Is your credit card debt so crushing that you don’t see yourself being able to make a dent in it?
If so, you should know that the Canadian Bankruptcy Rules were put in place for hard-working debtors just like you. That’s because…
Bankruptcy can offer you relief from your unsecured debts and a chance to start over.
Sounds too good to be true, right?
Well, it isn’t. But there are a few things you need to know about how it all works.
What is the Bankruptcy and Insolvency Act?
The Bankruptcy and Insolvency Act (BIA) contains the laws, rules, and guidelines that govern all insolvency proceedings in Canada.
What are my options under the BIA?
For the typical individual, there are two options:
- You can file for bankruptcy; or
- You can file a consumer proposal.
What is bankruptcy?
Bankruptcy is the legal procedure available for hard-working Canadian debtors that owe more than $1,000 and cannot repay their debts in full. The bankruptcy process – for first-time filers – typically takes nine months.
So in exchange for certain of your assets that you’ll need to give up – and should you meet all your obligations during the bankruptcy – your unsecured debts will be extinguished at the end of this period.
What is a consumer proposal?
If you owe less than $250,000 (excluding mortgages), this insolvency option may work really well for you. Essentially, a consumer proposal is an offer to your creditors to pay back only a percentage of what you owe. If your creditors accept the proposal, there will be a legally binding agreement between you and your creditors for your repayment.
While you won’t have to surrender any assets, you will need to make one monthly payment over a period of up to five years. The payment will be negotiated to be manageable for you based on your financial circumstances. Once you’ve completed the proposal, the unsecured debts included therein will be released.
What do I need to know about bankruptcies and consumer proposals?
Here are some helpful need-to-know tips for those debtors interested in filing insolvency.
#1. You require the assistance of a Licensed Insolvency Trustee.
In order to file either bankruptcy or consumer proposal, you will need the assistance of a Licensed Insolvency Trustee (LIT). These federally licensed and regulated professionals are the only ones authorized to assist Canadians with insolvency. Your LIT will not only administer the proceeding, but he or she will ensure that both you and your creditors are protected in accordance with your rights under the Canadian Bankruptcy Rules.
#2. You may not lose your home.
In a consumer proposal, you will not need to surrender your assets. However, many Canadians are well aware that they need to surrender certain assets if they file for bankruptcy. While this is indeed true, there are bankruptcy exemptions in place.
The rules allow you to keep up to a certain amount of equity you may have in your home. An LIT will let you know the exemption amount in your jurisdiction. Only where you exceed the exemption will your LIT be required to sell off the property and distribute the proceeds to your creditors. Of course, this will play into your decision as to whether bankruptcy or a consumer proposal may be in your best financial interests.
#3. You will receive legal protection from your creditors.
Because bankruptcy and consumer proposals are legal processes, you will get protection from your creditors. Once you file, your creditors are stopped from enforcing any action against you to recover on the debts you owe. This is called a stay of proceedings, and it was created to provide you breathing room while you sort out your financial affairs.
This means an end to wage garnishments (except child or spousal support payments), collection activity, threats of legal action or the continuation of any action that may already have been started against you, as well as enforcement of orders obtained prior to filing insolvency.
#4. In bankruptcy, you don’t get to keep windfalls of money.
You need to declare all your income when you file for bankruptcy, and you will also need to continue to report your income every month (more on the latter requirement below). If you come into a windfall of money or surplus revenue of $200 or more, then your bankruptcy will be extended automatically.
#5. RRSPs and other retirement benefits are exempt from bankruptcy.
Seniors who are struggling with credit card debt should be aware that their retirement benefits (except any contributions made in the last year) will be safe from bankruptcy.
#6. Only unsecured debts are discharged in a bankruptcy.
Unsecured debt such as credit card debt will be discharged in your bankruptcy or covered in your consumer proposal. Secured creditors are those creditors that take collateral in exchange for a loan – like when you buy a home or a car. So in a bankruptcy, you’ll need to continue to pay your mortgage or car loan – if you want to keep those items.
#7. You have duties to undertake in a bankruptcy.
You will be required to prepare monthly income statements to determine whether or not you need to make additional payments into the bankruptcy. (There is no such obligation for consumer proposals.)
You’ll also need to attend two financial counselling sessions conducted by an LIT. The idea here is to arm you with the tools and knowledge you need to ensure you don’t fall back into a precarious financial situation going forward.
Contact a Licensed Insolvency Trustee Today
Wiping out your debt and getting a fresh start is not too good to be true. But you do need help from a Licensed Insolvency Trustee to do so.
Contact our offices today. Your initial consultation is free. At this consultation, we will review your financial situation and advise you on all debt relief options available to you. Insolvency may not be inevitable. The sooner you reach out, the more options you may have at your disposal. We look forward to hearing from you. We can help.