FREQUENTLY ASKED QUESTIONS

Q: What is personal bankruptcy?

A: The facts surrounding personal bankruptcy rules and regulations are commonly misunderstood. This is compounded by the fact that collection agents often spread misinformation to debtors about the process.

Personal bankruptcy is a process regulated by the federal government. The Bankruptcy and Insolvency Act is the federal law that deals with bankruptcy. The process of filing a personal bankruptcy is meant to give people a fresh start. The process is in no way meant to be punishment for debtors. The personal bankruptcy process is meant to give people a fair and legal way to eliminate their debt and reclaim control of their finances.

 

Q: Do I need to file for bankruptcy?

A: The decision to file personal bankruptcy depends on your individual situation. When you meet with us, we will help you understand all options available to solve your debt issues. No one likes the idea of filing for bankruptcy, but sometimes it is the best solution. The Bankruptcy and Insolvency Act states that the intention of the Act is to provide honest and unfortunate debtors the opportunity for a fresh start free from the crushing burden of their debts.

 

Q: Who can file for personal bankruptcy?

A: In order to file for bankruptcy, you must:

• owe at least $1,000
• be insolvent (owe more than you own)
• be unable to pay your debts as they become due
• resided or carried on business in Canada in the last year

Q: How do I file bankruptcy myself – can I file without a lawyer?

A: You can only file for bankruptcy through a Licensed Insolvency Trustee. Lawyers cannot file an assignment in bankruptcy for you – only a Licensed Insolvency Trustee can.

 

Q: Who is a Bankruptcy Lawyer?

A: A bankruptcy lawyer is a licensed legal practitioner who specializes in insolvency law. Those searching for “lawyer for bankruptcy near me” or “bankruptcy lawyer near me” or other similar terms may actually need to look for an insolvency trustee service. A Licensed Insolvency Trustee administers the bankruptcy process in Canada.

Trustees sometimes consult bankruptcy lawyers on complicated court matters and they are involved in large corporate proceedings. An individual rarely needs to consult a bankruptcy lawyer.

 

Q: How do I file for personal bankruptcy?

A: The first step is to meet with a Licensed Insolvency Trustee, who will assess your options. A Licensed Insolvency Trustee (“Bankruptcy Trustee”) is the only one who can file an Assignment in Bankruptcy for a debtor. The trustee will help you complete the necessary forms and will file them with the Office of the Superintendent of Bankruptcy.

 

Q: What happens when you file for bankruptcy?

A: Upon filing an assignment in bankruptcy, a “Stay of Proceedings” will go into effect, which will stop your unsecured creditors from taking legal steps to recover their debt (i.e. garnisheeing wages) and contacting you. You will have duties you’ll be required to complete during the period of your bankruptcy. You will have to attend two counselling sessions discussing things such as budgeting and rebuilding credit. At Golding & Associates, these sessions are individual meetings – not group meetings.  You will also have to submit monthly income and expense statements. We will provide you with forms to help you with this. The trustee will discuss your duties with you in detail before you file so that you fully understand what is required of you. After your bankruptcy is complete your debt will be discharged (eliminated) and you will start on the path to re-establishing your credit.

 

Q: Do I lose everything when I file for personal bankruptcy?

A: No – you do not. There are provincial and federal exemption laws that allow you to keep certain assets, including household furnishings and personal effects, a vehicle not attached to a loan (up to a value of $6,500 if required for work), tools of the trade and RRSPS. The trustee will review your situation to determine what exemptions you are eligible to claim. It is not uncommon for people to keep their home and vehicle when they file for personal bankruptcy. The trustee will discuss all of these things with you to determine exactly what applies to your personal circumstances.

 

Q: Can I keep my car if I file for bankruptcy?

A: Losing a car is a common concern for people considering filing for bankruptcy in Canada. In Nova Scotia, you can own a vehicle up to the value of $6,500 or less that you own free and clean and its considered exempt. This means you can keep it. If, however, the vehicle exceeds the exemption amount, you may still be able to keep the vehicle by buying back your equity in it over the exemption limit. The trustee would discuss this with you. If you lease or finance a vehicle and file for bankruptcy, you can keep your vehicle if you are current and remain current on your car loan or lease payments. The leasing or financing company can, however, repossess your vehicle if you default on the agreed terms per the leasing or financing agreement.

Q: Can I keep my house if I file for bankruptcy?

