Bankruptcy, Consumer Proposal & Debt Solutions FAQ

Bankruptcy, Consumer Proposal & Debt Solutions FAQ

Bankruptcy, Consumer Proposal & Debt Solutions FAQ

 

bankruptcyfaq

What is in the Bankruptcy and Insolvency Act?

A. The Bankruptcy and Insolvency Act (BIA) sets out how different financial options work legally, and defines the roles of the Superintendent of Bankruptcy, the representatives of the Superintendent of Bankruptcy (official receivers), the court, trustees, creditors, and consumers. The BIA is divided into the following parts:

Part Heading Sections
I Administrative Officials 5-41
II Bankruptcy Orders and Assignments 42-49
III Proposals 50-66.4
IV Property of the Bankrupt 67-101.2
V Administration of Estates 102-157
VI Bankrupts 157.1-182
VII Courts and Procedure 183-197
VIII Offences 198-208
IX Miscellaneous Provisions 209-216
X Orderly Payment of Debts 217-242
XI Secured Creditors and Receivers 243-252
XII Securities Firm Bankruptcies [ 253-266
XIII Cross-Border Insolvencies 267-284
XIV Review of Act 285

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I am facing a financial crisis. What are my options?

A. Under the Bankruptcy and Insolvency Act, there are three main options:

  • declare bankruptcy;
  • submit a consumer proposal to creditors; or
  • submit a Division I proposal to creditors.

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What is a Division I Proposal?

A. This is a formal procedure available to businesses or individuals. There is no limit to how much money is owed. It is also called a “proposal to creditors” and “commercial proposal”. This procedure was originally created as a means for businesses to restructure without having to file an assignment in bankruptcy.

Q. How does it work generally?

A. This process is carried out through a trustee in bankruptcy. The trustee:

  • puts together an offer to pay creditors a percentage of what is owed to them over a specific period of time, or
  • extends the time the debtor has to pay off the debt, or
  • a combination of both.

Payments are made through the trustee, and the trustee uses that money to pay each of the creditors.

Legislation

Q.  What is the Bankruptcy and Insolvency Act?

A. The Bankruptcy and Insolvency Act (BIA) is a statute passed by the federal government to protect the rights of debtors and their creditors, and informs trustees and the court of their responsibilities, powers and duties.

Q. What is in the BIA?

A. The BIA sets out how different financial options work legally, and defines the roles of the Superintendent of Bankruptcy, the representatives of the Superintendent of Bankruptcy (official receivers), the court, trustees, creditors, and consumers. The BIA is divided into the following parts:

Part Heading Sections
I Administrative Officials 5-41
II Bankruptcy Orders and Assignments 42-49
III Proposals 50-66.4
IV Property of the Bankrupt 67-101.2
V Administration of Estates 102-157
VI Bankrupts 157.1-182
VII Courts and Procedure 183-197
VIII Offences 198-208
IX Miscellaneous Provisions 209-216
X Orderly Payment of Debts 217-242
XI Secured Creditors and Receivers 243-252
XII Securities Firm Bankruptcies [ 253-266
XIII Cross-Border Insolvencies 267-284
XIV Review of Act 285

 

Q.  What other statutes deal with bankruptcy besides the BIA?

A. Every province and territory has their own laws about the treatment of personal property in a bankruptcy.  In Ontario, there is the Executions Act. If there is ever a dispute between the federal and provincial laws, the federal laws in the BIA will take precedence.

Another federal statute that deals with bankruptcies and insolvencies is the Companies’ Creditors Arrangement Act (CCAA). It addresses how a company or corporation would deal with their debt trouble.

Q. What is the Companies’ Creditors Arrangement Act?

A. The Companies’ Creditors Arrangement Act (CCAA) is a federal bankruptcy law that governs insolvency of companies and corporations. It preserves the rights of the company and creditors and sets out the responsibilities of the court, the corporation, and the creditors.

The CCAA is divided into three parts:

  1. compromises and arrangements – governs agreements between the company and creditors for debt repayment;
  2. court’s jurisdiction of – governs the powers and responsibilities of the court, and addresses the court’s role in international insolvencies;
  3. general – discusses how this act interacts with others and other information not covered in the other sections.

To determine how the CCAA might apply to your situation, call us.

Q. How recently were Canada’s bankruptcy laws changed?

A. On September 18, 2009, changes to Canada’s bankruptcy laws came into force. These changes are designed to modernize the insolvency system, increase fairness and reduce abuse of the system, and encourage restructuring as an alternative to bankruptcy.

Q.  Where can I get more information about bankruptcy laws?

A. Call us. We are all Ontario trained lawyers with expertise in the field. We can help you and answer any of your questions. We can discuss your legal options and explain how the law will apply to your situation.

The main players

Q. Who are the main players?

A. The four main players are:

(1) trustee in bankruptcy;

(2) debtor/bankrupt;

(3) creditor(s);

(4) Office of the Superintendent of Bankruptcy (OSB).

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Trustee in Bankruptcy

Q. What is a trustee in bankruptcy?

A. A trustee in bankruptcy is a person licensed by the Office of the Superintendent of Bankruptcy (OSB) to administer bankruptcy and proposal estates.

Q. What are the obligations of a trustee in bankruptcy generally?

A. The trustee is an officer of the court. Thus, the trustee has an obligation to look after the creditors rights and to investigate the debtor’s affairs.

Q. What are the primary duties of a trustee in bankruptcy?

A. The trustee’s primary duties are to:

  • assess your (the debtor’s) financial situation
  • provide financial counseling
  • help you establish a personal budget
  • file paperwork
  • prepare official documentation that is both filed with the OSB and used to notify creditors
  • ensure the validity of creditors’ claims
  • ensure that debtors are provided with mandatory counselling and access to mediation services if there is a dispute about any income they are required to contribute
  • sell the debtor’s assets, except those exempt from seizure by provincial and federal laws, and hold the proceeds in trust for distribution to creditors
  • administer the bankrupt estate from beginning to end
  • assess the debtor’s conduct both before and during a bankruptcy
  • assess the cause(s) of the bankruptcy
  • make an application for a debtor’s discharge (in the case of individual debtors).

Q. Must I deal with a trustee in bankruptcy?

A. Yes. Canada residents who file for bankruptcy require a trustee to handle the filing from beginning to end.

Q. Does the trustee in bankruptcy work for me?

A. Although you will be able to choose your trustee in most cases, he or she does not actually work for you. A trustee in bankruptcy is a person licensed by the Office of the Superintendent of Bankruptcy (OSB) to administer bankruptcy and proposal estates. An officer of the Court, the trustee has an obligation to look after the creditors’ rights and to investigate the debtor’s affairs. The trustee’s job is to ensure that everyone in the bankruptcy is handled fairly and in accordance with bankruptcy law.

It is for this reason that you would be prudent to consult us. Since bankruptcy is legal process, it makes sense to have a lawyer on your side helping you every step along the way. We as lawyers offer legal advice and assistance. Importantly, we act exclusively for you.

Q. What about credit counsellors?

A. There are rarely any set guidelines for the qualifications one needs to operate as a credit counselor or debt consultant. No governmental agency sets any professional accreditation standards for debt solution providers who call themselves credit counselors.

Many non-profit credit counseling agencies get much of their funding directly from the big banks and other credit lending institutions.

Like trustees in bankruptcy, credit counsellors are not lawyers and cannot give you legal advice. We are and can.

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Debtor/Bankrupt

Q. What is a debtor?

A. A debtor is a business or person that is unable to meet debt obligations.

Q. What is a bankrupt?

A. A bankrupt is a business or person that has declared bankruptcy.

Q. What does it mean to be bankrupt?
You assign (surrender) everything you own to a trustee in bankruptcy in exchange for eliminating your debts. Through bankruptcy, a person burdened with debt gets a chance to start fresh.

Q. What is personal bankruptcy?

A. Personal bankruptcy is a legal process, governed by federal law (the Bankruptcy & Insolvency Act). The law is intended to permit an honest but unfortunate debtor to get relief from his or her debts while treating creditors equally and fairly.

Q. Why do people go bankrupt?

A. People go bankrupt because they have financial problems for various reasons. Three leading causes of bankruptcy are job loss, marriage separation or divorce and medical problems. Regardless of the cause, if you are having financial problems, feel free to call us. We will review your circumstances and recommend legal solutions to your financial problems.

Q. What legally happens when I declare bankruptcy?

A. Bankruptcy is a legal process. The court issues a “stay of proceedings”. It prevents a garnishment or any legal action from happening, and stops your creditors from calling. All collection activity against you goes away. Your creditors must stop bugging you. They are forbidden from communicating with you.  If your wages have been garnished, that stops.  If your bank accounts have been attached, that stops.  If you are being sued, the lawsuits are stopped. You are fully protected by law.

Although the court protects you from losing all that you own in bankruptcy, you might have to surrender some of your assets to the bankruptcy trustee. These assets will be sold. The sale proceeds will go to your creditors as partial repayment for what you owe.

This is the gist of an often complex process. As lawyers, we can help sort out the complexities of this legal process and apply the law to your particular circumstances. Call us.

Q. Who can declare bankruptcy?

A. To go into bankruptcy in Canada, a person must live or do business in Canada, and must be insolvent.

Q. What steps are involved in bankruptcy?

A. The Bankruptcy and Insolvency Act (BIA) legally protects bankrupt persons from their creditors and helps bankrupt persons make a fresh start.

