Filing a Consumer Proposal or filing for bankruptcy can be a daunting task. Fortunately, you do not have to face your debt problems alone. At Crowe MacKay & Company, our experienced team of Licensed Insolvency Trustees help provide the answers to your most common debt and bankruptcy questions. If you have further questions or would like to speak to one of our trustees, please do not hesitate to give us a call.
What is bankruptcy?
Bankruptcy is a legal process in which a person in a financial difficulty disposes of their property, generally by voluntary means. This procedure must be administered through a trustee, in virtue of the provisions of the Bankruptcy and Insolvency Act. Under this approach, the bankrupt is discharged from all debt. This solution should only be considered when all other alternatives are not feasible.
What is a consumer proposal?
A consumer proposal consists of making a settlement offer to your creditors by extending them between 2 to 5 years. To be valid, this proposal must be accepted by the majority of creditors, subject to a vote carried out according to the Bankruptcy and Insolvency Act. If this proposal is accepted, you will only have to make one monthly payment adapted to your budget and the requirements that meet your obligations toward your creditors. You can then keep all your property.
Will I lose all of my assets?
Generally in bankruptcy proceedings, all of your assets are assigned to a Trustee for the benefit of creditors. These assets include cash, investments, retirement savings plans, antiques, works of art, valuable collections, personal effects, cars, tools and real estate, subject to the exemptions outlined below. You may know someone who has gone into bankruptcy who didn’t seem to lose anything. That is likely because they do not have anything except assets that are exempt from seizure or assets that are fully encumbered.
You are entitled to retain assets that are exempt from seizure. This means that creditors through a Sheriff’s seizure or a Trustee cannot take those assets from you.
In the Province of BC, you are entitled to keep:
Personal Effects to a garage sale value of $4,000. In the case of a married couple, that means $4,000 each.
Motor Vehicle: You are entitled, as exempt from seizure, a motor vehicle to a value of $5,000. If you happen to be in arrears under the Family Maintenance Enforcement Program then the $5,000 is reduced to $2,000 as exempt from seizure.
Tools of Trade: Persons in business for themselves, such as mechanics, contractors or accountants are entitled to retain from seizure tools of trade to a value of $10,000. This would be, in the case of the mechanic who is in business for himself, a service vehicle and tools. The accountant would retain computers, etc.
Home: You are entitled to keep equity in your principal residence at the date of bankruptcy to a value of $12,000 in the Vancouver and Victoria Regional Districts. In the case of a married couple where the home is owned jointly, the equity retained would be $24,000. Outside of Vancouver and Victoria Regional Districts the equity exempt from seizure is $9,000 individually or $18,000 where the home is owned jointly.
If there is no equity in your car but you owe approximately its value (the same would apply to your residence) the Trustee will not deal with the car. It will be released to the secured lender. You may be able to make an agreement with the secured lender whereby if you continue your payments they will not seize your vehicle or commence foreclosure proceedings against your home. This would be negotiated on an individual basis because under most contracts, bankruptcy is a breach of the contract, which would allow repossession.
Medical devices, pension plans and certain life insurance policies are exempt, as well as RRSPs, with the exception of contributions made within the 12 month period preceding the bankruptcy.
What happens to someone who co-signs a loan for me when I go bankrupt or make a Consumer Proposal?
The co-signer, usually a friend or family member, will be called upon to pay the outstanding debt. You cannot exclude a debt from bankruptcy because it has been co-signed and you seek to protect the co-signer. All creditors must be included in your bankruptcy and be treated equally. In most cases they will contact your creditors and attempt to work out a repayment plan that is satisfactory to both you and your creditors.
What does a proposal and a bankruptcy cost?
The costs of a bankruptcy or proposal for consumers with minimal assets are set out by a tariff under the Bankruptcy and Insolvency Act. Essentially this means that the government sets a prescribed rate.
The prescribed rate for a first time bankruptcy is $1,900. For those going bankrupt for a second time the cost is $2,050. The prescribed rate for a proposal is a little more complex, but you should expect to pay a small deposit, the amount of which we will negotiate with you.
What is counselling?
Individuals who make a consumer proposal or file an assignment in bankruptcy are required to attend two counselling sessions. The sessions deal with causes of insolvency, budgeting and dealing with credit. Each counselling session takes approximately one hour.
Do I have to turn in my credit cards?
Yes, a bankrupt person is required to deliver to the Trustee all credit cards issued to and in possession or control of the bankrupt. If you require a credit card for business travel then you can hold a credit card in another person’s name. Perhaps your spouse can get a credit card with you as an authorized user. Alternatively, your employer may provide you with a credit card.