A.  For homeowners, this is probably the biggest concern people have with filing for bankruptcy. Yes – it is possible to keep your house if you file for bankruptcy. There are two main things to consider if you decide to keep your house. First – you must be current and continue to make your mortgage payments.  The second point is that you cannot have equity available in your home for creditors and if you do, arrangements must be made to buy back that equity from your creditors. If there is equity, a consumer proposal may be a more viable option.

 

Q: How long am I bankrupt?

A: The length of time it takes to get your discharge from bankruptcy depends on your situation. The Bankruptcy and Insolvency Act has several different time frames that apply, detailed below …

• A first-time bankrupt will be eligible for an automatic discharge after 9 months if they have no “surplus income.” If you are required to make surplus income payments, you would be eligible for an automatic discharge after 21 months.
• A second-time bankrupt will be eligible for an automatic discharge after 24 months if they have no surplus income. If you are required to make surplus income payments, you will be eligible for an automatic discharge after 36 months.
• If a bankrupt owes more than $200,000 or more in personal income tax debt, representing 75% or more of unsecured claims, they are not eligible for an automatic discharge. If someone is a third-time bankrupt, they are not eligible for an automatic discharge.

Q: Can I file for bankruptcy on student loans?

A: Student loans are subject to special treatment under the Bankruptcy and Insolvency Act. In order for government student loan debt to be released in a bankruptcy, your final date of study has to be more than seven years ago.

Student lines of credit are not dealt with in the same way. The issue with student lines of credit is that they are often co-signed by someone else.

 

Q: Can tax debts be included in a bankruptcy?

A: Personal income tax debts and HST can be discharged in a bankruptcy.  However, CRA can register a lien on your property prior to bankruptcy and filing for bankruptcy does not remove it. You would receive notice if this occurred.

 

Q: What type of debts can be included in a bankruptcy?

A: Most unsecured debts are erased by the bankrupt individual’s discharge (i.e. credit cards, lines of credit, overdrafts, income tax) except for the following:

• Fines imposed by a Court
• Debts resulting from misrepresentation
• Alimony, support or maintenance payments
• Award of damages by a court for intentionally inflicting bodily harm or sexual assault
• Student loans (if bankruptcy is filed prior to seven years after the study end date)

 

Q: Will I ever be able to get credit again?

A: Bankruptcy does not mean you will never get credit again. It does affect your credit rating for a period of time- but you can re-establish your credit even while the bankruptcy is still showing on your credit report. The debts included in the bankruptcy have an R9 rating with the credit bureau and your bankruptcy will show up for a period of six years from your discharge if you are a first-time bankrupt. That does not mean that you will be unable to obtain credit during that period. We will discuss credit reestablishment with you during your counselling sessions. There are ways to re-establish your credit prior to it coming off your credit report.

 

Q: Does bankruptcy affect my spouse/partner?

A: No, it does not. You each have your own credit rating independent of one another. If your spouse is the co-signor on your debts, they will continue to be responsible for the debt.

 

Q: How much does bankruptcy cost?

A: That truly depends on your circumstances. It depends on any assets you may have to deal with and your income. People are often surprised that there is cost to filing for bankruptcy. The Office of the Superintendent of Bankruptcy sets these amounts. Visit our surplus income calculator to better understand how the Superintendent’s Standards are calculated.

 

Q: Can I file for bankruptcy a second time?

A: You can file for a second bankruptcy and still be eligible for an automatic discharge – but it is definitely a longer process than a first bankruptcy.  A second bankruptcy is 24 or 36 months in length, depending on your income. A second bankruptcy shows on your credit for a longer period of time – 14 years. Depending on your situation, a consumer proposal may be a better option than a second bankruptcy.

Q: Who can make a consumer proposal?

A: A consumer proposal is a formal agreement between you and your creditors to settle your debt.  A consumer proposal can only be filed for you by a Licensed Insolvency Trustee. The settled amount is usually for less than you owe and often is at 0% interest. A consumer proposal allows you to keep your assets – including your home and vehicle.  

Q: Who can make a consumer proposal?

A: A consumer proposal can be filed by any person who is insolvent and whose debts do not exceed $250,000 (excluding a mortgage on the person’s principal residence). If the debts exceed $250,000 it is still possible to file a proposal, but it would be filed under Division 1 of the Bankruptcy and Insolvency Act. That is something the trustee would provide more information about.

Q: Can a consumer proposal stop wage garnishments and collection calls?