To provide an overview of what a bankruptcy involves, below is a brief description of what happens before you file for bankruptcy, what happens during your bankruptcy, and what happens after your bankruptcy.

Before You File

If you are having a debt crisis and think bankruptcy might be your best solution, call us. We can discuss with you whether you have legal options other than bankruptcy.

Bear in mind that costs that you will be required to pay for the bankruptcy include the trustee’s fee, various court filing and other administrative costs, and in some cases, contributions (surplus income) towards repaying creditors.

During the Bankruptcy

When you file for bankruptcy, all of your debts will be discharged, or forgiven. You won’t have to worry about any more wage garnishments or creditors calling you. You can also start working on rebuilding your credit.

While in bankruptcy, you will first turn over your assets to the trustee. He will decide what assets are exempt from seizure and sale and those that are not.

You will report your monthly income to the trustee and make any required surplus income payments.  Surplus income is one of the factors that determines how long you will remain in bankruptcy.  If you have none, you can be discharged from bankruptcy in as little as 9 months.  If you have surplus income, you could remain in bankruptcy for 21 months.  If this is your second bankruptcy filing, you will remain in bankruptcy for between 24 and 36 months.

You must attend two credit counseling sessions at the trustee’s direction.  These sessions are designed to allow you to learn sound money management principles and to understand how you got into financial trouble.

You will stay in touch with the trustee and report any changes in your status – a move, a promotion, a raise, and so forth.  You must supply the trustee with any information he asks for.

Once you have completed these obligations to your trustee’s satisfaction, he can petition the court for a discharge from bankruptcy.

After Your Discharge from Bankruptcy

Once you are discharged, most of your debt (including any tax arrears) will be gone, but there are exceptions.

If you have secured debt, such as a car loan or a home loan, and were allowed to keep those assets, you are still responsible for what you owe.

If you have student loans less than 7 years old, those debts remain.

If you are required to make alimony or child support payments, they remain.

If you have any debts involving court ordered fines or debts arising from fraudulent activity, they remain.

Q. What does “insolvent” mean?

A. To be insolvent means:

  1. To owe at least $1,000.
  2. Not to be able to meet your debts as they are due to be paid.

Q. What are the debtor and bankrupt’s primary duties?

A. Both the debtor and bankrupt’s primary duties are to

  • attend the first meeting of creditors (if the creditors ask for a meeting);
  • attend two counseling sessions (for bankruptcy and consumer proposals);
  • inform the trustee in writing of any address changes;
  • generally assist the trustee in administering the estate or proposal;
  • respond to the trustee’s requests, assist him or her as required, and provide requested information.

Q. What are the bankrupt’s additional primary duties?

A. In addition, the bankrupt must

  • disclose all of his or her assets (property) and liabilities (debts) to the trustee;
  • inform the trustee of any property disposed of in the past year;
  • give to the trustee all credit cards, non-exempt assets, your T-4 slips and any other information necessary to complete any outstanding tax returns to the date of bankruptcy ;
  • attend an examination at the OSB, if required;
  • if you borrow more than $500, tell the lender that you are bankrupt;
  • not be a director of a company.

Q. What if I do not complete these duties or not on time?

A. If you do not complete these duties or not on time, your bankruptcy cannot be completed or its completion will be delayed. For example, if you miss a payment to your trustee, your discharge date will be postponed. The earlier you obtain your discharge, the earlier you will be able to rebuild your credit and resume living a normal life.

Q. What is involved in my assisting the trustee in administering the estate?

A. Each month, you must report to your trustee your household income and living expenses and any change in your family situation, along with copies of your pay stubs.

From your income and expenses, your trustee determines if your net income was higher than the limit allowed by law for you to live. If you have any “surplus income”, you must make a payment each month to the trustee. The more you earn, the more you must contribute to your estate for the benefit of your creditors.

The monthly income reporting usually involves the most homework. This process forces you to keep track of the money coming in and how and when you spend it.

Q. What is involved in credit counselling?

Budgeting and the causes of your financial difficulties are discussed. To be eligible for an “automatic nine month discharge”, you must participate in two credit counseling sessions within certain timeframes. The counseling can be either individual or in a group.

The first counselling session must be held between 10 and 60 days after you declare bankruptcy. The second counselling session must be held within 210 days of the date of bankruptcy. Each counselling session costs $85.

This credit counselling is designed to teach you budgeting and good money management so that you are less likely to have financial problems in the future. Each session is about an hour. Credit counselling reinforces your income and expense reporting and give you better control of your finances.

Q. What is surplus income?

A. The Bankruptcy and Insolvency Act requires a bankrupt individual to make a surplus income payment to the bankrupt’s estate every month. Under Directive No. 11R2 (which came into force 18 September 2009), the Office of the Superintendent of Bankruptcy sets limits for what a family is allowed to earn. The purpose of this Directive is to assist the trustee in determining equitably and consistently the portion of the bankrupt’s income that should be paid into the bankrupt’s estate.

The government has established a list of income levels for households of different sizes. If the household’s income exceeds the level set by the government, then additional payments must be made to your trustee during your bankruptcy.
The amount of the contribution varies, depending on your income. The more you earn, the more you must contribute. The larger your family, the more you are allowed to keep. The thresholds are increased each year.

Each month during the bankruptcy process, the bankrupt submits copies of his pay stubs and proof of other income to the trustee. Then the trustee calculates the bankrupt’s surplus income, and the bankrupt contributes the required portion.

Q. I owe a lot of income tax. What should I do?

A. If you owe a lot of income tax, according to your tax assessment from the Canada Revenue Agency (CRA) (formerly Revenue Canada), and you have difficulty paying it, what should you do? Follow this checklist to make sure you get the best result possible. First, understand what CRA can do.

CRA has strong powers to ensure they collect what people owe. They include:

  • charging penalties and interest on all overdue taxes.
  • withholding child tax credits and GST credits until your debt is paid.
  • taking money from your bank account or your pay (through a garnishee).

CRA will not willingly accept less than full payment. So treat tax debt seriously, and promptly. If you put it off, it’ll get bigger, and CRA may take steps that disrupt your life.

First, determine what you owe
Start by knowing what you really owe.

  1. Make sure you have submitted all your outstanding tax returns.
  2. Review all your returns for the past several years to make sure you are taking advantage of all possibilities to reduce what you owe.
  3. If your non-payment was genuinely caused by a serious event beyond your control, consider applying to the Fair Practices Commission of CRA to have your interest and penalties cancelled. Causes they may accept include natural disasters, serious illness, CRA actions, and loss of employment.

Second, consider possible solutions
Call us. We are Canadian lawyers with experience dealing with the CRA and debtors in these situations. We can assist you with your legal choices for your income tax debts in Canada. We can advise you what the best solution is for you based on your particular circumstances.

Length of bankruptcy

Q. When does my bankruptcy end?

A. Your bankruptcy ends when you receive a discharge. This event actually cancels your debts.

Q. How long is the bankruptcy?

A.  Many factors affect the length of your bankruptcy. You may be entitled to an “automatic discharge from bankruptcy” in nine months, the minimum time set by the Court to be bankrupt, so long as you have never been bankrupt before and you complete various duties and responsibilities. We can discuss with you the likely length of your bankruptcy and help you keep it as short as possible.

Q. Can the discharge from bankruptcy be more than nine months?

A. Yes. Your bankruptcy will be more than nine months if the bankruptcy court orders your bankruptcy extended. How much longer your bankruptcy period will be depends on the circumstances of your case.

Q. Under what circumstances will the bankruptcy court extend my bankruptcy?

A. The circumstances that could prolong your bankruptcy are:

  • you do not perform all your bankruptcy duties, such as regular payments of surplus income to the trustee;
  • you have surplus income; or
  • you have been bankrupt before.

Q. Can my discharge be opposed?

A. Yes, although discharges are not usually opposed. The discharge is usually granted if you are earning only enough income to keep yourself and your dependents reasonably provided for, and if you have received credit counselling.

Occasionally, creditors, the trustee, or the Superintendent of Bankruptcy oppose a bankrupt’s discharge. When this happens, the matter goes to mediation or is heard before a Registrar or a Judge. You would be wise to seek legal advice at this stage. Give us a call. We can help.

Q. What happens at the end of the bankruptcy process?

A. At the end of the process, you are released from your obligation to repay the debts.

Your debts

Q. What debts are discharged?

A. What happens to your debts when you go bankrupt is complicated. It depends on the type of debt, and in some cases on your payment status. Some debts do not go away. We can help you sort this out.

When you file for bankruptcy, you surrender your assets in return for the discharge of your debts. Bankruptcy only deals with unsecured debts. A secured debt, such as a mortgage or car loan, is not included. In that case, you have given an asset as collateral. So your creditor does not need the bankruptcy process to recover what you owe him. The creditor in a secured debt has a special right to the security, which is your asset.

Q. What kinds of unsecured debts are discharged?

A. Unsecured debts that are discharged include:

  • Credit card balances
  • Lines of credit (if unsecured)
  • Personal loans (if unsecured)
  • Arrears of income taxes and municipal house taxes
  • Unpaid utility bills
  • Retail store accounts
  • Insurance premiums past due
  • Medical bills
  • Payday loans.

Q. What unsecured debts are not discharged?

A. Under the Bankruptcy and Insolvency Act, some debts are not discharged by bankruptcy. These include

  • alimony and child support;
  • student loans (if it is less than seven years since the debtor ceased to be a full- or part-time student);
  • fines or penalties imposed by a court; and
  • debts arising from fraud or theft;
  • certain government overpayments.

