- clothing and medical aids of unlimited value
- household goods worth up to $4,000.00
- a vehicle worth up to $5,000.00
- any amount in an RRSP except for contributions you made within the past twelve months
- tools of the trade worth up to $10,000.00
- equity in your principal residence up to $12,000.00 (in Victoria and the Greater Vancouver area) or $9,000.00 (anywhere else in the province).
If your assets are owned jointly with your spouse or other parties, only your portion is taken into account. If you have any realizable assets (all other assets aside from these exemptions), we will discuss this with you in detail. You will not necessarily have to give up your assets in a bankruptcy.
After you sign the documents and the bankruptcy is filed, you have some ‘duties’ to complete. The main duties are:
- to make the payments as agreed (whether for fees, surplus income, or assets)
- report your income each month so that we can monitor whether you have surplus income
- attend two financial counselling sessions
- keep us up to date with your contact details
- inform us of any change in your financial situation (such as an increase or decrease in income, job loss or new job, a lottery win, inheritance or other windfall)
- provide the information needed for us to file your taxes for the year you started the bankruptcy (and possible for prior outstanding years).
If your duties are not completed, you will not be able to receive your discharge from bankruptcy.
Consumer Proposal Faq
You first need to speak with a Licensed Insolvency Trustee about your options. If you decide that a Consumer Proposal is the right choice for you, we’ll need you to complete an application form and provide some supporting documents – we’ll give you a list. We will prepare the legal documents that you’ll sign, and these can be signed in person or virtually. We’ll then file the documents with the Superintendent of Bankruptcy, and send notice to all your creditors.
A Consumer Proposal must be completed within 5 years. Usually the payments are monthly (over 60 months), but a Consumer Proposal can also include a lump sum payment, or a combination of the two. If your finances allow, you can pay it off sooner than the agreed-upon payment schedule lays out.
If enough creditors vote against the Consumer Proposal, there may be some negotiation. Sometimes the creditors may ask for additional information. The 45 day period can be extended if a creditor votes against the Consumer Proposal (this gives more time for negotiations if needed).
We will keep you informed of any against votes, information requests or counter offers – if you don’t hear from us within the 45 days, this is good news.
The majority of Consumer Proposals are accepted by the creditors.
Creditors have 45 days to vote for or against the proposal, and it will be accepted if the majority (by dollar value) vote to accept it.
If a creditor votes against the proposal they will usually ask for more information on something (CRA will usually vote against if your taxes or GST returns are not filed up to date, and may change their vote once the outstanding returns are completed) or they will make a counteroffer – if your proposal payments were $200 per month, a creditor may want you to pay $300 instead. We will discuss this with you, and can answer in three ways – accept the creditor’s higher amount, make another offer (in this case, you could counteroffer $250 per month), or explain to the creditor why $200 is the most you can afford. There may be some back and forth communication with the creditors like this in less then a quarter of proposals filed, and the vast majority result in an acceptance.
If you are having trouble with your proposal payments, please contact us immediately.
If you fall three payments behind the payment schedule, your proposal will be in default and will be deemed annulled. Your creditors are able to resume collection attempts and legal action.
It is possible to revive a proposal after it has been deemed annulled – please contact us to discuss your options in this situation.
Yes, this is a legal requirement for all consumer proposals and personal bankruptcies filed in Canada. The LIT can’t issue your Certificate of Full Performance to complete the proposal if the two sessions aren’t completed. The sessions are usually about 30 minutes, they can be done by video, phone, and in person, and they cover useful topics like budgeting and credit rebuilding.
In short, yes. If you have assets that would be ‘realizable’ (have value available for your creditors) in a bankruptcy, the value of them will be taken into account along with other factors when calculating the Consumer Proposal payments, but the actual assets remain untouched. Some people choose to use assets, such as a TFSA, to make a lump sum proposal payment but this is not required.
If your assets are secured (ie. You have a car loan or a mortgage), you will need to continue making the payments as usual if you want to keep the assets. If your car loan has become unaffordable and you wish to return the vehicle, we can discuss the best way to do this.
Unless your spouse has co-signed or guaranteed any of your debts, they will not be affected by your Consumer Proposal.