Must I include all my creditors, even my friends and family members?
Yes, all creditors must be declared in a proposal or bankruptcy. The objective of the Bankruptcy and Insolvency Act is that all creditors will be treated equally.
Will I have to attend a creditors’ meeting?
There will be no creditors’ meeting unless sufficient creditors (25% of proven claims) request one. In the vast majority of cases there is no creditors’ meeting. However, if one is requested, you will have to attend.
Are there any debts that are not discharged by a bankruptcy or proposal?
Yes, some debts are not discharged. Generally these are debts arising out of fines or dishonesty, debts for maintenance of spouse or children, and student loan debts. See below for more information on student loans.
How do I get my discharge from bankruptcy?
Assigning into bankruptcy or filing a proposal does not discharge your debts. You still owe the money. What you are doing by assigning your assets and liabilities to the Trustee is getting a stay of proceedings. A stay of proceedings means that your creditors can not garnishee your salary or seize assets. They must deal through the Trustee and wait for the process to be completed. However, secured creditors, for example those who finance your vehicle, will have the right of repossession after they satisfy the Trustee that they have a valid and enforceable charge against your property. All other debts are covered by the bankruptcy but you still owe the money. It is not until you receive your discharge that the debts are discharged. If you file a proposal you will be discharged when you satisfy the terms of the proposal; that is, when you make the payments you said you would make under the proposal.
A first-time bankrupt with no surplus income is eligible for an automatic discharge in nine months. A first-time bankrupt with surplus income is required to contribute part of the surplus income to their estate for 21 months after which they are eligible for an automatic discharge.
A second-time bankrupt with no surplus income is eligible for an automatic discharge in 24 months. A second-time bankrupt with surplus income is required to contribute part of the surplus income to their estate for 36 months after which they are eligible for an automatic discharge.
If no one, including your creditors, the Trustee, or the Superintendent of Bankruptcy opposes your discharge, then you will receive your automatic discharge and will no longer owe the money. If, however, somebody does file an objection to your discharge, then there will be an application to the Court for the discharge.
If there is a Court application for discharge, the Court will consider all circumstances including your conduct, family responsibilities, and your income. It will also consider your responsibility to creditors and the request from a creditor that you not be discharged. The Court will then make one of three Orders:
Conditional Order – a Conditional Order is an Order from the Court whereby you are discharged upon satisfying the terms of the Order. The Order might provide that you should pay a sum of money either in a lump sum or monthly for a set period of time. We can only recommend the terms of such an Order but bear in mind that your family obligations will be the first consideration of the Court.
Suspended Order – the Court may suspend the Order for a set period of time. This means that you will not be required to make payments but for whatever reason, the Court believes that you would benefit by remaining in bankruptcy. This could go on for a period of months or a year or more.
Order Absolute – this is where the Court Orders that, in spite of any objections from creditors, you are discharged. At this point you no longer owe your creditors anything.
Will a bankruptcy or proposal stop creditors from garnishing my salary?
Yes, as soon as a bankruptcy or proposal is filed, all Garnishing Orders are stopped. The garnishee creditors are stopped from taking action just like all other creditors and they will deal with the Trustee.
Am I required to make payments during the period of my bankruptcy?
You are required to make payments on a monthly basis only if there is surplus family income. Surplus family income is set out in a schedule prescribed by the Superintendent of Bankruptcy (see Superintendent’s Standards 2015 below). The surplus is calculated by taking your net income and deducting any prescribed medical expenses, maintenance, and certain other expenses. To encourage you to improve your income, only half of the surplus is to be paid to the Trustee for the benefit of your creditors; you get to keep the other half.
What are the Superintendent’s Standards 2015?
The Superintendent’s Standards (“S”) are derived from the Low Income Cutoffs (LICO) released by Statistics Canada. The Superintendent uses the before-tax LICO for urban areas with 500,000 people and over. The 2015 standards are updated by adding to the 2013 LICO, the 2014 Consumer Price Index (CPI) (1.95%) plus a 1.7% adjustment reflecting the 2015 CPI expectation.
Do I have to report to the Trustee on a regular basis?
Yes, you are required to report your monthly income received and your expenses paid by the 15th of the following month. It is from this report that the surplus income, described above under the heading “Payments,” is calculated. Failure to make these reports on a regular basis will jeopardize your chances of getting your discharge from bankruptcy.
Will my student loans be discharged by my bankruptcy or proposal?