More information for debtors

Credit rating

Q. How will a bankruptcy or consumer proposal affect my credit rating?

A. Once your level of debt becomes so substantial that bankruptcy or a proposal is required, your credit rating is probably already poor. If you declare bankruptcy, you will are assigned the lowest possible credit rating score. A consumer proposal produces a similar result.

Q. Does information that affects my credit score remain on my credit report forever?

A. Information that affects your credit score is usually removed from your credit report after a certain period of time. The length of time that information must stay in your report depends on the type of information and where you live.

Q. Will I be able to get and use credit after discharge?

A. Your ability to get and use credit after discharge depends on persuading lenders of your personal financial maturity and ability to repay the debt. But there are no promises. No one is required to give you credit.

Q. How do I ensure my credit record is current?

A. To ensure that your credit record is updated, send a copy of the discharge order to the major credit-reporting agencies. Make sure that you keep all documents about your bankruptcy or proposal for reference by future lenders.

Q. Does the bankruptcy release me from all my debts?

A. Not necessarily. Under the Bankruptcy and Insolvency Act, some debts are not discharged by bankruptcy. These include the following:

    • alimony payments and child support;
    • student loans, if it is less than seven years since you ceased to be a full- or part-time student;
    • fines or penalties imposed by the Court; and
    • debts arising from fraud.

In addition, bankruptcies generally do not affect the rights of secured creditors. A creditor might have a valid security against your property (e.g. a car or a house). If you can afford periodic payments, financial arrangements can be made with the secured creditor.

Q. Will all my assets be assigned to the trustee?

A. The only assets that are not assigned to the trustee for distribution to your creditors are those exempted by federal and provincial laws. These are the “exemptions” that the government has determined you need to survive.

Q. What are some exceptions to the surrender of all assets?

A. Some assets are not taken from you in bankruptcy. The list of exemptions is set by each provincial or territorial government. In Ontario, for example, the following are exempt:

  • a car worth less than $5,650
  • personal items such as clothing worth less than $5,650
  • household items worth less than $11,300.

For most people the assets they must surrender include their investments, RRSPs, RESPs, and their house (unless you continue to pay your mortgage).

Q. What must I do about my assets?

A. You must fully disclose all your assets are and have them properly valued. This includes all existing assets as well as those acquired before your discharge.

Once you have filed for bankruptcy, you may not dispose of any assets assigned to the trustee.

Spouse

Q. How will my bankruptcy affect my spouse?

Your filing for bankruptcy will not directly affect your spouse. Your debts are your own. Your husband or wife or common-law spouse is not responsible for your debts. If you go bankrupt, your debts are discharged. So a collection agent who says if you don’t pay he will go after your spouse is trying to scare you.

The only exception is if your spouse has co-signed or guaranteed your debt. If you and your spouse incurred a joint (co-signed) debt, say on a credit card, then a creditor can pursue your spouse for repayment. Also, anyone who has co-signed a loan for you will still be responsible for making loan payments after you go bankrupt. In these situations your spouse is liable for the debt, not because they are your spouse, but because they have signed for the debt.

Only assets owned by the bankrupt are included in the bankruptcy. If assets are jointly owned with a spouse, then the bankrupt’s portion may have to be sold and distributed to the creditors. All joint assets must be disclosed.

If all of your debts are in your name, your bankruptcy will not affect your spouse’s credit rating. But the bankrupt spouse may not qualify as a co-signer in the future because of the bankruptcy. Thus, one spouse’s bankruptcy might have an indirect impact on the other spouse.

These issues can be complicated. For instance, determining if a credit card is a joint card, or just a supplementary card might be hard. Call us and we can help unravel the complexities for you.

Wages

Q. What happens to my wages during a bankruptcy?

A. Wages are not affected by bankruptcy. You will still receive your wages directly from your employer. But each month you will need to fill out an Income and Expense Form listing your income and send it to your trustee. If your income exceeds certain standards established by the Office of the Superintendent of Bankruptcy (OSB), called “surplus income”, you must pay a portion of the surplus into the bankruptcy estate through the trustee.

 

Bankruptcy Records

Who will know about my bankruptcy?

Usually only your creditors will know you have filed for bankruptcy. If you apply for credit from another lender, that lender will learn about your bankruptcy from a credit bureau.

Nobody else is likely to know about your bankruptcy, unless something causes them to suspect it and they bother to search OSB records (see below) or see a notice in the newspaper (see below).

What bankruptcy records exist?

The federal Office of the Superintendent of Bankruptcy (OSB) compiles the official bankruptcy records in Canada. They are public records.

The OSB sends a monthly list of new bankruptcies to each of the credit bureaus. They record them on their credit histories of individual consumers. The bankruptcy record for each person is removed from that person’s credit report after a certain number of years.

A newspaper publishes a legal notice of an individual’s bankruptcy only when the individual has substantial assets. The notice is placed by the individual’s bankruptcy trustee as a way to communicate with creditors.

The trustee in an individual’s bankruptcy mails a notice of bankruptcy to each of the individual’s creditors. When they receive this notice, creditors of a bankrupt individual would record the bankruptcy.

Those considering granting credit to a bankrupt individual may record the bankruptcy when they check the individual’s record at a credit bureau.

How can I check whether someone has been bankrupt?

You can pay a fee to the OSB for them to search for any record of that person’s being bankrupt. You can do this yourself online by going to the OSB’s Insolvency Name Search.

Q. How long will personal bankruptcy stay on my credit report?

A.  How long a personal bankruptcy will remain on your credit report depends on several factors.

The first factor is how long you will remain in personal bankruptcy before being discharged. That length of time depends on your income and whether you have ever declared bankruptcy before.

Personal bankruptcy filers with no surplus income can be discharged in as little as 9 months while those with surplus income may take a total of 21 months before discharge.

If this is your second or third filing, the bankruptcy may remain on your credit report for as long as 9 to 14 years, depending on whether you have surplus income.

Another factor is the practice of the credit reporting agency (Equifax or Trans Union) involved.

In general, a personal bankruptcy will remain on your credit report for anywhere from 7 years to 14 years from the date you file, depending on your income and the credit reporting bureau’s practice.  While costly, you may borrow money even with a bankruptcy on your credit report.

 

Student loans

Q. I cannot repay my large student loans. Should I declare bankruptcy?

A. Certain programs help those who are experiencing financial difficulty because of student loan debt. The federal government’s Repayment Assistance Plan helps borrowers manage student loan debt by paying back what they can reasonably afford. If you have a provincial or territorial government student loan, your provincial/territorial student financial assistance office call tell you about their repayment assistance programs.

Q. Will declaring bankruptcy eliminate my student loan debts?

A. A discharge from bankruptcy will release you from your obligation to repay your student loans if you filed for bankruptcy at least seven years after you ceased to be a part or full-time student. The seven-year rule applies to both new filings for bankruptcy and bankruptcies that were not discharged as of July 7, 2008.

But the court can order a release from the obligation to repay a student loan as early as five years after the bankrupt has ceased his or her studies if repaying the student loan will result in the person continuing to experience major financial difficulty (undue hardship) and if the person has made efforts to repay his or her loans. The five-year rule is available to all bankrupts, including those whose bankruptcies were discharged before July 7, 2008.

 

Discharge

Q. I didn’t get my discharge from bankruptcy. How do I obtain one?

A. Contact the trustee who handled your bankruptcy. The trustee will tell you why you did not get your discharge. For example, you may have to fulfill certain conditions.

We can help you process the discharge.

Dealing with creditors

Q. A creditor is harassing me daily. What should I do?

A. Creditors or collection agencies usually have some limitations on what actions they can take. For example, a representative of a collection agency must not make telephone calls of such a nature or frequency as to constitute harassment of you or your family. In addition, there are certain times when a representative is not allowed to call you at all.

If you are being harassed, feel free to contact us. We can help you by serving as an intermediary between you and the creditor.

 

Multiple bankruptcies

Q. What happens when I file for bankruptcy again?

A. In a case of second-time bankruptcy you will not be eligible for an automatic bankruptcy discharge in as little as nine months, as is the case when filing for the first time.

If a creditor opposes your bankruptcy discharge, your second time bankruptcy could last longer than the minimums set out in the legislation.

In some cases a consumer proposal is a better option than a second bankruptcy, since by filing a proposal you have certainty over what you will be required to contribute during the process.

Before deciding to file for a second time bankruptcy, you should fully understand all of its implications, including prolonged bankruptcy discharge. Bankruptcy is a legal process. We are lawyers. So we can help you decide what to do.

 

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Creditors

creditord

Q. What types of creditors are there?

A. There are three main types of creditors:

(1)     Unsecured creditor

(2)     Secured creditor

(3)     Preferred creditor

Q. What is an “unsecured creditor”?

A. A creditor who comes forward but has not taken measures to guarantee that he or she will be repaid.

Q. What is a “secured creditor”?

A. A person holding an instrument, such as a mortgage or a lien on or against the whole or part of a debtor’s property, as security for a debt that the debtor owes him or her. This type of creditor is usually not affected by bankruptcy or proposals.

Q. What is a “preferred creditor”?

A. A creditor who has been given priority under the Bankruptcy and Insolvency Act over other creditors in the distribution of dividends. Preferred claims include unpaid wages, commissions or other remuneration of any employee of a debtor and, under certain conditions, any debt or obligation of support to a spouse, common-law partner or child living separate from a debtor.

