Bankruptcy Trustee Services
Bankruptcy Trustee ServicesBankruptcy is a legal process and is usually the last of the solutions offered when dealing with your financial circumstances. The amount you pay in a bankruptcy will depend on the value of non-exempt assets in your possession and the amount of your income, and whether or not it exceeds a certain established threshold. Even if bankruptcy is not your choice in dealing with your debts, you should be aware of how a bankruptcy would work for you and be advised of all of your options. The Trustee will review this option during your free consultation. We serve all of Alberta through our Calgary and Edmonton offices.
Consumer ProposalsA consumer proposal is not a bankruptcy but rather an offer of settlement to your unsecured creditors at less than face value of the debt owed. A consumer proposal offers a percentage of the amount owing to the creditors but something more than they would receive if you were to file for bankruptcy. A consumer proposal is traditionally paid out by way of a monthly payment over an agreed-upon term not exceeding 5 years. A consumer proposal need only be accepted by the majority of your unsecured creditors by dollar value. Once accepted by the majority of your unsecured creditors, it is binding on the balance of the creditors not voting in favour of your consumer proposal. Once your unsecured creditors have approved your consumer proposal, your payments remain the same for the duration of the consumer proposal. Accordingly, your payments to the consumer proposal are not affected by increases or decreases in your income as they may be in a bankruptcy. A consumer proposal does offer the flexibility of being able to be paid off in part, or in full, early with no penalties. Consumer proposals can deal with debts of $250,000 or less, excluding the debt secured on your principal residence, such as a mortgage. If you have debts over this limit, another form of proposal can be filed. The Trustee will review this option during your free consultation.
Personal Financial Counselling ServicesAs an integral part of the insolvency process in Canada, individuals who file a bankruptcy or a consumer proposal are required to attend two mandatory counselling sessions. These sessions are done one-on-one with the individual. The first session deals with understanding credit, warning signs of financial difficulty, goal setting and budgeting. The second session covers a recap of the first session, follow-up with the budgeting process, a review of the status of the bankruptcy or proposal proceedings, and information with respect to the credit bureau and how to go about improving your credit score once the formal proceedings are concluded.
Exploring the Differences: Consumer Proposal vs. Bankruptcy in Canada
Managing debt can be overwhelming, but fortunately, there are options available to help Canadians get back on track financially. Two of the most popular debt relief solutions are consumer proposals and bankruptcy, but many people don’t understand the differences between the two. While both can provide a fresh start, the process, implications, and outcomes can be different. Consumer proposals (“CP”) offer the opportunity to negotiate with creditors and pay back a portion of the debt, while bankruptcy involves a legal process that absolves most debts but can come with significant consequences. In this article, we’ll explore the key differences between consumer proposals and bankruptcy in Canada, helping you make an informed decision about which option is right for you. So, whether you’re struggling with debt or just curious about your options, let’s dive into the world of consumer proposals and bankruptcy.
Looking at the above chart (Source: Office of the Superintendent of Bankruptcy), we can see a few things:
- Albertans filed fewer bankruptcies per capita than the rest of Canada
- Albertans made more consumer proposals per capita than the rest of Canada
- From 2021 to 2022, Consumer Proposals gained a lot more popularity among all Canadians.
Understanding Consumer Proposals
A consumer proposal is a debt relief solution that allows you to negotiate a settlement with your creditors and pay back a portion of your debt over a maximum of 60 months. A CP must be filed through a Licensed insolvency Trustee (LIT), who will work with you to come up with a proposal that your creditors are likely to accept. If your creditors accept the proposal, you will make payments to the LIT, who will then distribute the funds to your creditors.
One of the main benefits of a consumer proposal is that it allows you to avoid bankruptcy while still reducing your debt load. In addition, a consumer proposal will stop collection actions, including wage garnishments, bank account garnishments and legal action being undertaken by your creditors. Another advantage of a consumer proposal is that it allows you to keep your assets, such as your home and car, as long as you continue to make the agreed-upon payments. A CP requires that a simple majority of your creditors to vote to accept the proposal and if accepted, is then binding on the minority of creditors who either voted against acceptance or did not vote at all.
However, there are also some disadvantages to consider. One is that a consumer proposal will stay on your credit report for up to three years after you complete the payments. This can make it difficult to obtain credit during that time.
Bankruptcy is a legal process that allows you to eliminate most of your debts and get a start fresh. It is often seen as a last resort for those who are struggling with debt and have no other options. Like a CP, a bankruptcy is governed by the Bankruptcy and Insolvency Act (BIA), which outlines the rules and procedures that must be followed.
Like a CP, a bankruptcy must be filed through a Licensed Insolvency Trustee (LIT) who will help you prepare the necessary paperwork and guide you through the process. Once you file for bankruptcy, collection actions will stop, and you will be protected from your creditors.
One advantage of bankruptcy is that it can provide a fresh start and eliminate most of your debts. In addition, once you are discharged from your bankruptcy. you will be able to start rebuilding your credit. However, there are also significant disadvantages to consider. One is that bankruptcy will stay on your credit report for up to six to seven years after you are discharged, making it difficult to obtain credit during that time. In addition, a bankruptcy may be required to make surplus income payments and may have an impact on certain professional licenses.