Our fees are included in the monthly payments that you will make to your creditors. There is no cost for our consultations, and there is nothing additional to pay. The fees are decided by a Government tariff and are the same for all Licensed Insolvency Trustees.
Your monthly payments will depend on the amount of your debt, your current monthly income, and your assets, if any.
Any debt arrangement aside from making all your payments on time will have a negative impact on your credit score.
A Consumer Proposal has a rating of R7, lower than payments being more than 120 days overdue (R5) but higher than having a vehicle repossessed (R8) or a bankruptcy (R9).
Remember that a credit score is not a measure of whether you are good with money – it is a rating to help creditors decide if you’re a good risk to lend to, but it’s not the only factor when you apply for credit. A good credit score will not help you borrow if your creditors can also see that you’re over-leveraged (have more debt that your income can reasonably support).
The first step that we recommend is to obtain a secured credit card – Capital One and Home Trust are two lenders that provide this option. You will need to put some money down (for example, $300) and you will then have this amount of credit to use. Start by using the card to pay some regular bills, or your groceries, and then pay it off in full when you receive the bill.
As a note, prepaid credit cards do not build credit. While they seem the same, a prepaid card uses your own money for purchases, whereas a secured card does use credit, you have to pay the bill each month (and the lender holds your funds as security in case you don’t pay them back). There is one exception for prepaid cards – if you use a Koho prepaid card and also opt to use their credit rebuilding service (for a monthly fee), this will help your score.
If you choose to use one of these options, or discover another that we haven’t listed here, be sure to read the terms and conditions and make sure it is the right option for you.
In a Consumer Proposal, it is possible to keep a credit card that has zero balance owing – please discuss this with us if it is important to you. During the Consumer Proposal you can obtain a secured credit card or use a prepaid credit card as other options.
Licensed Insolvency Trustees (LITs) are federally regulated professionals who provide advice and services to individuals and businesses to reorganize and resolve financial difficulties with expertise and compassion. LITs help individuals or businesses make informed choices to deal with their financial difficulties. They are the only professionals able to administer bankruptcies or proposals.
No, an LIT is not a lawyer. They are ‘Officers of the Court’, whose role is to administer the proposal or bankruptcy process under the Bankruptcy and Insolvency Act, and in a way that is impartial to both you and your creditors. You will generally not need a lawyer, but if you feel your situation would benefit from having a lawyer involved, we can recommend one to you who can act on your behalf.
Yes. Filing a proposal or a bankruptcy puts and automatic ‘stay of proceedings’ in place, which means than any ongoing legal action your creditors are taking, including wage garnishment, freezing or seizing bank accounts, or suing you, much stop immediately. There are a few exceptions to this – Family Maintenance and wages you owe to your employees are two of them. If this applies to you, we will discuss this at your consultation appointment.
There are certain debts that will not be forgiven when you file a proposal or a bankruptcy. The most common ones are Family Maintenance debts, and student loans that are less than seven years old. We will let you know if any of your debts fall into this category. Even if some of your debts will survive, a proposal or bankruptcy may still assist you as it will resolve all other debts. If you file a proposal or have to make payments into your bankruptcy (dependant on income/assets), those debts will be reduced as the creditors will receive some payments that will reduce the total outstanding amount for the surviving debt. Most CRA debts ARE included and WILL be resolved when the proposal or bankruptcy is completed.
Under the Personal Information Protection Act (PIPA), we cannot discuss any information you have provided with any third party. If you do file a consumer proposal or bankruptcy, we will need to provide some information to your creditors. One of the documents that you will sign is an authorization for us to send this information – we will go over the forms that we send as they require your signature.
If you’ve lost track of who you have borrowed money from, checking your credit report is the fastest way to find out. You can request your credit report for free from Equifax here and Transunion here. It’s a good idea to check both as not all creditors report to both. There are also third party apps like Borrowell and Credit Karma that will provide you most of the information you’ll get directly from the credit bureaus, but they will advertise credit products to you as well. Other ways to find out who you may owe money to are to look in your Spam folder for emails, check old email addresses, or check with your previous address whether any mail has come for you, if you’ve moved recently and not redirected your mail.