Q. How do creditors become involved in the process?

A. Creditors can become fully involved in the process by participating in meetings of creditors or by being named an inspector.

Q. What are some things that creditors have the legal right to do to collect a debt?

A. Creditors have the legal right to do many things to collect a debt, including:

  • contacting you in writing specifying how much you owe them and identifying account information
  • hiring licensed collection agencies to act as their representatives to collect the debt.
  • selling the debt to a licensed debt buyer
  • phoning you at home between the hours of 7 am and 10 pm
  • contacting anyone you know – from your spouse to your neighbors – to get a residential address and a home or work phone number
  • phoning you at work
  • phoning  your employer one time to verify employment status
  • suing you in civil court for most unsecured debts under $25,000
  • if the creditor wins a judgment order in court, petitioning the court for a writ of enforcement to collect the debt, usually through wage garnishment or property attachment.

Q. What do Inspectors do?

A. Inspectors are appointed by creditors to represent them before the trustee during the administration of proposals and bankruptcies. They are expected to assist the trustee and are required to supervise certain aspects of the trustee’s administration.

Q. What if creditors have information about possible irregularities by the debtor?

A. Creditors are duty bound to inform the trustee if they have information about possible irregularities by the debtor.

Q. What documents will creditors be given?

A. Creditors will be given, among others, the following two documents:

(1)     Statement of Affairs

(2)     Statement of Receipts and Disbursements.

Q. What is a “Statement of Affairs”?

A. The bankrupt’s financial statement or balance sheet of assets and liabilities. They show the estimated value of assets and the names and addresses of creditors and the amounts owed.

This is usually presented at the beginning of the process.

Q. What is a “Statement of Receipts and Disbursements”?

A. A statement detailing the receipt and disbursement of funds, interest received, fees charged by the trustee, all dividends distributed to creditors and particulars of property that is not sold.

This is usually presented at the end of the process.

Q. How do I find out if a person or a business has declared bankruptcy?

A. Do an online search of bankruptcy and insolvency records. The records contain basic debtor information for all bankruptcies and proposals registered in Canada since 1978. There is a minimum charge of $8 per search.

Q. I paid a company or an individual for services and have not heard back from them. Have they filed for bankruptcy?

A. As stated above, you can do an online search of bankruptcy and insolvency records. It is also possible that the company simply folded its business. If that is the case, you could contact your provincial and/or municipal office of consumer affairs. Feel free to call us. We can help.

Q. My employer just went bankrupt. What happens to my wages and my vacation pay? What am I entitled to?

A. An employee who can work in Canada legally has certain protections related to the payment of wages and vacation pay in the event his or her employer declares bankruptcy. To find out what you are entitled to, contact us.

Q. How do I stop a bankrupt from being discharged?

A. To oppose a discharge, you must send a letter to the trustee, the bankrupt and the Office of the Superintendent of Bankruptcy stating your intention to oppose the discharge and your reasons. A court hearing will be scheduled. As lawyers, we can help you with prepare properly for the hearing and with any post-hearing matters.

Q. Why was I not notified of the bankruptcy (or consumer proposal)?

A. Maybe the debtor forgot, or the trustee did not know that the debtor owes you money. Contact the trustee to find out what information you need to provide to confirm your status as a creditor.

Q. The Canada Revenue Agency believes, incorrectly, that I was paid wages owed to me by my bankrupt employer. What should I do?

A. Maybe the trustee could not send payment because of an incorrect address or perhaps the cheque has gone missing. Contact the trustee to confirm that he or she knows you are a creditor and has your correct address.

Q. What is a dividend?

A. Dividends are amounts payable to individuals and businesses owed money by the debtor that have confirmed their status as creditors.

Q. How and when are dividends distributed?

A. To be eligible to receive a dividend, you must file a Proof of Claim with the trustee.

A trustee distributes dividends to confirmed creditors. Normally, distribution takes place once a bankruptcy is completed. In the case of a proposal, dividends may be distributed at various intervals throughout its administration.

In some cases, the trustee may be unable to contact one or more of the creditors. You may want to contact the trustee to find out if any dividends have, in fact, been distributed.

Q. What are “unclaimed dividends” or “unclaimed funds”?

A. If a creditor cannot be located, the trustee is required by law to forward the undistributed dividend or funds to the Office of the Superintendent of Bankruptcy. The OSB holds it in trust until the rightful creditor comes forward to make a claim. This money is referred to as “unclaimed dividends” or “unclaimed funds”.

We can help you find out if some money is being held for you.

Q. I own assets that are located on the premises of a company that has declared bankruptcy and have been unable to retrieve them. What should I do?

A. Call us. Provide proof of ownership. We can help you get your property back. In addition, the Bankruptcy and Insolvency Act contains specific provisions for suppliers who have not been paid for goods sold to a business. We can help you with that too.

Q. I made an advance payment to a company that has declared bankruptcy. What can I do?

A. If you pre-paid for a service, you become a creditor and the trustee will send you a Proof of Claim form with your creditor’s package. You must prove that the debtor owes you money. We can help you complete this document.

To be recognized as a creditor and to be eligible to share in the distribution of dividends, if any, you must provide the trustee with a completed Proof of Claim.

Q. What must creditors with unsecured claims do to participate in insolvency proceedings?

A. To participate in insolvency proceedings and share in the distribution of dividends, if any, creditors with unsecured claims must file a Proof of Claim with the trustee.

Q. How do I complete a Proof of Claim?

A. The trustee will send you a Proof of Claim form with your creditor’s package.  You must prove that the debtor owes you money. We can help you complete this document.

To be recognized as a creditor and to be eligible to share in the distribution of dividends, if any, you must provide the trustee with a completed Proof of Claim.

Q. What is the role of an inspector in the bankruptcy process?

A. Inspectors advise the trustee and supervise some aspects of the bankruptcy administration. For example, inspectors approve trustees’ fees and the hiring of legal counsel, if required. The Inspectors’ Handbook explains the inspectors’ role in more detail.

Q. What happens at the first meeting of creditors?

A. At the first meeting of creditors, the trustee is appointed and inspectors are elected.

At the meeting, creditors may ask questions about the bankrupt’s assets and liabilities. They can also review the trustee’s preliminary report and can instruct the trustee on the administration of the estate.

Posted in: bankruptcyfaq

Forms

Form 31 — Proof of Claim

(Sections 50.1, 81.5, 81.6, Subsections 65.2(4), 81.2(1),
81.3(8), 81.4(8), 102(2), 124(2), 128(1), and
Paragraphs 51(1)(e) and 66.14(b) of the BIA)


 

All notices or correspondence regarding this claim must be forwarded to the following address:

 

In the matter of the bankruptcy (or the proposal or the receivership) of (name of debtor) of (city and province) and the claim of , creditor.

I, (name of creditor or representative of the creditor), of (city and province), do hereby certify:

1. That I am a creditor of the above-named debtor (or that I am (state position or title) of (name of creditor or representative of the creditor)).

2. That I have knowledge of all of the circumstances connected with the claim referred to below.

3. That the debtor was, at the date of bankruptcy (or the date of the receivership or, in the case of a proposal, the date of the notice of intention or of the proposal, if no notice of intention was filed), namely the day of , and still is, indebted to the creditor in the sum of $ , as specified in the statement of account (or affidavit) attached and marked Schedule “A”, after deducting any counterclaims to which the debtor is entitled. (The attached statement of account or affidavit must specify the vouchers or other evidence in support of the claim.)

4. Check and complete appropriate category

A. Unsecured Claim of $

(Other than as a customer contemplated by Section 262 of the Act)

That in respect of this debt, I do not hold any assets of the debtor as security and

(Check appropriate description)

Regarding the amount of $ , I claim a right to a priority under  section 136 of the Act.

Regarding the amount of $ , I do not claim a right to a priority.

(Set out on an attached sheet details to support priority claim)

B. Claim of Lessor for Disclaimer of a Lease $

That I hereby make a claim under subsection 65.2(4) of the Act, particulars of which are as follows:

(Give full particulars of the claim, including the calculations upon which the claim is based)

C. Secured Claim of $

That in respect of this debt, I hold assets of the debtor valued at $ as security, particulars of which are as follows:

(Give full particulars of the security, including the date on which the security was given and the value at which you assess the security, and attach a copy of the security documents)

D. Claim by Farmer, Fisherman or Aquaculturist of $

That I hereby make a claim under subsection 81.2(1) of the Act for the unpaid amount of $

(Attach a copy of sales agreement and delivery receipts)

E. Claim by Wage Earner of $

That I hereby make a claim under subsection 81.3(8) of the Act in the amount  of $

That I hereby make a claim under subsection 81.4(8) of the Act in the amount  of $

F. Claim by Employee for Unpaid Amount Regarding Pension Plan of
$

That I hereby make a claim under subsection 81.5 of the Act in the amount of
$

That I hereby make a claim under subsection 81.6 of the Act in the amount of
$

G. Claim Against Director $

(To be completed when a proposal provides for the compromise of claims against directors)

That I hereby make a claim under subsection 50(13) of the Act, particulars of which are as follows:

(Give full particulars of the claim, including the calculations upon which the claim is based)

H. Claim of a Customer of a Bankrupt Securities Firm $

That I hereby make a claim as a customer for net equity as contemplated by section 262 of the Act, particulars of which are as follows:

(Give full particulars of the claim, including the calculations upon which the claim is based)

5. That, to the best of my knowledge, I am (or the above-named creditor is) (or am not or is not) related to the debtor within the meaning of section 4 of the Act, and have (or has) (or have not or has not) dealt with the debtor in a non-arm’s-length manner.

