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First it was Bear Stearns, then Lehman Brothers and Merrill Lynch. As the economy continues to spiral downward, businesses of all sizes are filing for bankruptcy every day.

But what about personal bankruptcies? According to Doug Hoyes, bankruptcy trustee with Ontario firm Hoyes Michalos & Associates Inc., the rate of personal bankruptcies has skyrocketed over the last quarter. The number of personal bankruptcies Hoyes Michalos filed last month was up was up 47 per cent from last January and throughout the year, the firm's filings were up 48 per cent from the year before.

“We saw things really pick up in September, and since then it's been like this giant snowball going faster and faster,” Mr. Hoyes said.

“It ain't pretty and that's why our call volume is going through the roof right now.”

Mr. Hoyes says his firm receives calls from people in all earnings brackets. “At some point people from every walk of life have to go bankrupt. . . doctors, lawyers. . . everyone.”

Mr. Hoyes' business partner, Ted Michalos said that marital breakdown is the most common reason people file for bankruptcy, followed by a disruption in employment. In this type of economy, however, he said disrupted employment, specifically job loss, is probably the biggest reason.

But despite the huge influx of calls Hoyes Michalos has experienced, only 20 per cent of people the firm works with end up filing for bankruptcy.

“Most people don't know what their options are,” Mr. Hoyes said.

It turns out that people overwhelmed with debt have many options, and filing for personal bankruptcy is only one of them. Doug Hoyes joined us for an online discussion. Thanks to all those who submitted questions.

Doug Hoyes is a licensed trustee in bankruptcy, chartered accountant, chartered business valuator, and chartered insolvency and restructuring professional. Before co-founding his own firm in 1999, Mr. Hoyes worked at KPMG and PricewaterhouseCoopers.

Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.

Claire Neary, Reportonbusiness.com: Hi Doug, thanks so much for joining us today. We've got lots of questions lined up, so we'll get right to them.

M Dash from St. Albert Canada: What exactly happens when a person (or couple) go bankrupt (in simple terms)? Do you get to keep your house? Are your wages garnished? Do you try to dissuade people from going bankrupt, even though you're in that business?

Doug Hoyes: In simple terms, personal bankruptcy in Canada is a legal process where a bankruptcy trustee is appointed to administer your estate. The trustee takes your assets, and distributes that money to your creditors. In most bankruptcies there are no assets to distribute. The rules regarding houses are different depending on where you live in Canada, so you should consult a local trustee. If your house has equity, in most provinces you lose that equity when you go bankrupt.

To give a simple example, if your house is appraised at $200,000 and the mortgage is $190,000, there is $10,000 in equity, so you would either be required to pay the trustee $10,000 to keep your house, or you would lose your house. I am giving you an overly simplified answer, because trustees will consider other factors (such as selling costs and property taxes owing).

The most common reason for going bankrupt is to prevent your wages from being garnisheed, so in most cases all wage garnishments stop when you go bankrupt.

Do I try to dissuade people from going bankrupt, even though I'm in that business? Great question. Yes, I do. I always explain all options for dealing with debt, including cutting your expenses, negotiating a settlement with your creditors, getting a debt consolidation loan, doing a debt management plan through a not for profit credit counsellor, or filing a consumer proposal. Only after we have eliminated those options will we discuss bankruptcy. In fact, last year over 15,000 people in financial trouble contacted my firm, but we only filed just over 3,000 consumer proposals and bankruptcies, so over 80% of the people we talk to do NOT go bankrupt; we help them find other solutions.

R. M. from Regina Canada: Thank you for tackling this subject. 59 here. On LTD. Have been meeting minimum payments but not making any headway. I'm very interested in the options and of course the downside of personal bankruptcy for a person like me.

Doug Hoyes: The biggest downside for a person on Long Term Disability is that when you go bankrupt, you lose your tax refunds and GST credits during the bankruptcy period (a minimum of nine months), and there is a contribution you will be required to make into your bankruptcy estate to cover the trustee's costs (for most trustees the cost is between $160 and $200 per month for a minimum of nine months).

Since you are on LTD it is unlikely you have wages that can be garnisheed, one option for you would be to do nothing, which saves you the cost of the bankruptcy. However, if you want the stress relief of a bankruptcy, bankruptcy is an option. Other options will depend on your income and how much debt you owe, so I suggest you contact a credit counsellor or trustee (here's a link to a trustee in Regina: Money Problems.ca ) so that you can understand all of your options.