You can request your credit report for free from Equifax here and Transunion here. It’s a good idea to check both as not all creditors report to both. There are also third party apps like Borrowell and Credit Karma that will provide you most of the information you’ll get directly from the credit bureaus, but they will advertise credit products to you as well. It’s a wise practice to check your credit report at least yearly, in case of any errors. A Canadian national survey by the non-profit Public Interest Advocacy Centre published in 2005 found that 18 per cent of the people surveyed had discovered inaccuracies in their credit report, while an American study from 2004 found that 79% of the credit reports they surveyed contained either serious errors or other mistakes of some kind.
In short, yes. If the creditor feels that your debt is high enough to be worth the time and expense obtaining a Court judgment, they can then register this against your interest in the property.
The process for CRA is easier than for other creditors – CRA will apply to Federal Court to have the debt certified, and then register it as a judgment on your property title – other creditors must first go through a Court hearing process to obtain the judgment.
Once the CRA judgment is registered on title, they then become a secured creditor and have all the rights of a secured creditor to collect on what you owe them when you sell or refinance the property.
Other creditors could force the sale of the residence by way of a partition and sale by Court order if there is sufficient equity to pay all secured creditors.
Yes, they can. CRA does not need to give prior notice or apply to Court for permission to take action against you, but other creditors do need to serve you with documents and go through a Court hearing process before they can be granted a garnishment order. If your bank account is held with a bank that you also owe money to, they have the ‘right of set-off’ and can seize money from your bank account to apply towards your outstanding debts with them.
A secured creditor is someone who holds security over an asset – usually the asset that you borrowed money from them to buy (like a car loan or a mortgage). The creditor registers their security with the Land Titles Office (for real property) or the Personal Property Securities Register (for vehicles and other assets that are movable property). These creditors have the right to foreclose or seize the asset if you don’t keep up with the payment terms that you agreed to when you borrowed the money. Unsecured creditors do not have security and so have nothing that they can seize if you stop paying them, but they can obtain a judgment against you, which can be registered with Land Titles against your home. CRA and FMEP can also register a ‘general security’ in the Personal Property Securities Register, which then gives them rights to recover what you owe them by seizing and selling any asset you own that has any value.
If you file a bankruptcy or a proposal, your secured debts will not be settled through the process – if you want to keep the asset in question you’ll need to keep making the payments as usual, or attempt to negotiate a reduction directly with the creditor. If, however, you have a car loan that is too expensive for you to continue, a bankruptcy or proposal gives you an opportunity to determine if you need the vehicle. If you stop making the payments, in BC the creditor would have the option to either seize the vehicle and recover what they can by selling it, or release the vehicle and sue you for the loan amount (different provinces have different legislation). The bankruptcy or proposal removes their option to sue you, so if you stop making the payments they can either seize the vehicle or choose to release their security and file a claim in the bankruptcy or proposal as an unsecured creditor. Usually, they will seize the vehicle.
You may have heard of the Statute of Limitations, or the term ‘statute barred’. It is true that there are limits on what actions creditors can take against you after a period of time (in BC this is two years for most debt – some CRA debt like personal tax debt has a limitation period of 10 years), but the debt does not cease to exist after that time limit. The creditor can no longer take Court action to collect the debt, but you still owe the money, and the creditors can still use other tactics to attempt to collect, most often by making frequent phone calls, letters, or assigning the debt to a collector. The debt will also still exist on your credit report, and have an ongoing negative impact on your credit score.
Many people, when in financial trouble and hoping to avoid a bankruptcy, will sell assets or withdraw funds from RRSPs in order to make payments to their creditors, or just to cover their living expenses. Those transactions will need to be noted on the bankruptcy or proposal documents. Transferring an asset to a friend or family member’s name to try to protect it from creditors (rather than selling it for fair market value) may be viewed as a fraudulent transaction.
One of the factors that contributes to your credit score is the length of your credit history. If you have a credit card that you no longer want, closing the account is likely to have a negative impact because it eliminates a portion of your history. A better option is to make sure the account is at zero, cut up the card, but leave the account open.