Eligibility Criteria for Consumer Proposals and Bankruptcy
To be eligible to file a consumer proposal or a bankruptcy you must meet the definition of being insolvent. In order to be considered insolvent in Canada you must have at least $1,000 in debt and not be able to make the agreed-upon payments as they generally become due.
Advantages and Disadvantages of Consumer Proposals and Bankruptcy
As we’ve seen, both consumer proposals and bankruptcy have advantages and disadvantages. Here’s a quick summary:
Advantages of Consumer Proposals
- Allows you to settle your debts with your unsecured creditors at less than face value of the debt owed.
- Avoids a bankruptcy.
- Get a financial fresh start.
- Once a proposal is approved, it can be paid off at any time in whole or in part
- Once you obtain your certificate of completion, allows you to rebuild your credit score.
- Puts a stay of proceedings into effect that prohibits creditors from commencing or continuing an action to collect.
Disadvantages of Consumer Proposals
- Will stay on your credit report for up to three years after you complete the proposal.
- Normally, proposals are for a term of 60 months but may be paid out in full or in part at any time.
- May impact certain professional licenses.
Advantages of Bankruptcy
- Will discharge your unsecured debt when you are given your Discharge Certificate.
- Get a financial fresh start.
- Once discharged, you can start rebuilding your credit score.
- Pus a stay of proceedings into effect that prohibits creditors from commencing or continuing an action to collect
- May be a faster process than a consumer proposal. For a first time bankruptcy the term is 9 months if you are not in surplus income and 21 months if you have surplus income as defined under the BIA.
Disadvantages of Bankruptcy
- Will stay on your credit report for up to seven years after you are discharged.
- May impact your professional licenses
How to Decide Between Consumer Proposals and Bankruptcy
Deciding between a consumer proposal and bankruptcy can be a difficult decision.
Ultimately, the decision will depend on your individual circumstances and goals. It is important to work with a Licensed Insolvency Trustee who can help you understand your options and make an informed decision.
How to File for Consumer Proposals and Bankruptcy in Canada
To file for a consumer proposal or bankruptcy in Canada, you will need to work with a Licensed Insolvency Trustee (LIT). The LIT will help you prepare the necessary paperwork and guide you through the process.
To find a Licensed Insolvency Trustee in your area, you can visit the Office of the Superintendent of Bankruptcy Canada website. Once you have found an LIT, you can schedule a consultation to discuss your options and decide on the best course of action.
How to Rebuild Your Credit After Consumer Proposals and Bankruptcy
Rebuilding your credit after a consumer proposal or bankruptcy will take time, but it is possible. Here are some tips to help you get started:
- Check your credit report: Make sure that your consumer proposal or bankruptcy has been properly reported and that there are no errors on your credit report.
- Create a budget: Develop a budget that allows you to live within your means and make your payments on time.
- Use credit responsibly: Apply for credit sparingly and use it responsibly. Make your payments on time and keep your balances low.
- Consider a secured credit card: A secured credit card can be a good way to rebuild your credit. You will be required to put down a deposit, but it can help you establish a positive credit history.
- Be patient: Rebuilding your credit takes time, but if you are patient and responsible, you can improve your credit score over time.
Frequently Asked Questions About Consumer Proposals and Bankruptcy
Is a consumer proposal or bankruptcy right for me?
The answer depends on your individual circumstances and goals. It is important to work with an LIT who can help you understand your options and make an informed decision.
Will a consumer proposal or bankruptcy stop collection actions?
Yes, both consumer proposals and bankruptcy will stop unsecured creditors’ collection actions, including wage garnishments and legal action by your creditors.
Will a consumer proposal or bankruptcy eliminate all of my debts?
A consumer proposal or a bankruptcy will eliminate most unsecured debt. Certain debts as described under Section 178 of the BIA are debts that will survive either a consumer proposal or a bankruptcy. Some of the more common items listed under Section 178 include fines and penalties imposed by a Court, spousal and child support and student loans under 7 years old.
How long will a consumer proposal or bankruptcy stay on my credit report?
A consumer proposal will stay on your credit report for up to three years after you complete the proposal, while bankruptcy will stay on your credit report for up to seven years after you are discharged.
What kinds of proposals are likely to be accepted by creditors?
Generally proposals that offer more to the creditors than they would receive under a bankruptcy situation are accepted by creditors.
Conclusion: Making an Informed Decision About Your Debt Relief Options in Canada
Managing debt can be overwhelming, but fortunately, there are options available to help Canadians get back on track financially. Consumer proposals and bankruptcy are two of the most popular debt relief solutions, but they have significant differences that must be considered. By understanding the key differences between consumer proposals and bankruptcy, you can make an informed decision about which option is right for you. Remember, it is important to work with a licensed insolvency trustee who can help you understand your options and guide you through the process. With the right guidance and a commitment to financial responsibility, you can achieve a fresh start and take control of your finances.