proposal), only the administration fees and tax refunds apply (assuming they receive tax refunds).

1. Fees – Most trustee’s will charge anywhere from $160 to $250 per month for every month while you are bankrupt. The cost of administering the bankruptcy depends on how complex your file is. For a large majority of our clients, we charge a standard $200/month for 9 months. Most Trustee firms charge large upfront fees – something we have never done.

2.  Tax Refunds – This is not always a predictable loss, but losing a tax refund can be a strong deterrent to declaring bankruptcy. If you normally get large tax refunds you may want to consider filing a consumer proposal instead of a bankruptcy.

3.  Assets – some assets that are not exempt while you are bankrupt include RESP’s, Stocks/mutual funds, a second vehicle, equity in a house etc. If you have a non-exempt assets that you would like to keep (i.e. a $2000 RESP set up for your kids), then you always have the option of “buying back the asset ”. Essentially you have to pay the Trustee the cash equivalent and you are more than welcome to retain your assets. Here’s a list of exempt assets

4. Surplus Income – While you are in the legal state of bankruptcy you are required to show your income every month to your Trustee. Half of the money you make above the courts guideline has to be paid into the bankruptcy each month. Currently, the limit a single individual is allowed to live on without incurring “Surplus Income” is $1,884/month net (after taxes, medical expenses, child/spousal support payments etc).

If you make $2,084/month net, then you are above the Government guideline by $200, so 50% of that has to be paid which would be $100/month.

Surplus Income is very dynamic and goes up and down with someone’s income. So if you like working a lot of over time or perhaps a second part-time job, you should closely examine a consumer proposal which is essentially a fixed payment plan and does not waiver with your income.

It should be noted that most Trustee firms retain HST tax credits in addition to the above noted expenses, but here at Hoyes, Michalos & Associates Inc. we do not keep your HST cheques.

To find out if a bankruptcy or a consumer proposal is right for you, give me a call in Guelph at 310-PLAN, or e-mail me, and we can discuss your options and arrange a free initial consultation.

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