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How do creditors get notified when a bankruptcy happens?
As part of the legal process governing a bankruptcy, creditors are notified by the trustee in bankruptcy when a bankruptcy happens. Under the federal legislation governing the Bankruptcy and Insolvency Act, a trustee MUST mail or send electronically a copy of the bankruptcy documents to ALL creditors within 5 days of the date of bankruptcy.
When a bankruptcy assignment is filed, a Statement of Affairs (which consists of a statement of income and expenses, list of creditors and assets) is sent to all known creditors of the bankrupt individual ("individual" includes a company). These documents give creditors a picture of what the bankruptcy process will look like, including whether or not any monies will be flowing back to the creditors.
If the bankrupt is a person, in order to determine if there will likely be any dividends to the creditors, take a look at the "Assets" section of the statement of affairs. If there is any value realizable to the trustee it will be listed on this form. The trustee may sell these assets outright, or have the bankrupt purchase them over the period of time the bankruptcy lasts. Net proceeds of these "non-exempt assets" will form a portion of what will be paid to creditors. As well, take a look at the statement of income and expenses as this form will let you know if the bankrupt will be expected to make monthly payments to the trustee from his or him monthly income. This form will indicate the "average amount" payable from the debtors income based on the debtor's expected monthly income. Take this "monthly amount" and times it over the 21 or 36 months (depending on the expected length of the bankruptcy period) to calculate the estimated amount that the debtor will have to pay to the trustee. This amount will form a part of the "dividend" or payout to creditors at the end of the bankruptcy along with any funds the trustee collects for the assets.
Once you have the expected amounts to be collected, you can calculate your possible portion of any potential dividend by looking at the "Liabilities" form to see how many creditors there are who can share in this projected dividend. All regular unsecured creditors will share pro-rata (equal percentage) in the dividend. However, there may also be preferred creditors such as child support arrears, some Canada Revenue Agency debts, which will be paid first before any regular creditors can get anything.
This can be confusing but know that the trustee is always available to assist creditors in any documentation and explain the insolvency system including assisting in preparing the Proof of Claim form or how to request a meeting with the debtor, trustee or other creditors.
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