Personal bankruptcies are on the rise
By Michelle Warren • Bankrate.com

Finding a bankruptcy trustee
A person has to use a trustee when filing for bankruptcy. In order to determine if bankruptcy is right for you, an administrator of consumer proposals or a bankruptcy trustee will assess your financial situation. These people are licensed by the Superintendent of Bankruptcy to oversee proposals and bankruptcy, give the debtor advice about the process, manage assets held in trust, and ensure the rights of debts and creditors are respected. Trustees also have to be paid, and their fee is usually taken out of the money arising from liquidating the debtor's assets. The total cost for a relatively straightforward first-time bankruptcy is about $1,500.

Once the bankruptcy papers are filed, a trustee takes over all dealings with creditors and legal action regarding debts should stop immediately. "When people come to see us, they are down, they're depressed, they're embarrassed," says Hoyes. "Once they have a plan, it's a feeling of relief: it's the uncertainty of money worries that drives people crazy."

What will I lose?
One of the things that people fear most is losing all their worldly possessions. However, it doesn't necessarily work that way. Certain items fall under bankruptcy exemptions, which means they can't be taken as part of the bankruptcy.

The rules differ from province to province, but such items for the most part include food, clothing worth up to a certain amount, furniture up to a certain value, tools for work purposes, one motor vehicle not exceeding $5,000 in value, a portion of Registered Retirement Savings Plans (RRSPs) and a portion of the equity in one's principle residence. A number of new rules came into play in September, so it's worth visiting the federal government website to investigate which apply to your situation.

What you can lose in a bankruptcy is everything beyond these province-specific exemptions, including real estate, automobiles, boats in the person's name at the time of bankruptcy, as well as anything the person might acquire, such as an inheritance or lottery winning, during the bankruptcy process. In addition to losing some assets, bankrupts can expect garnished wages, although the Superintendent of Bankruptcy has established amounts which people are allowed to keep in order to live and support families. All of this money is collected by the trustee for the benefit of creditors and allocated accordingly to pay back a portion of the debt owed.

For many people, bankruptcy offers a fresh start, however, it doesn't erase all debts. People are still responsible for fines imposed by a court, money owing for stolen items, items obtained by misrepresentation, alimony or maintenance payments, award of damages by a court for intentionally inflicting bodily harm or sexual assault, and student loans if bankruptcy is less than seven years after the finish of studies.

Life after bankruptcy
A bankruptcy isn't a life sentence. The process itself is over in as little as nine months for first-time bankrupts who meet their obligations and aren't earning excess income beyond what is deemed they need to support their family. For those with excess income, the bankruptcy can last more than 21 months, as every effort is made to pay back creditors.

For people filing for bankruptcy for the second time, the process can take two to three years. That said, when a bankruptcy is over, it remains on your credit record for six years. This doesn't necessarily mean you can't get credit, however credit is granted at the discretion of the lender and a bankruptcy filing is likely to influence their decision.

Will I ever own a home again?
"It is possible to get back on track," says Hoyes, who expects the total number of personal bankruptcies for 2009 to hit close to 200,000. People who were victims of circumstance -- job losses, etc. -- are going to be able to re-establish their credit rating, but it might take several years.

Bankruptcy is a complicated process with serious repercussions. People are best served consulting an expert to assess their situation and explore every option. However, experts agree that more and more Canadians will turn to bankruptcy and the numbers will continue to rise as the fallout from the economic crisis and our reliance on debt to finance day-to-day living takes its toll. "I expect the trend will continue into the end of 2010," says Campbell.

Michelle Warren is a freelance writer living in Toronto.