Frequently Asked Questions

A Consumer Proposal can be filed by an insolvent person who owes $250,000 or less, excluding amounts owing under a residential mortgage. An insolvent person is anyone whose liabilities to creditors exceed $1,000 and who is unable to meet his obligations as they generally become due or has ceased paying his current obligations in the ordinary course of business or whose property is not at a fair valuation or disposition, sufficient to enable payment of all his obligations.

A Consumer Proposal is a viable option for several reasons:

• When you recognize that you can afford to pay part, but not all, of your debts, a Proposal is a better alternative than a bankruptcy and, at the same time, provides a means of dealing reasonably with financial difficulties.
• If a Consumer Proposal is rejected by creditors, it does not result in automatic bankruptcy. (There are sometimes situations where bankruptcy is not an option, such as where bankruptcy would result in the requirement to resign from a profession, or lose a broker’s license.)
• An automatic Stay of Proceedings goes into effect upon filing a Consumer Proposal. The Stay prevents unsecured creditors from proceeding with legal or collection action while the Proposal is dealt with. This may be important where you are under threat of garnishment or other legal proceedings.
• Financial problems which continue to go unaddressed will often compound themselves to the extent that they have an impact on family and job situations. A Consumer Proposal can resolve the problem.
• A Proposal is very much like a loan consolidation. It generally results in one monthly payment being made, and therefore eliminates the need to deal with a number of creditors at the same time.

After you put forward a Proposal, creditors have 45 days to accept or reject it. For a Proposal to be accepted, it must be approved by creditors holding more than 50% of the value of the unsecured debt. Creditors who do not wish to accept the Proposal must specifically advise the A Licensed Insolvency Trustee of their position. If sufficient objections are received, a meeting will be called to vote on the Proposal. If no creditors object to the Proposal within 45 days from the filing date, it is deemed to be approved by the creditors. Creditors may ask for changes to the terms of the Proposal before giving their consent. You may accept or reject the change. Where a Proposal is accepted, it is legally binding on all unsecured creditors, even those who have voted against it. If you should subsequently default on your obligations under the Proposal, the rights of the creditors to pursue their debts are restored. Bankruptcy does not automatically result, although you may choose to file for bankruptcy, on the default of a proposal.

A Consumer Proposal can take many forms. It is intended to be flexible to deal most effectively with each individual’s unique situation.

Situation A

An individual has been laid off for a period of time and has fallen behind in paying a number of debts, including the mortgage. He believes that, if he can catch up on his mortgage payments, he can reasonably manage the other debts over time.

Consumer Proposal A

A Proposal was made for payment of $300/month for 24 months, commencing three months after approval of the Proposal. This would provide sufficient time to bring the mortgage current and pay an amount on the dollar to unsecured creditors.

Situation B

A couple has recently separated, resulting in increased living expenses and an inability to manage debts of approximately $25,000. Based on their revised circumstances, it was determined that only $500/month was reasonably available to service these debts, although significant tax refunds were anticipated in the near future.

Consumer Proposal B

A joint Proposal was made to creditors providing for payments of $500/month to a maximum of $15,000. In addition, future tax refunds were assigned to the Administrator to be applied against the required payments. As a result, it was anticipated that creditors would receive approximately 50 cents on the dollar over a period of 18 to 24 months.

Situation C

An individual has $50,000 in guaranteed business debts. As a result of the business failing, he was called upon to pay the loan. Additional personal debts of $10,000 were owed. It was clear that in a bankruptcy, there would be very little available for creditors. A third party was prepared to assist the individual by advancing $10,000.

Consumer Proposal C

A Proposal was made to creditors for a lump sum payment of $10,000 in full satisfaction of all outstanding debts. While the proposal resulted in only 15 cents on the dollar to creditors, it was more than they would otherwise receive in a bankruptcy, and the amount was available immediately.

Yes. A Licensed Insolvency Trustee’s fees are based on a percentage of the amount offered under the Proposal. Initial filing, document preparation and counselling fees also can be written into the Proposal. Your Licensed Insolvency Trustee will generally want a deposit, usually at least $100.

You’ve come to the right place for help. As a Licensed Insolvency Trustee, Smith Cageorge Bailey, Inc., can assist you with preparing and filing a Proposal.