If your payment is over 30 days late, the creditor will report it to the credit bureaus, which will negatively affect your credit score. The creditor will likely charge you late fees, and interest will build up. Some credit cards have a higher interest rate for overdue amounts. Call the creditor if you know that you can’t make the payment on time, and make an arrangement for what amounts you can pay and when. They may waive the late fee if you ask them, and if it is the first time you have been late with a payment. There are different ratings that are given on credit reports depending on how late the payment is – 2 (31 to 59 days), 3 (60 to 89 days), 4 (90 to 119 days), 5 (more than 120 days but not rated 9 yet), and 9 (written off as bad debt, sent to a collection agency, or included in a bankruptcy). These codes will include a letter depending on what type of debt it is – ‘R’ stands for ‘revolving’, like a credit card or a line of credit.
No, these are two separate processes. Both have the same effect on your credit score (debts included will be rated R7) and both will remain on your credit report for a few years after being completed – two for a debt management plan and three for a consumer proposal.
A debt management plan is not binding on all creditors, does not reduce the principal amount owing (creditors may agree to reduce the interest to 0%) and does not put a legal stay of proceedings in place (creditors who don’t agree to participate with the plan can still take legal action against you). A consumer proposal almost always reduces the principal debt amount (depending on your income, assets, and amount of debt), freezes interest, is legally binding on all creditors once accepted by the majority, and stops legal action like wage garnishment.
Absolutely – nothing is stopping anyone from approaching their creditors individually and seeing if they can negotiate an arrangement. The people who may find success in this method are usually the ones who only have a few creditors, and who have had previously good payment histories up until recently. If you’re having trouble keeping up with payments, talking to your creditors before defaulting on payments is a wise first step in a plan of action. Reviewing your budget to ensure you are not relying on credit and accumulating more debt at the same time is also necessary – if that’s not possible then seeking further help is advisable.
CRA is a very powerful creditor. Unlike credit cards and other consumer debt, CRA can garnish your wages and freeze your bank account without first going to Court. CRA will add interest and penalties for late income tax amounts due, and these can add up very quickly. If you are self-employed, be sure to have a knowledgeable accountant to help you comply with your tax obligations, and help you to work out the amount of money to put aside for installment payments to CRA. Calculating this monthly, and remitting the amount each month rather than waiting for the end of the tax year, is also advisable.
If you already have tax debt that you cannot pay, a bankruptcy or consumer proposal can assist with almost all CRA debt – the exception is source deductions if you are a sole proprietor with employees (source deductions are things like CPP and EI contributions that you withheld from your employees’ pay, that need to be sent to CRA on behalf of your employees) and GST you have collected from customers.
In BC, Courts have adopted what is called a ‘single date approach’. This means that if you were enrolled in study that you used student loans for more than 7 years ago, but have been a student again within the 7 year period, the last end date is the one that counts even if you did not use student loans to fund the second period of study.
If your end date of study is between 5 and 7 years before filing a bankruptcy or proposal, they may be discharged also, but this requires that you make a ‘hardship application’ to the Court. This is an actual Court hearing, can be complicated to navigate without a lawyer, and is not something that you should assume will be successful.
If you have student loan debt that is not 7 years old yet but you are struggling with other debt, it may still be worth it to explore filing a bankruptcy or proposal. Student Loans will receive dividend payments through the proposal (in a bankruptcy this will depend whether you have any surplus income or assets that allow for the creditors to receive dividends), which will reduce the amount you owe. Once your other debts are reduced you will have more funds available to complete the student loan payments.
Your monthly payments will include the trustee’s fees. These are set by a regulated tariff and are the same across Canada. This tariff is based on the amount paid into in the proposal or bankruptcy, so as they come from the amounts the creditors receive, essentially your creditors are the ones paying those fees.
The debts included in a proposal will be given an R7 (settlement) rating, and the debts included in a bankruptcy will be given an R9 (bad debt).
The positive effect will be that once either is completed, you will not have any outstanding debt showing. Many people are concerned about the drop in score that results from filing a bankruptcy or proposal but you should consider that a good credit score is not having a positive effect on your life if you’re struggling to keep up with the payments, and if your debt to income ratio is so high that no lenders will approve a loan for you. The drop in score may feel like a step backwards, but it will result in a fresh start and the ability to take more steps forward towards a better financial future, and we will discuss strategies for rebuilding your credit with you.
You have some choices, depending on what kind of service you’re looking for.