6. That the following are the payments that I have received from, the credits that I have allowed to, and the transfers at undervalue within the meaning of subsection 2(1) of the Act that I have been privy to or a party to with the debtor within the three months (or, if the creditor and the debtor are related within the meaning of section 4 of the Act or were not dealing with each other at arm’s length, within the 12 months) immediately before the date of the initial bankruptcy event within the meaning of subsection 2(1) of the Act: (provide details of payments, credits and transfers at undervalue)

7. (Applicable only in the case of the bankruptcy of an individual)

Whenever the trustee reviews the financial situation of a bankrupt to redetermine whether or not the bankrupt is required to make payments under section 68 of the Act, I request to be informed, pursuant to paragraph 68(4) of the Act, of the new fixed amount or of the fact that there is no longer surplus income.

I request that a copy of the report filed by the trustee regarding the bankrupt’s application for discharge pursuant to subsection 170(1) of the Act be sent to the above address.

Dated at , this day of .
Witness
Creditor

Telephone No.:

Fax No.:

Email address:

Note:   If an affidavit is attached, it must have been made before a person qualified to take affidavits.

Warnings: A trustee may, pursuant to subsection 128(3) of the Act, redeem a security on payment to the secured creditor of the debt or the value of the security as assessed, in a proof of security, by the secured creditor.

Subsection 201(1) of the Act provides severe penalties for making any false claim, proof,

Posted in: bankruptcyfaq

Office of the Superintendent of Bankruptcy

Q. What is the Office of the Superintendent of Bankruptcy?

A. The Office of the Superintendent of Bankruptcy (OSB) is a special operating agency associated with Industry Canada of the federal government that supervises the administration of the Bankruptcy and Insolvency Act.

Q. What are the OSB’s aims?

A. It aims to protect the integrity of the bankruptcy and insolvency system and to ensure public confidence in the marketplace. The OSB helps ensure that bankruptcies and insolvencies are conducted in a fair and orderly manner.

Q. What are the OSB’s duties?

A. The OSB’s main duties are to:

  • supervise the administration of estates in bankruptcy, consumer proposals and Division I proposals;
  • maintain a publicly accessible record of bankruptcy and insolvency proceedings;
  • record and investigate complaints about possible wrongdoing by someone involved in the insolvency process;
  • license private-sector trustees to administer estates;
  • set and enforce professional standards for administering estates;
  • promote awareness of the rights and responsibilities of the stakeholders in the insolvency system.

Q. What staff does the OSB have?

A. The OSB has more than 300 employees across Canada. The current Superintendent of Bankruptcy is Mr. Bill James

Q. Where is the OSB located?

A. The OSB has 15 offices across Canada. Its national headquarters are in Ottawa. Its other Ontario offices are in Toronto, Hamilton and London.

Posted in: bankruptcyfaq

Consumer Proposals

Q. What is a consumer proposal?

A. A consumer proposal (also called a “Division II proposal” and a “proposal to creditors”) is a formal procedure governed by the Bankruptcy and Insolvency Act. Under this procedure, you as debtor offer to pay your creditors a percentage of what you owe them over a specific period of time, extend the time you have to pay off the debt or a combination of both.

Q. Is filing a consumer proposal one of the ways that I can stop creditors from harassing me?

A. Yes. Your other options are:

  • debt consolidation
  • negotiate settlement or new payment terms with creditors
  • file for bankruptcy.

Q. To whom is a consumer proposal available?

A. A consumer proposal is available to individuals whose total debts are between $1,000 and $250,000, not including debts secured by their principal residence (that is, excluding the mortgage(s) on their house).

Q. How do I make payments?

A. You make payments to the trustee, who uses that money to pay each of your creditors.

Q. What are the main advantages of a consumer proposal?

A. The main advantages of a consumer proposal include: (1) you retain all of your assets; (2) actions against you by unsecured creditors, such as wage garnishments, will be stayed (stopped); (3) you can solve your money problems without having to declare bankruptcy.

Q. How is a consumer proposal (Division II) different from a proposal to creditors (Division I) proposal?

A. Compared to a proposal to creditors (or Division I proposal), a consumer proposal is a simplified process and is available to individuals only.

The most significant difference is the monetary restrictions. A consumer proposal is limited to $250,000 worth of debts. A proposal to creditors has no limit. The proposal to creditors procedure was originally created as a means for businesses to restructure without having to file an assignment in bankruptcy.

In the early 1990s the Bankruptcy and Insolvency Act was amended and the consumer proposal was created. The intent was to provide individuals with a procedure for restructuring their personal debts in the same manner that businesses could, by using a simplified version of the proposal to creditors.

Your debts might be too high to qualify for a consumer proposal. Feel free to call us to discuss your options, including a proposal to creditors. We can help you decide what type of proposal, if any, is right for you.

The Consumer Proposal Process

Q. What are my responsibilities?

A. As the debtor, you must:

    1. disclose all of your assets (property) and liabilities (debts) to the trustee;
    2. attend the first meeting of creditors (if a meeting they request one);
    3. attend two counselling sessions;
    4. advise the trustee in writing of any address changes; and
    5. help the trustee in administering the proposal.

Q. What happens once my proposal is filed with the Office of the Superintendent of Bankruptcy (OSB)?

A. Once your proposal is filed, you will stop making any payments directly to your unsecured creditors, any salary garnishments will stop and lawsuits against you by creditors will be stayed (stopped).

Q. What information will my creditors be given?

A. Your creditors will be given a copy of your proposal, including a report on your personal situation and the causes of your financial difficulties.

Q. What happens once my creditors receive the proposal?

A. Any creditor with a proven claim may assent to (accept) or dissent from (object to) the proposal.

Q. What are the time limits for creditors responding to the proposal?

A. Creditors have 45 days to either accept or reject the proposal. This can be done either before or at the meeting of creditors, if one is held. It can also be done within 45 days after the consumer proposal is filed.

Any acceptance of, or objection to, a proposal counts as a vote at the meeting of creditors, if one is held, as long as it is received at or before the meeting.

Q. What happens if a meeting of creditors is called?

A. A meeting of creditors will be called if one is requested by one or more creditors having at least 25% of the value of the proven claims. Unsecured creditors usually do not request a meeting.

Q. When must the request for a meeting be made?

A. The request for a meeting must be made within 45 days of the filing of the proposal. The OSB can also direct the trustee to call a meeting of creditors at any time within this 45-day period.

Q.  When must a meeting of creditors be held?

A. A meeting of creditors will be held within 21 days after being called.

Q. What happens at a meeting of creditors?

A. At the meeting of creditors, the creditors vote to either accept or refuse the proposal.

Q. How are the creditors’ votes tallied?

A. The number of votes corresponds to the total dollar value of the proven claims. The vote is decided by a simple majority of this dollar value (that is, 50% plus one). For example, if the proven claims total $100,000, and if the creditors voting “yes” to accepting the proposal are together claiming at least $50,001, then the proposal will be deemed accepted and all other unsecured creditors must accept it as well.

Q. Does the court become involved at this stage?

A. Not necessarily. If no obligation has arisen to apply to court within 15 days after the acceptance or deemed acceptance by the creditors, the proposal will be deemed to have been approved by the court.

Q. What happens if a meeting of creditors is not called?

A. If no meeting of creditors is requested within 45 days of the filing of the proposal, the proposal will be deemed to have been accepted by the creditors, regardless of any objections(s) received.

Q. Does the court become involved at this stage?

A. Not necessarily. If no obligation has arisen to apply to court within 15 days after the deemed acceptance, the proposal will be deemed to have been approved by the court.

Q. What happen if my consumer proposal is accepted?

A. If your consumer proposal is accepted:

    1. you must pay either a lump sum or periodic payments to the trustee;
    2. you must adhere to any other conditions in the proposal;
    3. you must retain your assets so long as you make your payments to your secured creditors;
    4. you must attend two financial counselling sessions; and
    5. the proposal will be on your credit record for at least the duration of the term.

Q. What happens if my consumer proposal is not accepted?

A. If your consumer proposal is not accepted, you can:

  1. change it and resubmit it for consideration;
  2. consider other options for solving your financial problems; or
  3. declare bankruptcy.

Q. What happens with secured creditors?
A. a secured creditor (i.e. a creditor having a lien on any assets) is not usually bound by the consumer proposal. An example is a car loan. You might consider surrendering your secured asset to the secured creditor and obtain a receipt. Any balance left due after the creditor sells the asset may be a claim in the consumer proposal in some provinces. You might also consider arranging to continue to pay the secured creditor so that you may keep the asset.
Q. What happens with co-signers?

A. Consumer proposals will not cancel the liability if you have guaranteed or co-signed any loans.  You will still be responsible for these debts less any payments the creditor receives from the proposal.

Q. What happens if I fully meet the conditions in my consumer proposal?

A. If you meet the conditions in the proposal in full, you will be legally released from the debts included in the proposal. The Trustee issues a certificate showing that the terms of the consumer proposal have been completed.  Any balance still owing to the unsecured creditors from the original date of the proposal is legally forgiven.