Roger Gionet from Toronto: 1) Can an individual go bankrupt twice? 2) Can a person travel overseas with the 9 months disclosure? 3) What is the advantage of settling with creditors after bills were not paid for 5 months in a row and possibly over 6 months on a few bills, or going outright bankrupt?

Doug Hoyes: Yes, an individual can go bankrupt twice, but a second bankruptcy is generally more complicated, more costly, and lasts longer than a first bankruptcy, since the government and the courts do not want to encourage multiple bankruptcies.

There are no travel restrictions while you are bankrupt, or after your bankruptcy finishes. However, the trustee must be able to reach you at all times, and you are required to attend to credit counselling sessions while bankrupt, and perhaps attend a meeting of creditors and perform other duties during bankruptcy, so before travelling you should discuss it with your trustee.

The advantage of settling with your creditors is that you avoid having a bankruptcy on your credit report (which stays there for six years after discharge). However, if you can't settle with your creditors, a bankruptcy is an option to consider.

Dalvek Pretistal from Edmonton: I recently talked to a trustee about bankruptcy and my other options. I got the distinct impression that a trustee is much like a realtor who represents both the buyer and the seller at the same time - it's in their interest to help me, but also to help my creditors since their fees are dependent on whatever money or assets I forfeit towards my debt. This wouldn't be a problem if I had nothing, but I do have some assets. I am not, however, inclined to simply hand them over because a trustee tells me those are the rules.

What I want is someone who will represent my interests and my interests alone, not someone in the middle. I know my creditors have their legal teams who are only looking out for their interests, and I want the same.

My question: if you have assets and are considering bankruptcy, and if the value of those assets exceeds the amount you are allowed to keep in a bankruptcy, would it be advisable to retain a lawyer to represent *my* interests alone and help me minimize the financial damage prior to talking to a trustee? I assume I'm going to lose some of my assets if I declare bankruptcy, and that's fine, but I want someone to help me minimize that loss - is a lawyer the right choice?

Doug Hoyes: Yes, you are correct. If you hire a lawyer, the lawyer will represent you and you alone. A trustee is legally appointed by the court to represent all stakeholders (the bankrupt and the creditors). A trustee is like a referee in a hockey game; they are not working for either team, but they are there to make sure all rules are followed. If you want someone just to represent you, a lawyer is your only choice.

That being said, trustees will generally give unbiased advice, because that's in everyone's best interests. My business is largely referral based; if I wasn't giving good advice, I would soon be out of business.

Neon Cab from Canada: Do structured payment plans, if initiated before you receive warnings from collectors or declare bankruptcy, handicap you afterward? Do they negatively affect your credit rating even though you took the first step?

Doug Hoyes: If by "structured payment plans" you mean a debt management plan then yes, they also appear on your credit report, and have the same impact on your credit report as a consumer proposal. You can read more at Equifax . If you do not pay your debts in full and on time, it will negatively impact your credit, regardless of the process you use.

Kevin Q from Canada: My sister learned that her husband secretly ran up $50 K in debt to banks and credit card companies. They have two small children and an impending separation. They currently have a joint mortgage on their home. Obviously, paying back the debt will take many years and come at the expense of his ability to help support my sister and their small kids (she is employed).

Given that her soon-to-be ex makes $40 K per year, what is the best option for him to pursue that will have the least detrimental impact on the family long term? Personal bankruptcy or some type of consolidation loan to pay back the debt? What is the viability of him declaring bankruptcy while retaining a job? Damage to his credit rating is a penalty we all feel he deserves, so it's not a consideration to avoid. What's your take, Mr. Hoyes?

Doug Hoyes: An income of $40,000 per year, after tax, is probably about $2,300 per month. The interest on $50,000 in debt could be $800 per month, or more. That means if he just pays the interest, he only has $1,500 per month for mortgage payments and leaving expenses, which would be very difficult if he is trying to support his family. If he wants to repay $50,000 over a 50 month period, that's another $1,000 in principal payments each month, which would leave very little of his paycheque. Mathematically he can probably only do it on his own if his wife's income is also used to service the debts.