A: Yes. Both wage garnishments and collection calls stop when a consumer proposal is filed.  A “Stay of Proceedings” goes into effect upon the filing of a consumer proposal and creditors are no longer able to garnishee wages or call the debtor. There are a few exceptions. If you have debt that is not able to be eliminated by a consumer proposal, such as child support or spousal support, the garnishee would continue.  We will advise you if you have any types of debts which fall under this category.

Q: Can a consumer proposal stop wage garnishments and collection calls?

A: Yes. Both wage garnishments and collection calls stop when a consumer proposal is filed. A “Stay of Proceedings” goes into effect upon the filing of a consumer proposal and creditors are no longer able to garnishee wages or call the debtor. There are a few exceptions. If you have debt that is not able to be eliminated by a consumer proposal, such as child support or spousal support, the garnishee would continue. We will advise you if you have any types of debts which fall under this category.

 

Q: What type of debts can be included in a consumer proposal?

A: Consumer proposals settle unsecured debts such as credit cards, unsecured lines of credit, unsecured loans, overdrafts, income tax debt, payday loans and student loan debt (if you have been out of school for 7 years or more). Secured debts like mortgages and car loans are not included if you want to keep the asset they are secured to. Other debts you cannot include in a consumer proposal are: child support, spousal support, debts incurred as a result of fraud, court-ordered fines, and student loans (less than 7 years old).

 

Q: Can student loans be included in a consumer proposal?

A: The length of time since you were last a student is the determining factor on whether or not a student loan debt can be included in a consumer proposal. Seven years has to have passed since you were last a student in order for your student loan debt to be included in a consumer proposal.

 

Q: What assets can I keep in a consumer proposal?

A: In a consumer proposal, you do not assign your asset to the Administrator of your proposal. If you wish to keep secured assets – you have to continue paying the loans attached to them. If there are assets that are not exempt from seizure under provincial or federal laws and have realizable value, the amount offered in your proposal would address this so that you can keep the assets. The ability to keep assets is one of the reasons people choose to file a consumer proposal.

 

Q: Can I keep my house if I file a consumer proposal?

A: The good news is that you can keep your house if you file a consumer proposal. You do have to keep paying your mortgage payments and property taxes on time and any equity would be dealt with in the proposal.

 

Q: Can I leave a creditor out of my proposal?

A: No – you cannot pick and choose which unsecured creditors are included in your proposal. All unsecured creditors must be included. The intention of the law is that all the unsecured creditors get treated equally. Secured creditors are not affected by your consumer proposal.

 

Q: How much does a consumer proposal cost?

A: Your offer to creditors must be more than your creditors would receive in a bankruptcy. When you speak to a Licensed Insolvency Trustee, they will help you understand what a reasonable offer to your creditors would be. Each consumer proposal is specific to the individual filing it. It is important that you can afford the monthly payments in your budget. The trustee is paid out of the amount you agree to pay your creditors – there are no additional costs to you.

 

Q: How do I make a consumer proposal?

A: A consumer proposal can only be filed by a licensed trustee or administrator. Your first step would be to contact a trustee/administrator to discuss your situation. If, after assessing your situation, you determine that a consumer proposal is the right solution for you, the administrator will have you sign the required forms and file them with the Official Receiver.

 

Q: What happens after the consumer proposal is filed?

A: Upon the filing of the consumer proposal, the “Stay of Proceedings” goes into effect. This means that the creditors will not be able to contact you and any actions they had taken against you will stop (i.e. garnishee orders).

During the term of your proposal, you have duties you must comply with. You have to attend two credit counselling sessions, make all your required payments on time and to keep us up to date on any change in your contact information.

 

Q: How is a consumer proposal accepted?

A: Your creditors will have 45 days to vote on whether to accept or reject your proposal. The majority in value (51%) have to accept your proposal for it to be deemed accepted by creditors. If your proposal is accepted by creditors, then it has to be accepted by the Court. If there are no objections or issues, the proposal is normally deemed accepted by the Court 15 days after creditor acceptance.

 

Q: Do creditors normally accept consumer proposals?

A: At Golding & Associates, we have a high rate of acceptance of the consumer proposals we file. In fact, over 98% of the proposals we file are accepted by creditors. The key to getting a consumer proposal accepted is that creditors have to be receiving more than they would receive in a bankruptcy.

 

Q: What if the proposal is rejected?

A: If your proposal is rejected, the Stay of Proceedings is lifted and the creditors will be able to take steps to recover their debt. You will not be automatically bankrupt if your proposal is rejected by creditors.