Unless you completed your studies or left the education institution more than 7 years from the date of your proposal or bankruptcy, your student loans will survive and you will have to repay them.
What is surplus income?
Surplus income is defined by the Bankruptcy and Insolvency Act as income over and above what the Federal Government prescribes as the minimum amount to support an individual or family of a particular size. The calculation is provided under the heading “Payments,” above.
Do I have to file all my tax returns?
We encourage you to file all your tax returns up to date. In the year of your bankruptcy there will be two tax returns. Crowe MacKay & Company Ltd. will file the return from January 1 to the date of your bankruptcy and for the period from the date of your bankruptcy to December 31. Income tax refunds are an asset of the bankrupt estate and must be turned over to the Trustee for the benefit of your creditors. Any amount owing on the post-bankruptcy tax return must be paid by the bankrupt.
Do I get to keep my wages or will creditors be able to seize them?
Creditors may not seize your wages after proposal or bankruptcy. You are required, however, to pay surplus income (see above) to Crowe MacKay & Company Ltd., to be distributed to your creditors in accordance with the Bankruptcy and Insolvency Act.
If I win a lottery or am named in a will, do I get to keep the money?
Any assets that you acquire such as windfalls after your bankruptcy but before you are discharged from bankruptcy are subject to the claims of creditors. Yes, they have to be turned over to Crowe MacKay & Company Ltd. Any windfalls after your discharge from bankruptcy are yours to keep.
Is it all worth it?
Crowe MacKay & Company Ltd. does not persuade anyone to file a proposal or to make an assignment into bankruptcy. We are here to help you understand all your options. We want to make a difference in your life and the life of your family. Yes, there is a light at the end of the tunnel.
How do I choose the best option?
Making a decision on how to deal with your debts on your own may be overwhelming and confusing. A Licensed Insolvency Trustee is trained to explain your options to you clearly and understandably so that you may make an informed decision that will benefit you. Please contact our office for a free initial consultation.
How to obtain your credit report
You can obtain your credit report for free by simply filling out a request form, attaching a photocopy of two pieces of ID and faxing or mailing the request to the Credit Bureau. There are two credit-reporting agencies in Canada therefore you will need to complete a request form for each of them. See below for links to the request forms. If you require additional information with respect to your credit report, please visit the Financial Consumer Agency of Canada.
If you are overwhelmed with debt, a Licensed Insolvency Trustee can help review all your options with you to have a better financial future. Please contact our office for a free initial consultation.
What is a Licensed Insolvency Trustee?
Effective April 1, 2016, Bankruptcy Trustees will have a new designation and will be known as “Licensed Insolvency Trustees” or LIT.
There have been no changes to the actual duties of a Trustee. It is simply a change in title. The new LIT designation can only be used by professionals who have successfully completed the rigorous training, education and examinations required to be licensed with the Office of the Superintendent of Bankruptcy.
The Canadian Association of Insolvency and Restructuring Professionals (CAIRP), which represents nearly 1,500 insolvency professionals across Canada, welcome this change. The new designation is one for which many professionals have waited a long time for. It creates an opportunity for insolvency professionals to clearly differentiate themselves from unlicensed service providers.
The new designation also helps in removing some fear people may have in speaking with a ‘bankruptcy trustee’ as it is now clearer that Licensed Insolvency Trustees provide a wide range of debt management solutions other than bankruptcy which may include proposals to creditors.
Is bankruptcy the only option?
Are you feeling buried in bills and can’t see a way out? If so, now is the time to explore your options to deal with your debts! Bankruptcy may not be the only option for you. The sooner you take steps to regain control of your finances, the wider your options are. A Licensed Insolvency Trustee can help review all your options with you, including debt management programs, consumer proposals and debt consolidation. Please contact our office for a free initial consultation. The sooner you do so, the sooner you will be on the road to a financially secure future.
What is a recession?
Dictionary.com defines Recession as “a period of an economic contraction, sometimes limited in scope or duration.” Basically a recession is a downturn in the economy which is normally accompanied with higher rates of unemployment and inflation. A recession affects us all, whether we are financially sound or not. If you are already struggling with debt however, a recession may be your breaking point.
Instead of waiting until you are at your breaking point, why not find out what your options are now. A Licensed Insolvency Trustee can help review all your options with you to have a better financial future. Please contact our office for a free initial consultation.
How to fix errors on your credit report
If there are errors on your credit report, you should notify the credit bureau in writing immediately and provide the credit bureau with any supporting documentation available. The credit bureau will provide you confirmation in writing that the error has been corrected.