Q. What happens if my circumstances change?

A. You must advise the Trustee of any changes in your circumstances that could jeopardize your ability to make the payments required under the consumer proposal. This will not change the amounts to be paid.

Q. Under what circumstances will my proposal be deemed annulled?

A. If you are making monthly payments and miss three payments, or if your payment schedule is less frequent but your last payment is more than three months past due, the proposal will be deemed annulled. This means your creditors will be able take action to collect the money you owe them, unless the court has ordered otherwise, or unless the consumer proposal has been amended and filed. A consumer proposal that has been deemed annulled may be revived under certain conditions.

Q. What happens to my credit rating?

A. Once the level of debt has become so great that a consumer proposal is needed, one’s credit rating is usually at its lowest. Your ability to obtain and use credit after completing the proposal will depend upon your ability to convince a potential lender of your future personal financial maturity.

Q. This sounds like it could be complicated. Can you help me?

A. Absolutely! If you have any questions about the consumer proposal process, call us. As Ontario lawyers, we can advise you whether a consumer proposal is the right legal choice for you and guide you in the process. If the consumer proposal is not accepted, we can advise you of  legal alternatives.

Posted in: bankruptcyfaq

Credit Report and Credit Score

Q. What is a credit history?

A. A credit history is a summary of most of the types of credit an individual uses, including credit cards, loans and financing plans. It also shows whether you have made your payments on time.

Q. What is my credit history based on?

A. Your credit history is based on information sent to the two credit-reporting agencies in Canada, Equifax and TransUnion from businesses that have given you credit. When you want to borrow money, the lender will usually check your credit history with these agencies, also known as credit bureaus.

Q. How can I build a good credit history?

A. You build a good credit history by consistently making payments on your credit cards and other loans on time. If you have no credit history, or a bad credit history, you will have more difficulty borrowing money, especially large amounts such as a mortgage.

Q. How do credit reporting agencies provide information about my credit history?

A. The credit reporting agencies provide information about your credit history in two ways: as a credit report and a credit score.

Credit report

Q. What does my credit report include?

A. Your credit report includes personal information, such as your current and previous addresses and employers, and financial information.

Q. What financial information can be included in my credit report?

A. Financial information in the report can include information on:

  • your bank accounts, including any “bad” cheques or non-sufficient funds (NSF) payments
  • credit you already have, such as credit cards, lines of credit, and loans
  • a bankruptcy or a court decision against you that relates to credit
  • debts that you did not pay, which were referred to collection
  • a list of all people and companies who have made inquiries about your credit, including lenders, yourself and other authorized organizations (for example, a landlord or employer if you have given your consent).

Credit score

Q. What is a credit score?

A. A credit score indicates the risk an individual represent to lenders compared to other consumers. The higher your score, the lower the risk.

Q. What scale is used?

A. The credit reporting agencies Equifax and TransUnion use a scale from 300 to 900.

Each lender may have its own way of determining your credit score.

Q. How do lenders use my credit score?

A. Each lender can set its own minimum score for lending money to you. Lenders can also use your credit score to set the interest rate that you will pay to borrow money.

Q. What factors can affect my credit score?

A. Factors that can affect your credit score include:

  1. how long you have had credit
  2. your history of making payments (e.g. Do you owe money on your credit card(s)? Have you missed payments?)
  3. your outstanding debts (e.g. Are you close to your credit limit?)
  4. how many recent inquiries about your credit history (e.g. Are you trying to get more credit?)
  5. the types of credit you are using
  6. any record of bankruptcy or your debts being sent to a collection agency.

 

 

Posted in: bankruptcyfaq

Debt Collection & Your Rights

Debt Collection & Your Rights

Debt Collection & Your Rights

Q. What is a debt collector?

A. A debt collector is someone who tries to get back money you owe to a creditor (such as a bank or credit card company).

Q. Who will contact me?

A. If the creditor has a debt collection department, one of the creditor’s own debt collectors will contact you.

In some cases, your creditor might have either hired a debt collection agency to get back the money, or sold your debt to this debt collection agency. Thus, you might be contacted by this debt collection agency.

A debt collection agency is a company that specializes in debt collection. If your debt is turned over to a collection agency, you will usually be notified in writing before the agency calls you to try to collect the debt.

Q. What are my rights when dealing with a debt collector?

A. When dealing with a debt collector, you have rights. For example, debt collectors are generally not allowed to do the following:

  • contact your friends, your employer, your relatives or your neighbours for any information other than your telephone number or address (unless you have specifically asked the debt collector to do so)
  • suggest to any of the above people that they should pay your debts, unless one of them has co-signed your loan
  • use threatening, intimidating or abusive language
  • contact you on holidays, before 7:00 a.m. or after 9:00 p.m., or during certain hours on Sunday.

If you believe that the debt collector you are dealing with is not respecting your rights, contact us. We know your legal rights and can help you.

 

 

Posted in: bankruptcyfaq

Debt Consolidation

Q. What is debt consolidation?

A. Debt consolidation is taking out one loan to pay off many others.  For example, if you owe three separate creditors a total of $50,000 you take out a loan for $50,000 to pay off the three creditors, leaving you with a single payment to a single source. In practice, the meaning of debt consolidation has expanded to include strategies for consolidating the monthly payments, not the debt itself, into a single payment made to a single source.

Q. Why would someone want to consolidate their debt?

A. Debt consolidation is often done to secure a lower interest rate, secure a fixed interest rate or to service only one loan for convenience.  Most debt consolidation loans allow you to borrow money against the value of your home’s appraised value to consolidate your debts into one monthly payment and get out of debt quicker.

Q. What are some types of debt consolidation loans?

A. There are various types of debt consolidation loans. If you qualify, debt consolidation loans through a financial institution are the best option for restoring financial health without destroying your future ability to borrow money.  Some common loans are:

Home Equity Loan: Allows you to borrow money against the value of your home minus any previous mortgages. A home equity loan provides you with a fixed amount of money over a fixed amount of time usually at a fixed rate.

Home Equity Line of Credit: Allows you to borrow money against the value of your home minus any previous mortgages up to a pre-approved credit limit with variable interest rates.

Second Mortgage Loan: Involves your taking out a second mortgage on your home.

Q. What are some advantages of debt consolidation?

A. You will have more money left over at the end of each month.  Your single monthly payment will be lower than the combined total of the multiple payments you were making prior to debt consolidation.

Also, debt consolidation is better for your credit rating than personal bankruptcy.  With a debt consolidation loan, your credit rating is not affected as long as you make payments on time.  If you had a history of late payments before taking out the loan, your credit score will improve over time as you establish a solid repayment history with your single payment.

Posted in: bankruptcyfaq

Wage Garnishment

wage-garnishment

Wage Garnishment

Q.  What is garnishment?

A. Garnishment is a legal process whereby a creditor requires a third party to turn over to the creditor a debtor’s wages or bank accounts.

When you fail to pay creditors the money you owe them, they may apply to court to seek a “garnishment” against you. This legally allows them to seize your salary, money in your bank account, or other money you own to repay your debt.

Q. Is a court order always required?

A. No.

The two situations in which a court order is not required for a creditor to garnish wages is:

  1. when an individual turns in an assignment of wages to a credit union
  2. when an individual owes unpaid taxes to the Canada Revenue Agency. The CRA may notify your employer directly and require wage garnishments to begin immediately.

Q.  What is a wage levy?

A. A wage levy is like a wage garnishment. It is an enforcement action initiated by the Canada Revenue Agency (CRA) against someone for back taxes.

Q. What happens when there is a wage garnishment or wage levy?

A. In both cases, the employer gets notice of a garnishment order.  They are required by law to withhold the amount specified in the order from the debtor’s wages.

Q. What is the difference between a wage levy and a wage garnishment?

A. For a wage levy, the CRA does not have to get a court order.  As a government agency, it has the right to initiate a wage levy on its own administrative authority.

Q. In Ontario, what is the maximum amount my wages could be garnished by creditors?

A. The maximum amount your wages could be garnished by creditors according to the Ontario Wages Act is 50% of your gross monthly wages.

Q. Are there exceptions from garnishment?

A. Yes. Under the Wages Act, for instance, employment insurance, social assistance and pension payments cannot be garnished, even if the funds have been deposited into an account at a financial institution.

Q. What actions can creditors take to garnish my wages?

A. As you slide into debt, creditors might threaten a wage garnishment.  To actually garnish your wages, creditors must go to court.

But creditors go to the courts as a last resort since it is costly and time-consuming.

First, they need to go to court to get a judgment order validating the debt is yours and you are obligated to pay.  Then they must return to court to get an enforcement order for the garnishment or other means of collection.

Creditors also hire companies to investigate public documents regarding property ownership and income.  If they have reason to believe you have sufficient income or assets, they will come after you.

Credit counseling solutions and debt settlement plans cannot stop a garnishment.

Q. My wages have been garnished or I think they soon will be. What are my options?

A. To stop a wage levy or wage garnishment, you need a legally binding debt solution that comes with the protection of the courts.

Ontarians have two options to revoke a garnishment and prohibit all future collection activity.  One is a declaration of personal bankruptcy.

The other is a non-bankruptcy alternative – a consumer proposal.  In a proposal, all your assets are protected in exchange for repaying a reduced amount of the total you owe over a period of not more than five years.

If your creditors stand to get more money from a proposal than from a bankruptcy filing, they are more likely to accept this alternative.

To find out which of these two legal options is best for you, give us a call.  Also, if there is a wage levy, we can advise you if your circumstances put you at further risk with the CRA.