A consolidation loan is a possibility, but that only eliminates some of the interest, but none of the principal, so that may not be feasible.

A consumer proposal or a bankruptcy may be options. Yes, he can be bankrupt while working. In fact, the vast majority of people who go bankrupt in Canada are working (and they go bankrupt to prevent their wages from being garnisheed). He should consult with a trustee (with his ex-wife, if possible) so that an expert can review his entire situation and advise him on the pros and cons of each option in his specific situation.

Sue From an island in the Pacific from Victoria, Canada: How soon after being discharged from bankruptcy is it possible to start your own company, in other words, to be self-employed?

Doug Hoyes: You can be self-employed while you are bankrupt, provided you are keeping accurate records and remitting taxes as they are due. You cannot, however, be the director of a corporation while bankrupt. As soon as the bankruptcy ends you could own a company, become self-employed, or be a director of a corporation.

MArc Javet from Toronto: I have recently closed down a business where I had personal guarantees on a loan as well as on equipment. I am currently out of work and do not have the means to pay out the amount. However, I do have some equity in my home. 2 Questions: Would you recommend the proposal or bankruptcy route? How much does my earning potential count towards a settlement? thank you.

Doug Hoyes: If you have equity in your home, it is likely that you would lose that equity in a bankruptcy, so for you a proposal may be the best option. A trustee can advise you. They will ask for an appraisal on your house, and confirmation of the mortgage balance owing.

Your current earnings are a big factor in a proposal or a bankruptcy. Your earning potential in the future is less of a factor, since it is an unknown.

Leigh Coulter from toronto: What are unsecured creditor's rights when assets of a bankrupt company are moved to a new company owned by the same shareholder? What are creditor's options when the trustee appears not to be looking after the interests of the creditors best interests, as in refusing to give creditor's details of the above asset transfer.

Doug Hoyes: A shareholder is not allowed to simply move assets from a bankrupt company to another company, unless the shareholder has paid for those assets. If the trustee refuses to provide you with information, you should send a written request to the trustee. If you don't get a response, you can launch a complaint through the Office of the Superintendent of Bankruptcy at The Office of the Superintendent of Bankruptcy Canada.

Larry Morton from toronto: What is the value of a car that you would be allowed to keep?

Doug Hoyes: The answer is different in each province in Canada, since exemption limits are governed by provincial legislation. In Ontario you are permitted to keep one motor vehicle worth up to $5,650. If there is a loan secured by the vehicle, the secured creditor may allow you to keep the vehicle if you keep making the loan payments. Some banks automatically repossess a vehicle when you go bankrupt even if your payments are up to date, so you should contact a trustee before you go bankrupt to understand exactly what will happen to your car in a bankruptcy. A list of trustees can be found at Bankruptcy-Canada .

A B from Toronto: Hi, I've heard that there will be some changes to the bankruptcy legislation (e.g. increase the proposal limit over to $100,000...) in fact, these changes were supposed to have been passed into law in November 2008. Do you have any information as to when these changes will take place? Thank you.

Doug Hoyes: You are correct. New bankruptcy rules were passed by Parliament in December 2007, but they have not yet come into force. I expect the new rules to come into force some time between now and May 1, but that is a pure guess on my part, since no-one knows for sure when it will happen.

You are correct about the increased proposal limit; the limit is being increased for non-mortgage debt in a consumer proposal from $75,000 to $250,000, so this is a very positive change that will help a lot of Canadians.

More details on the new rules can be found on our website . We will post information when the new rules come into force.

Tania Smith from Montreal: What is the process for bankruptcy? I am a single mother with two small children, an ex husband who is also responsible for our debt load, but of course it costs tons of money to fight in court. He isn't accepting responsibility. I am trying to get my life back on track, have a very heavy debt load and want to know what will happen to me.

Doug Hoyes: Your situation, sadly, is all too common. Over a third of the people I deal with have gone through a marriage break up. You will have to consult with your lawyers to determine if fighting in court is the correct solution. If you were to declare bankruptcy, your debts would be discharged. If he has co-signed your debts he will still be liable for them, unless he also goes bankrupt.

I strongly recommend that you get professional advice now. Here's a link for information about bankruptcy in Montreal Bankruptcy-Montreal ; all trustees offer a free initial consultation, so you have nothing to lose by investigating your options before the stress becomes unbearable.

