Does it Cost to Go Bankrupt?

Many people are surprised to learn that there is a cost to filing bankruptcy.

They think that it is free. Or at least that it should be.

In a capitalist society like ours, nothing is free, so it shouldn't come as a huge surprise that there is a cost to filing bankruptcy.

What surprises people even more is that the cost of a bankruptcy is supposed to be paid from the bankruptcy estate itself. What this means is that there should not be a direct cost to you at all.

The Licensed Insolvency Trustee (LIT) occupies a unique place in our society. They are both an officer of the Court and a private business.

That means they need to be paid for the work they do.

But unlike a lawyer or an accountant, most consumer bankruptcies are not billed on an hourly basis. Instead, trustees are generally paid through a tariff system established under the Bankruptcy and Insolvency Act.

The more money that is realized in a bankruptcy estate, the more compensation becomes available under the tariff.

So where does that money come from?

Sometimes it comes from assets.

Sometimes it comes from tax refunds.

Sometimes it comes from surplus income payments.

And sometimes there isn't much money available at all.

This is where things can become confusing.

You may meet with a trustee who tells you that you need to make monthly payments in order to file bankruptcy.

You may meet with another trustee who says you don't.

Why?

Because every LIT approaches this situation differently.

The amount of money available in the estate, the LITs policies, your income, your assets, and your tax situation can all affect the answer.

The important thing to understand is that there is no universal answer to the question, "How much does bankruptcy cost?"

The answer depends on your situation, and teh LIT that you are considerign workign with.

If an LIT tells you there will be a direct cost to you persoanlly, ask questions.

Where is the money coming from?

Is it required by law?

Is it because of surplus income?

Is it because there are no assets available in the estate to cover their basic fee?

This part here is really important:

If they say you need to make voluntary payments, ask them whathappens if you don't.

And be sure to ask them if you get these "voluntary" payments back if they get money from others sources, like a tax refund.

Ask questions until you understand.

Understanding the answer doesn't make you difficult.

It makes you informed.

And when you're making important decisions about your financial future, being informed is a very good thing.