Your principal obligations are to be honest and forthright with the Licensed Insolvency Trustee, to keep in contact with him/her, to advise of any significant change in your circumstances, to attend two mandatory counselling sessions and make monthly instalment payments.

A bankruptcy starts when you instruct a Licensed Insolvency Trustee to file an Assignment in Bankruptcy on your behalf. The Assignment is accompanied by your sworn Statement of Affairs, which is essentially a listing of your assets and liabilities. Notice of the bankruptcy, along with your Statement of Affairs, is sent to your creditors by the Licensed Insolvency Trustee. After filing, a Stay of Proceedings is initiated, whereby no creditor can take or continue any legal or collection action against you.

The Bankruptcy and Insolvency Act provides for an automatic absolute discharge, for most first-time bankrupts, after nine or twenty-one months, depending on income level. For a second time bankrupt, the automatic discharge is available after twenty-four or thirty-six months. An average consumer bankruptcy takes from nine to thirty-six months to reach the discharge state. It formally ends when you receive a Certificate of Discharge from the Licensed Insolvency Trustee or an Absolute Order of Discharge from the Court.

There are certain debts which are not eliminated, the most common of which are obligations for alimony and child support, court fines and penalties (such as speeding and traffic tickets) and certain student loans. If you have a mortgage against your house, or a security agreement against a car or furniture, you must keep the payments current if you intend to keep these assets. Utility bills may need to be paid, or satisfactory payment arrangements made, in order to continue service. A Licensed Insolvency Trustee can assist you in determining whether any of your debts may not be eliminated.

Generally, you can keep your personal property and household furnishings with an equity value up to $4,000, a vehicle with an equity value up to $5,000, your Pension Plan, RRSP and RESP. Other exemptions are available for trades people, professionals and farmers. It is important to note that these exemptions may not be available when your possessions have been pledged as security against a loan. All non-exempt property must be delivered to the Licensed Insolvency Trustee, who will turn it into cash to be applied to administrative costs and your outstanding debt.

If there is any equity available over and above your mortgage, it may be affected by a bankruptcy. The Licensed Insolvency Trustee is required to pursue any equity available in a house over and above a basic exemption of $40,000. Even in a bankruptcy, your mortgage payments must be kept current to prevent the loss of the house through foreclosure action.

When you file an Assignment in Bankruptcy, collection and garnishment actions by creditors are stopped immediately, and therefore your paycheques are protected from creditors. However, if your income is sufficient to allow it, you may be required to contribute a portion of your surplus income to the Licensed Insolvency Trustee for the benefit of your creditors. Formal guidelines exist to determine whether such payments must be made.

Yes. There are no restrictions on maintaining bank accounts while you are bankrupt.

There are restrictions on your ability to obtain credit while you are bankrupt. Also, you are required to turn in your credit cards to the Licensed Insolvency Trustee. A Licensed Insolvency Trustee can advise you in your specific situation.

Your principal obligations are to be honest and forthright with the Licensed Insolvency Trustee, to keep in contact with him/her, to advise of any significant change in your circumstances, monthly financial reporting, to attend two mandatory counselling sessions and to provide such information or attend such meetings as may be required during the course of the bankruptcy. A Notice detailing the duties of the bankrupt is provided to you prior to filing an Assignment in Bankruptcy. The Discharge process may require that you appear before a Registrar, a Court officer who has the authority to deal with bankruptcy matters.

Bankruptcy regulations require that you take part in a program of counselling intended to address issues related to the bankruptcy. There are two mandatory counselling sessions:

1. First-stage counselling occurs within 60 days of the date of Bankruptcy and covers money management, spending and shopping habits, warning signs of financial difficulties and obtaining and using credit.
2. Second-stage counselling is held between 30 days and 210 days after completing the first-stage session and covers causes of bankruptcy, follow-up on targets and goals in the first-stage counselling, and referrals, if necessary.

No, consumer bankruptcies are not published in the local newspaper; however, they are often reported in publications and reports of interest to lending institutions. The record of a bankruptcy is maintained as a permanent part of the files of the Superintendent of Bankruptcy. It might also become a part of the Court records. Also, credit reporting agencies are likely to maintain bankruptcy information on their files for six years after discharge.