What is Bankruptcy?
Bankruptcy is a legal process regulated by the Bankruptcy and Insolvency Act by which you may discharge all or most of your debts. The purpose of bankruptcy is to permit an honest but unfortunate person to be released from their debts and get a FreshStart.
What is a Consumer Proposal?
A consumer proposal is a legal process regulated by the Bankruptcy and Insolvency Act by which you make a formal offer to your creditors for settlement of your debts. Under the proposal, you would agree to pay part or all of your debt to your creditors over a specific period of time.
The creditors get to vote for or against the proposal made. If they vote for it, you then proceed with fulfilling the terms of your proposal. This is done by making monthly payments in the amount outlined in your proposal to the Administrator, who distributes the money to the creditors. Once you have fulfilled the terms of the consumer proposal, you will be discharged of all, or most, of your debts.
What can I keep in Bankruptcy?
In bankruptcy, you are allowed to keep any property that qualifies as exempt under provincial or federal legislation and that has not been given as collateral to a secured creditor.
The exemptions for British Columbia and under federal legislation are as follows:
– Household furnishings not exceeding a total value of $4,000 (note: this is resale value, not replacement value)
– Tools of the trade not exceeding a total value of $10,000
– One motor vehicle not exceeding the value of $5,000. The vehicle exemption drops to $2,000 if the debtor is behind on child care payments (to facilitate the enforcement of Maintenance Orders)
– Equity in a home to a maximum of $12,000 in Greater Vancouver and Victoria. In the rest of the province, the exemption is $9,000.
– Locked-in pension plans
– Life insurance where the beneficiary is an immediate family member
– RRSP’s. The exception to this is any contributions made to the RRSP in the 12 months prior to the date of filing are not exempt
Are all debts erased in Bankruptcy or under the Consumer Proposal?
Section 178 of the Bankruptcy and Insolvency Act includes a list of debts NOT erased in bankruptcy or under a consumer proposal. Upon being discharged, you are released from all your debts, except the following, pursuant to Section 178(1) of the Bankruptcy and Insolvency Act:
- Fines or penalties imposed by a Court for an offence, or for default on bail bond.
- Alimony or support of child.
- Debts from fraudulence or theft while acting in a fiduciary capacity.
- Property obtained by fraudulent misrepresentations, i.e. borrowing money without full and/or honest disclosure of existing debts or other relevant facts.
- Dividends payable to creditors who the bankrupt failed to disclose to the Trustee, (these creditors will be entitled to the dividend that would have been paid to them if they had filed a claim in the bankruptcy).
- Damages awarded by the Court in respect of bodily harm intentionally inflicted, or sexual assault, or wrongful death resulting therefrom.
- Student loans – if the debtor becomes bankrupt before or within seven years after finishing the studies as a full or part-time student.
How is my credit rating affected?
Information concerning your bankruptcy will show up on your file at the credit bureau for a period of 6 years after your discharge. If you have been bankrupt before, this period could be extended to 14 years.
A consumer proposal will remain on your credit rating for three years from completion of your proposal.
This only means that potential lenders will know that you have been bankrupt or filed a consumer proposal. It does not mean that they will refuse you credit in the future. It is the lender’s individual credit scoring system that determines access to credit.
Once you are discharged from bankruptcy or have been making payments under your consumer proposal for at least 6 months, you should take pro-active steps to rebuild your credit.
The following will assist in rebuilding:
- talk to your current bank manager
- open a savings account and deposit a set amount from each pay cheque
- apply for a small loan using your savings account as security and make the monthly payments on time
- apply for a secured credit card and make purchases on the credit card and pay it off every month
How is my spouse affected by my Bankruptcy or Consumer Proposal?
Your spouse will not be affected by your bankruptcy or your proposal providing that your spouse has not guaranteed or co-signed for any of your debt. If your spouse has co-signed on any of your credit cards/loans, then your spouse will be responsible for the full amount of the obligation.
If you have joint assets, there could be some implications to your spouse.
Your spouse’s credit rating will not be affected by your bankruptcy or consumer proposal.
Do I get to keep my credit cards?
You will be asked to hand in your credit cards to the Licensed Insolvency Trustee, who will return them to the credit card companies.
How much does Bankruptcy cost?
The Licensed Insolvency Trustee‘s fee is regulated by law under the Bankruptcy and Insolvency Act. In bankruptcy, the Trustee‘s fee is normally paid out of the funds arising from the liquidation of your non-exempt assets. If there are no assets available, then the Trustee will require you, over time, to pay his fee. The general fee charged will be $190 per month over nine months (which includes GST, disbursements and counseling costs).
How much will the Consumer Proposal payments be?
We recommend that you contact us to schedule a consultation so that we can discuss your particular financial situation, as the amount required to be offered to your creditors in a consumer proposal will vary based on your circumstances. A proposal to your unsecured creditors must provide more money to your unsecured creditors than they would otherwise receive if you were to file for bankruptcy. In completing a financial assessment, the Licensed Insolvency Trustee will be able to determine the amount of money you can afford each month to make payments under your proposal. For a proposal to succeed, it is important that you have steady employment and that you have sufficient income remaining after paying monthly living expenses to make monthly payments to the Trustee. Under the consumer proposal, the Trustee‘s fee will be paid out of the funds arising from your proposal payments.
Who will find out about my Bankruptcy or Consumer Proposal?
A bankruptcy and a consumer proposal is a matter of public record and will appear on your credit history. In addition, the Licensed Insolvency Trustee is required to notify all of your creditors. Normally, no advertisement will appear in the newspaper. If you provide a copy of your most recent pay statement then your employer is not usually notified, unless the Trustee is required to stop a garnishee.
Why do collection agencies call several times a day?
Collection agencies are calling because you owe money and they are being paid to collect. Debt collection agencies are often paid a commission for every dollar they collect which gives them incentive to keep calling you. They will keep calling and sending threatening letters as long as they believe they have a chance to collect any money from you.
Collection agencies today use sophisticated computerized “automated phone dialers”, so if you don’t pickup, the computer puts your name back in the queue, and you are called again in an hour. Keeping this in mind, this is the reason why ignoring debt collection calls doesn’t work: they just keep calling!
Can I still sponsor someone through the immigration program if I have filed Bankruptcy?
Unfortunately you cannot continue to sponsor people through the immigration program if you have filed for bankruptcy in Canada. This is why it’s important to talk to a Licensed Insolvency Trustee, so you can understand all your options and the implications of those options.
Will filing Bankruptcy affect my employment?
Most jobs in Canada will not be affected by filing for bankruptcy. If you are a director of a company, working in a professional field such as insurance, law, accounting or finance, professional designations could be affected. Filing a consumer proposal can avoid this, so make sure to speak to a Licensed Insolvency Trustee about your options. They can ensure your professional designation is not at stake, and find a solution for your debt problem.