Q. Is garnishment one way that creditors seek to enforce a court order?

A. Yes. For instance, an order from Small Claims Court (maximum monetary award is $25,000) can be enforced by the creditor by his filing a notice of garnishment.

The rules on garnishment are strict and have to be followed carefully. As Ontario lawyers, we can help navigate through the myriad of specific rules about garnishment.

Q. How can I stop or prevent the Canada Revenue Agency from garnishing my wages or seizing my bank account or placing a lien on my property?

If you are unable to pay fully your taxes on time because you are experiencing financial hardship, contact us.

We can negotiate with the Canada Revenue Agency on your behalf for a payment plan that is fair and within your capabilities.

We will seek to get for you a payment arrangement with lower monthly payments and little or no interest charges and even no additional penalties.

HLF legal services: 330 Highway 7 East

 

 

Posted in: bankruptcyfaq

Glossary of Terms Commonly Used in Bankruptcy and Insolvency

These definitions are provided only to help you understand the terms used on this website. They are general interpretations only and are not to be considered legal definitions. For specific information on your situation, please talk to us.


A

Absolute Discharge
See Discharge from Bankruptcy.

Act of Bankruptcy
An act committed by a debtor as defined under the Bankruptcy and Insolvency Act. One of the most common is if a debtor ceases to meet his liabilities generally as they become due. A creditor with a provable claim of $1000 and over may file a petition for a receiving order if the debtor has committed such an act within the six months preceding the filing of the petition.

Administrator
A person designated by the Superintendent of Bankruptcy, responsible for the administration of a consumer proposal under the Bankruptcy and Insolvency Act.

Affidavit
A voluntary written declaration of facts affirmed or sworn under oath before an authorized officer such as a Notary Public or Commissioner of Oaths.

Arm’s Length
Describes dealings between two parties who, amongst other things, are not related by blood or marriage and are presumed to have roughly equal bargaining power.

Application for Bankruptcy Order
An application to a court of law made by creditors in order to put the debtor in bankruptcy.

Assets
In the context of bankruptcy it means all the property of the debtor available for distribution for the general benefit of creditors (available for paying debts). Assets are property that are owned that have some value, such as a house, car, furniture, investment or cash.

Assignment in Bankruptcy
A voluntary assignment by an insolvent person of all of his property to a trustee for the general benefit of creditors. The formal process of “going bankrupt” is to make an “assignment in bankruptcy”. In its simplest form, an assignment in bankruptcy is when someone who is having financial problems works with a trustee to complete and file official documents in order to be declared bankrupt and to be relieved of responsibility for debts.

Automatic Discharge
A debtor whose discharge is not opposed by the Superintendent of Bankruptcy, the trustee or a creditor and who has not refused or neglected to receive counselling, is automatically discharged after 9, 21, 24 or 36 months, depending on whether it is a first or second bankruptcy. The discharge also depends on whether or not the bankrupt is required to pay a portion of his or her surplus income into the bankruptcy estate per the standard established by the OSB.
See Discharge of Bankruptcy.

B

Bailiff
A person who acts on behalf of any other person in the repossession or seizure of property

Bankrupt
A natural person or corporation who has made a voluntary assignment in bankruptcy or against whom a receiving order has been made.

Bankruptcy
The state of being bankrupt or the fact of becoming bankrupt. A legal process in which the trustee administers to facilitate a fresh financial start for the individual and allow for the creditors a potential return against their debts.

BIA
Bankruptcy and Insolvency Act, a federal statute governing bankruptcy and insolvency in Canada, which is applicable to all provinces and territories.

C

CAIRP
Canadian Association of Insolvency and Restructuring Professionals is the national professional organization representing trustees in bankruptcy, receivers, agents, monitors and consultants in insolvency matters.

CRA
Canada Revenue Agency (formerly known as Canada Customs and Revenue Agency (“CCRA”)

Certificate of Full Performance of Proposal
A document issued by the trustee or administrator once a debtor has fully performed his or her obligations under the proposal.

Charge
An encumbrance, lien or financial obligation attached to property.

CCAA
Companies’ Creditors Arrangement Act.

CIRP
Chartered Insolvency and Restructuring Professional; a professional designation given by CAIRP to those who meet the Association’s standards for admission, complete the prescribed course of study and pass the required examinations.

Claim, Provable
See Provable Claim.

Collateral
Property that is pledged as security against a debt.

Conditional Discharge
See Discharge From Bankruptcy .

Conditional Sale
The sale of goods where the buyer receives possession of goods or property, but does not receive title to them until specific conditions are fulfilled.

Consolidation Order
In specific provinces, an order handed down by a provincial court to combine the debts of an insolvent person pursuant to the Orderly Payment of Debt Regulations in Part X of the Bankruptcy and Insolvency Act. (See Voluntary Deposit scheme).

Consumer Proposal
A simplified process to make a proposal for repayment of debt to creditors, available under the Bankruptcy and Insolvency Act to a consumer debtor whose aggregate debts, excluding any debts secured by the person’s principal residence, do not exceed the amount prescribed in the Bankruptcy and Insolvency Act. A consumer proposal is an alternative to bankruptcy. Once entered into, a Consumer Proposal is a legal process that is binding on the debtor and his creditors. In most Consumer Proposals the debtor offers to pay her creditors a percentage of what is owed to them. Payments are made over a negotiated period of time. The amount to be paid depends on the individual’s specific situation and the amount of money you make.

Contingent Claim
A provable claim in bankruptcy that may or may not become a debt depending upon the result of some future event.

Corporation
A legal entity (usually a business), distinct from its shareholders, which has the authority to act as a natural person.

Co-signer
A co-signer is someone who signs a loan with another person. Generally, the co-signer guarantees that if the person who signs the loan cannot repay the loan, the co-signer will repay it himself or herself.

Counselling
A process under which services of a qualified counsellor are made available to assist and educate bankrupts and/or relatives of bankrupts, or consumer debtors, on good financial management, including prudent use of consumer credit and budgeting principles; in developing successful strategies for achieving financial goals and overcoming financial setbacks; and at any time, where appropriate, making referrals to deal with non-budgetary causes of insolvency (e.g. gambling, addiction, marital and family problems, etc.).

Creditor
One to whom a debt is owed; in insolvency matters, a person (see definition of “person”) having a claim provable under the Bankruptcy and Insolvency Act.

Credit rating
Sometimes called a credit score, it is a summary number that tells a potential creditor how “credit-worthy” you are.  When creditors are deciding if they should lend you money, they generally look at your credit rating to learn about your credit history and to help them decide if you will be able to repay them. Your credit rating is a recorded history of dealings with members of the Credit Reporting Agency (usually Equifax and Trans Union).

Credit report
A credit report is a complete record of your credit history from which the credit rating or credit score is derived.

Credit score
Sometimes called a credit rating, it is a summary number that tells a potential creditor how “credit-worthy” you are.

D

Debt
A specific sum of money due by agreement or otherwise.

Debt collector
Someone who tries to get back money you owe to a creditor (for example, a bank or credit card company).

Debtor
One who owes money to another, a creditor.

Deemed Trust
A trust established by statute. For example, income tax deducted at source as prescribed by the Income Tax Act is deemed to be held in trust for the Crown.

Default
Failure to pay or perform a legal or contractual obligation.

Discharge from Bankruptcy
The release of a debtor from the obligation to repay his or her debts. A bankrupt’s discharge may be automatic, suspended, conditional or absolute. A bankrupt may also be refused discharge.

Discharge, Automatic
A debtor whose discharge is not opposed by the Superintendent of Bankruptcy, the trustee or a creditor and who has not refused or neglected to receive counselling, is automatically discharged after 9, 21, 24 or 36 months, depending on whether it is a first or second bankruptcy. The discharge also depends on whether or not the bankrupt is required to pay a portion of his or her surplus income into the bankruptcy estate per the standard established by the OSB.

Discharge, Order of Absolute
This official document issued by the court relieves the debtor of the debts incurred before the debtor declared bankruptcy, taking under consideration the exceptions provided in the Act.

Discharge, Order of Conditional
The court may impose certain conditions that must be met before a person’s discharge becomes absolute. For example, the Court may require you to pay an amount to your trustee for distribution to your creditors.

Discharge, Order of Suspended
The court orders a delay so that the discharge will not be effective until a certain date.

Dividend
The proportional share of a bankrupt’s estate paid out by the trustee to creditors who have proven claims against that estate.

Division I Proposal
The amount and type of debt doesn’t matter.

Division II Proposal
You must owe less than $250,000 (not including a mortgage on your principal residence).

Duties of a Bankrupt
Obligations that must be performed by a bankrupt. For example, provide the trustee with a statement of the bankrupt’s affairs showing the particulars of his or her assets and liabilities, the name of all his creditors etc.

E

Encumbrance
A claim or liability that is attached to property or some other right that may lessen its value, e.g. a lien or mortgage.

Equity
The difference between the market value of an asset and the secured debt against it.

Estate
All the property of a person; the file in bankruptcy

Examination
Questioning of the bankrupt under oath with respect to the bankrupt’s conduct, causes of bankruptcy and disposition of the bankrupt’s property. The examination may be conducted by an Official Receiver, a trustee, a creditor or other interested person in accordance with conditions prescribed in the Bankruptcy and Insolvency Act.

Exempt Asset
Assets defined as exempt by provincial legislation that are not available to the trustee for the benefit of creditors.