 

Q: What if my proposal is accepted?

A: If you fully meet the terms and your proposal is accepted, you will be given a “Certificate of Full Performance” and will then be relieved of your debts included in the proposal. If you fail to fully comply with the terms or stop making payments on your proposal, it will be annulled. You will return to the same situation you were in prior to the proposal. Creditors will have the right to claim against you for any amount you owed them prior to the proposal (less any payments they received in the proposal).

Proposals can be revived in certain circumstances. This is something the Administrator (Golding & Associates acts as the Administrator for consumer proposals and a bankruptcy trustee) can explain in more detail upon meeting with you.

 

Q: Will a proposal save me money?

A: Typically, yes – you can compromise both the interest and the amount owing. One of the key concepts of a consumer proposal is determining an amount that you can afford to pay each month without question.

 

Q: Will a consumer proposal ruin my credit?

A: If you are looking at filing a consumer proposal, there is already a good chance your credit is already not in the best shape, or you are anticipating that it’s not going to be. A consumer proposal does effect your credit – but certainly not forever. “You will never get credit again” is a misconception that is reinforced by creditors and collections agencies.

A consumer proposal stays on your credit report for 3 years from its completion, or 6 years after you file – whichever comes sooner.

 

Q: How long can a consumer be?

A: Each consumer proposal is individual to the debtor’s situation. A consumer proposal can be anything from one lump sum payment to 60 months in length – five years is the longest period of time a consumer can be paid over.

 

Q: Can I pay off my consumer proposal early?

A: Yes – you can pay off your proposal early and start to rebuild your finances faster if your circumstances allow you to do so. There are no penalties for paying the proposal off early. Being able to complete the proposal early is one of the major benefits of a proposal over filing for bankruptcy. A bankruptcy cannot be completed early.

 

Q: What is the difference between a bankruptcy and a proposal?

A: Consumer Proposals and Personal Bankruptcy are both legal processes that provide individuals with ways to eliminate their debt. These options can only be filed with the federal government by a Licensed Insolvency Trustee. They are regulated under the Federal Bankruptcy and Insolvency Act. You do have duties to comply with under both processes – but there are less under the consumer proposal. A consumer proposal reports on your credit report as an R7 whereas a bankruptcy reports as an R9. Your assets vest in the trustee in a bankruptcy, but they do not vest in the Administrator in a consumer proposal.

There is no “one size fits all” solution that works for everyone. Each person’s financial situation is unique and, because of this, different options work better in different scenarios. A Licensed Insolvency Trustee will explain both options to you, as well as the pros and cons of each as they relate to your specific circumstances. Golding & Associates will act as your guiding light, providing support when you need it and offering simple explanations of this sometimes difficult process.

Q: Can you help me with budgeting?

A: We will review your current budget and work with you to see if there are any suggestions we can make to help you pay down your debt paid faster. Our team of professionals may be able help you find unexpected places you can reduce your expenses. We can help you learn to track expenses and plan your monthly expenditures. Changing your budgeting strategy could free up enough money to pay down your debt.

 

Q: What is a consolidation loan?

A: A consolidation loan is a loan from a bank or other financial institution that puts all your debt into one loan. If the bank approves the loan and you can afford the monthly payment a consolidation can be a good option to solve financial problems. Taking high interest debt and putting it into a loan with lower interest can be a big cost savings. We will review this option to see if it may be a debt or credit solution for you to investigate further.

Q: What is a “debt management plan” through a credit counselling company?

A: A “debt management plan” is an arrangement to pay your debt back in full through a credit counselling firm. The creditors participation in these programs is voluntary – unlike options through the Bankruptcy and Insolvency Act – and you must repay 100% of what you owe.

 

Q: What is debt settlement?

A: A debt settlement is a deal you make directly with a creditor to take less than the full amount that you owe them. Collection agencies will sometimes offer settlement deals to debtors. A debt settlement negatively affects your credit.

 

Q: Can I sell or refinance my existing assets?

A: That is one possibility – we will carefully review your assets together to see if they may be part of the solution to your problems. There are limits imposed by the government for refinancing houses which sometimes makes it a challenge to get equity to pay off debt.

Q: What is a “consumer proposal”?

A: A consumer proposal is a formal compromise or arrangement approved by the Court between you and your creditors. It is a very good option in certain circumstances. It can be a reduction in interest, a settlement on dollar value, an extension of time or any combination of those things. You can find more details about this option HERE.