Douglas Hills from Langley: If was to declare personal bankruptcy would my debts be erased or will I still expected to pay in the future?

Doug Hoyes: If you declare personal bankruptcy, and if you complete all of your duties and are discharged, your debts are erased. You are not expected to pay them in the future. However, some debts do not go away in a bankruptcy, including court ordered child support, court fines, penalties and restitution orders, debts that arose as a result of fraud, and student loans that are less than seven years old. A bankruptcy trustee can review your list of debts and advise if any will not be discharged, and they can explain the entire process, including costs, so that you can make an informed decision.

Rick S from Vancouver: Are RRSP protected in bankruptcy? Also, does a personal bankruptcy affect a spouse or common law partner?

Doug Hoyes: RRSPs are protected in a bankruptcy, except to the extent of contributions in the past 12 months. Whatever you (and your employer) have contributed in the 12 months leading up to the bankruptcy will be lost in most cases. Your trustee can explain the rules in more detail.

A personal bankruptcy does not directly affect a spouse, unless they have co-signed your debts, in which case they remain liable for the joint debts. This is a very common concern, so we have written an article that details how a bankruptcy affects a spouse in more detail on our website .

LAURA MARSHALL from SAINT MARTINVILLE United States: I HAVE BEEN ON DISABILITY FOR FIVE YEARS DUE TO A MENTAL BREAKDOWN, THAT HAPPEN TO ME ON MY JOB. I WAS PUSH TO THE LIMIT FROM HARRASMENT FROM CO-WORKER AND OVER LOADED WITH SO MANY PROJECT FROM MANAGER. I WAS A WORKER WHO TRIED HER BEST TO HELP THIS COMPANY GROW AND DID. NEVER COMPLAIN ABOUT ANYTHING BUT WORK HARD EVERYDAY. I COULDN'T AFFORD TO PAY SOME BILLS I OWED, BECAUSE NOW I LIVE ON A SMALL INCOME.

THE RULE FROM DISABILITY SAYS YOUR DISABILITY INCOME CANNOT BE GARNISH OR YOU CANNOT BE BROUGHT TO COURT. BUT ONE COMPANY AFTER FOUR YEARS PUT A JUDGEMENT ON MY CREDIT WITHOUT ME GOING TO COURT TO EXPLAIN MY PROBLEM. THEY CROSSOVER THE RULE SOCIAL SECURITY. WHAT CAN I DO?

I TRIED TO OFFER THEM A SMALL SETTLEMENT THEY WILL NOT REPLY. THIS JUDGEMENT HAS ADD MORE PROBLEM TO MY MENTAL CONDITION. IT IS A UNSECURE DEBT ABOUT $5000 NOW I WAS TOLD BY THIS COMPANY WHO PUT THIS JUDGEMENT AGAINST ME I HAVE TO PAY ALMOST $9000 THAT INCLUDING COURT COST AND I NEVER WHEN TO COURT AND THEY DID NOT HAD THE RIGHT TO DO THIS.

Doug Hoyes: The laws in the United States are different than Canadian laws, so I cannot comment directly on your situation. You should consult an American attorney.

In Canada, you are correct that it is almost impossible to garnishee a disability income. However, it is relatively simple for a creditor to obtain a judgment. The judgment may negatively impact your credit rating, but if you have no wages to garnishee and no assets to seize it may be more of a nuisance than a financial issue. A lawyer or a bankruptcy trustee can give you further advice.

S.R. from collingwood Canada: Can different unsecured be treated differently, in terms of the cents- on-the-dollar they will settle for? Or, do they all have to be treated rateably as a member of that class? thank yous.

Doug Hoyes: In a consumer proposal all unsecured creditors are treated the same; they all receive the same number of cents on the dollar.

In a Division 1 proposal, which is a more complicated procedure generally used by corporations to restructure, but can be used by individuals, it is possible to have separate classes of unsecured creditors. However, in practice, it may be more difficult to get all creditors to accept the proposal if there are different deals for different creditors. A bankruptcy trustee or insolvency lawyers can give you more details, and suggest alternatives strategies to deal with your debts.

Leigh Coulter from toronto: If you are a director of a corporation that you bankrupted, are there any restrictions on you being a director of another corporation?