Exempt Debt
Debts defined as exempt are not discharged by bankruptcy. They include: certain student loans that are less than seven years old; alimony, child or spousal support; certain court fines or penalties; certain other debts as prescribed in the Bankruptcy and Insolvency Act.

G

Garnishment
A legal process whereby a creditor requires a third party to turn over to the creditor, a debtor’s property such as wages or bank accounts. When you fail to pay creditors the money you owe them, they may apply to Court to seek a “garnishment” against you. This legally allows them to seize your salary, money in your bank account, or other money you own to repay your debt.

General Rules
Rules created under the Bankruptcy and Insolvency Act for administering this statute.

Guarantor
A person (see definition of “person”) who takes on financial responsibility for another’s debt.

H

Hypothec
A right on property given to a creditor as performance for an obligation. The creditor then has a right to follow the property even if it undergoes successive changes of ownership.

I

Insolvency
The condition of being unable to pay debts as they become due, or in the ordinary course of business, or having liabilities that exceed the total value of assets.

Insolvent
To owe at least $1,000 and not to be able to meet your debts as they are due to be paid.

Inspector
Inspectors are appointed by creditors to represent them before the trustee during the administration of proposals and bankruptcies. They are expected to assist the trustee by virtue of their experience and are required to supervise certain aspects of the trustee’s administration.

Insolvency
The condition of being unable to pay debts as they become due, or in the ordinary course of business, or having liabilities that exceed the total value of assets.

Interim Receiver
A trustee appointed by the court to safeguard the estate assets and perform such other functions as the court may order for such time period as the court may determine.

J

Joint and Several Liability
The liability of more than one individual that may be enforced against them all by a joint action or against any one of them by an individual action.

Judgment
A formal decision issued by a court on a matter under its consideration.  A Judgment will state the Court’s decision on the amount of a claim against a defendant.

L

Levy
A fee payable to the Superintendent of Bankruptcy for the purpose of defraying the expenses of the supervision by the Superintendent in the administration of estates.

Liabilities
Financial obligations or debt of an individual or a business, including unpaid taxes, salaries, accounts payable etc.

Lien
A legal right or interest that a creditor has in a debtor’s property, lasting usually until the debt that it secures is satisfied.

Liquidation
The act of converting assets to cash, especially in bankruptcy or in the dissolution of a business.

M

Mortgage
A lien against property, which is registered on title, that is granted to secure an obligation such as a debt.

N

Notice of Intention to Enforce Security
A legal document under the Bankruptcy and Insolvency Act whereby a secured creditor provides 10 days notice to an insolvent debtor of its intention to enforce its security.

Notice of Intention to File a Proposal
A legal document filed with the Official Receiver stating that the debtor intends to file a proposal. The document is to include the name and address of the licensed trustee who has consented in writing to act as the trustee under the proposal and the names of the creditors who are owed $250 or more and the amounts of their claims. The filing of this document triggers the protection afforded to insolvent debtors under the Bankruptcy and Insolvency Act.

O

Offences
The offences and sanctions provisions are contained in Part VIII of the Bankruptcy and Insolvency Act. These are criminal or quasi-criminal violations of law; a person guilty of an offence is liable to a fine or imprisonment.

Official Receiver
The Official Receiver is a federal government employee in the Office of the Superintendent of Bankruptcy and appointed by the Governor in Council. The Official Receiver, among other things, accepts the documents that are filed in proposals and bankruptcies, examines bankrupts under oath and chairs meetings of creditors.

Orderly Payment of Debts
A procedure prescribed in Part X of the Bankruptcy and Insolvency Act, governed by provincial courts, which allows a person to pay debts.

Ordinary Resolution
A resolution carried by the majority of votes (one vote for each dollar of debt) of claims of creditors at a meeting of creditors; disallowed claims do not have votes.

OSB
Office of the Superintendent of Bankruptcy, an agency of Industry Canada. The Office of the Superintendent of Bankruptcy supervises the administration of the Bankruptcy and Insolvency Act. The OSB has Division Offices throughout Canada.

P

Person
Includes a natural person (human being), a partnership, and a corporation that is recognized by law as having the same rights and duties as a natural person.

Power of Attorney
A legal instrument (document) setting out explicitly an individual’s authority to act as the agent of the person giving the power of attorney.

Preferential Treatment
The payment of money or the granting of security by an insolvent debtor that benefits one or more creditors to the detriment of the other creditors.

Preferred Creditor
A creditor who has been given priority under the Bankruptcy and Insolvency Act over other creditors in the distribution of dividends.

Principal Residence
Your principal residence is the home in which you (and your family) live most of the time. It can be a house, condominium, mobile home, or even a houseboat.

Priority
The order in which creditors are ranked for payment of claims provable under the Bankruptcy and Insolvency Act.

Proof of Claim
A creditor’s written statement that is submitted to prove the creditor’s claim; it is used as the basis for paying dividends, if accepted by the trustee.

Provable Claim
Any liability of the debtor for a debt incurred before the date of the bankruptcy.

Property
Includes money, goods, land and every description of property, whether real or personal, situated in Canada or elsewhere.

Proposal
An offer to creditors to settle debts under conditions other than the existing terms. It is a formal agreement under the Bankruptcy and Insolvency Act.

Proxy
A document signed by a creditor granting another person the authority to represent them at creditors’ meetings. The proxy holder can exercise the creditor’s right to vote.

Q

Quorum
The minimum number of creditors who must be present in person or by proxy to conduct business or to take a vote. At a meeting of creditors, one creditor present, in person or by proxy, who has duly proven a claim with the trustee prior to the meeting, constitutes a quorum.

R

Receiver
A person who has taken possession under a security agreement of substantially all of the inventory, accounts receivables or the other property of the debtor. “Receiver” also includes a person who has been appointed privately under a security agreement or by an order of the court for the protection or collection of property that is the subject of diverse claims, usually to seize and sell the property of the debtor.

Registrar
An Officer of a provincial court appointed by the Chief Justice with the powers and jurisdiction as specified under the Bankruptcy and Insolvency Act.

Related Persons
Persons who are connected by a blood relationship, marriage, adoption or common law partnership; while so related, they are deemed not to deal with each other at arm’s length. The Act provides that the definition of related persons extends to corporations, shareholders and directors in certain specified situations.

RESP
Registered Education Savings Plan

RHOSP
Registered Home Ownership Savings Plan

RRSP
Registered Retirement Savings Plan

S

Secured Creditor
A person holding an instrument such as a mortgage or a lien on or against the whole or part of the property of a debtor as security for a debt due him from the debtor.

Statement of Affairs
The bankrupt’s financial statement or a balance sheet of assets and liabilities showing the estimated value of assets and the names and addresses of creditors and the amounts owed.

Statement of Claim
A Statement of Claim is a document filed with the Court to start a formal legal proceeding. It will outline the reasons why a person is being sued and provide some explanation of the debt or other damages claimed.

Security
Property or asset given or pledged to guarantee the fulfilment of an obligation, e.g. for the payment of a loan.

Seizure
The act of taking possession of property by legal right or process.

Sheriff
Includes bailiff and any officer charged with the execution of a writ or other process under the Bankruptcy and Insolvency Act or any other Act or proceeding with respect to any property of a debtor.

Special Resolution
A resolution decided by a majority in number and three-fourths in value of the creditors with proven claims present, personally or by proxy, at a meeting of creditors and voting on the resolution.

Statement of Affairs
The bankrupt’s financial statement or a balance sheet of assets and liabilities showing the estimated value of assets and the names and addresses of creditors and the amounts owed.

Statement of Receipts and Disbursements
A statement detailing the receipt and disbursement of funds, interest received, fees charged by the trustee, all the dividends distributed to the creditors and particulars of property that is not sold.

Stay of Proceedings
A bar against any creditor for the recovery of a claim provable in bankruptcy against the insolvent person or the insolvent person’s property. No creditor shall start or continue any action, execution or other proceeding for the recovery of such claims.

Superintendent of Bankruptcy
A federally appointed official who oversees the administration of the Bankruptcy and Insolvency Act in Canada.

Surplus Income
The portion of an individual bankrupt’s income that is required to be paid into the bankruptcy estate during the bankruptcy according to standards established by the OSB. It is the amount of money you earn over the government threshold in a one month time period.

Suspended Discharge
See Discharge from Bankruptcy

T

Taxation of Accounts
Application for court approval of the fees and disbursements of the trustee, interim receiver or legal counsel.

Trust
A property interest held by one person at the request of another for the benefit of a third party.

Trustee in Bankruptcy
A person licensed by the Superintendent of Bankruptcy to administer bankruptcy and proposal estates. Trustees get paid for their services, and their fees are regulated by legislation.

U

Unsecured Creditor
A creditor who advances credit without taking any rights against the property of the debtor.

V

Voting Letter
A document in which a creditor with a provable claim registers his vote for or against a proposal.

Voluntary Deposits Scheme
For the residents of Québec, a proceeding where the debtor makes a monthly payment based on his income and number of dependents to the court who will distribute these payments to the creditor. (See Consolidation Order).

W

Warranty
A written guarantee of performance from a vendor to a purchaser stating that the item being sold is good and fit for its intended use by the purchaser.

Windfalls
An unexpected amount of money such as an inheritance, or lottery winnings is referred to as a windfall.

Writ of execution
An official order of the Court directing the Sheriff to seize cash or other property.

 

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