Doug Hoyes: If you are the director of a corporation and the corporation goes bankrupt, there are no restrictions on you serving as a director of another corporation. Practically, if as the director you become liable for some of the debts of the corporation, such as unpaid source deductions or other obligations you personally guaranteed, it may not be prudent to serve as a director in case you yourself must also go bankrupt. Your lawyer can advise you on the pros and cons of serving as a director of another corporation.

Yvonne Wackernagel from Woodville Canada: Mr. Hoyes, it used to be that a bankrupt person was able to keep living in the way he was accustomed to live before declaring bankruptcy, within reason, e.g. keeping one car and maybe his home. What are the present rules with regard to this?

Doug Hoyes: There are no rules that state a bankrupt may continue living in the state to which they have become accustomed. Under current bankruptcy law, each month the bankrupt must report their income, with proof, to their trustee. Then, based on their family size and other factors, the trustee will use a government scale to determine the amount of the bankrupt's surplus income, and that is then used to determine the payment to the estate that the bankrupt must make each month. The calculation is somewhat complicated, but is described here at Bankruptcy-Canada .

Once the surplus income payment is made, the bankrupt is free to do what they want with the remainder of their income. We have discussed cars and houses in previous questions today; whether or not a bankrupt can keep them is entirely dependent on their value at the time of bankruptcy.

Claire Neary, Reportonbusiness.com: Doug, thanks for taking the time to answer so many questions. Here's one from me. What are the rules regarding student loans? Have they changed in recent years? Of the people that you work with, how many have student loans, and is that ever the main reason that people decide they need to file for bankruptcy?

Doug Hoyes: Great question, because the rules regarding student loans in bankruptcy have changed recently. Under the old rules, a government guaranteed student loan was only discharged in a bankruptcy if it was more than 10 years old. Under new rules implemented in July, 2008, a government guaranteed student loan is now automatically discharged in a bankruptcy if, at the start of the bankruptcy, it has been more than seven years since the bankrupt ceased to be a student. That's the key: it's not when you got the loan that matters, but when you ceased to be a student that's the key date.

The rules regarding student loans are a "pet peeve" of mine; back in February, 2008 I appeared before the Senate Banking, Trade and Commerce Committee to argue that former students should be treated fairly. You can read our submission to the Senate here in pdf format or watch our testimony here .

More than 13% of the people we help have student loans, but with the new rules I expect that percentage to continue to increase; for those people it is a contributing factor to the bankruptcy. Even worse, bankrupts with student loan debt are disproportionately female, and have lower than average incomes, so I encourage anyone with student loan debt that they are unable to pay to give our office a call at 1-866-747-0660 and we can refer them to someone in their area who can help them make a plan to deal with their student loan debts.

Claire Neary, Reportonbusiness.com: Thanks, Doug. Here's one more. What's the advantage to someone contacting you instead of a credit counsellor?

Doug Hoyes: The most important thing is that you contact someone. Whether you contact me first or a credit counsellor first, if you have debt problems they won't go away on their own, so it's important that you contact someone. As with all trustees, Hoyes Michalos & Associates is licensed by the federal government of Canada. We are required to advise you of all your options and we are happy to do that. In most cases in a five minute telephone call we can point you in the right direction and it might not even be necessary to meet with us. We can help you understand what your options are, and you can decide how to proceed for yourself.

Claire Neary, Reportonbusiness.com: You've been in the business for a number of years. Before we wrap things up, any advice on how people can avoid getting crushed with debt altogether?

Doug Hoyes: If you only use cash or a debit card, you will never get into debt. If you're worried about losing your job or having your hours cut back at work, then put your credit cards away, cut them up and don't use them, because that's the only way you can prevent yourself from getting into debt. If you're already there, get professional help because most debt problems don't go away on their own.

Claire Neary, Reportonbusiness.com: That's pretty straightforward advice. Putting it into practice seems to be the hard part. Thanks again, Doug, for taking so much time today to answer our readers' questions. And thanks, as always, to all of our readers for sharing their personal stories and posing important and insightful questions.

Doug Hoyes: Thanks to everyone who asked questions today. They were excellent questions, and they were actually very representative of the types of questions we deal with every day. It was great to be able to answer them directly. If you have more questions, by all means give us a shout.