1) Credit counsellors can help you make a budget and if needed, assist in putting together a Debt Management Plan. This is an arrangement with your creditors to lower or freeze interest while you make payments towards the debts (the credit counsellor receives the payments and distributes them to any creditors who have agreed to participate). You can search Consumer Protection BC’s website to be sure that the individual you’re seeing is licensed as a debt repayment agent.
2) Budget Consultants can review your finances, help you to create a budget, and support you while you make new habits and refine your budget. They can also refer you to other services if more help is required.
3) You can talk to your bank about a consolidation loan, which under some circumstances is a good option.
4) A Licensed Insolvency Trustee is the only professional who can help you to file a bankruptcy or a proposal. These are the only options that are legally binding on all creditors, and the only option which puts a legal stay of proceedings in place to stop wage garnishments or other ongoing legal action by your creditors.
Yes. Not filing your income tax return can result in more penalties. CRA may arbitrarily assess your income by taking an educated guess based on what information they have to determine your taxable income. Not filing will not make any tax amounts owing go away. It is always better to keep your tax filings up to date so that you know the amount you owe, reduce fines and penalties, and can better navigate your options for paying or for seeking relief.
Even if your credit score is considered acceptable, you may not be in a good position financially. Some warning signs include:
- Struggling to make minimum payments: If you find yourself consistently unable to make the minimum monthly payments on your debts, it may be a sign that your debt load is becoming unmanageable.
- Using credit for daily expenses: Relying on credit cards or loans to cover basic living expenses like groceries or utilities is a red flag. It suggests that your income is not sufficient to meet your regular expenses, and you may be accumulating more debt to make ends meet.
- Constantly juggling bills: If you find yourself constantly shifting money around, paying one creditor with another credit source, or prioritizing certain debts over others, it indicates a lack of financial stability and potential trouble managing your debts.
- Receiving collection calls or notices: When debt collectors start contacting you, it's a clear sign that your debts have reached a critical stage. Ignoring collection calls or receiving frequent notices should not be taken lightly and requires immediate attention.
- Maxed out credit cards: If your credit cards are consistently maxed out or close to their limits, it suggests a heavy reliance on credit and a potential inability to keep up with payments. High credit utilization can negatively impact your credit score as well.
- Feeling overwhelmed or stressed about debt: Constant worry, stress, or anxiety related to your financial situation is a strong indicator that you may need help managing your debt. Emotional distress caused by debt can have a significant impact on your overall well-being.
- Borrowing from friends or family: If you find yourself frequently borrowing money from friends or family members to cover expenses or pay debts, it may signify financial instability and the need for professional assistance.
Yes, you can. You should consider your personal strengths and challenges before using credit extensively again, but having one credit card with a low limit is useful even for someone who knows that overspending is a challenge for them.
Even while in a proposal, many people are able to obtain a secured credit card. A secured credit card is different than a prepaid card. Though both require that you pay some money before having credit available, a secured credit card helps to rebuild your credit while a prepaid card does not. The subtle difference is that a prepaid card loads your own money onto the card which you can then spend at places that accept that card, whereas a secured credit card is giving you credit while holding your funds as security in case you don’t make your payments.
Often prepaid cards will have fees attached that reduce the amount you have available to spend, while a secured card does not – but the secured card will still charge interest on late payments like a regular unsecured card.
If you want to apply for an unsecured credit card as well, wait at least a year after getting the secured card before applying for a low barrier card like a store card (even better if it gives you benefits at a store you use frequently). Too many applications for credit in a short period of time will have a negative impact on your credit score.
Unlike a bankruptcy, you do not need to go through a formal process to be discharged. If you previously filed a proposal that was not completed (most commonly because there was a default in the payment arrangements), the proposal is no longer in effect and the rights of your creditors to attempt collection are restored. Your creditors may have received some payments while the proposal was active (depending on when the default occurred) but you will still owe the remainder, and interest and fees can be added from the default date onwards.
If you want to file another proposal that includes any of the same debts you will require Court permission before doing so. If this applies to you, we can assist with making this application.
You can continue to operate a business after you have filed a bankruptcy or a consumer proposal. In bankruptcy, you cannot be a director of a corporation (this applies in BC and most jurisdictions). If your corporation continues to operate you will have to make other arrangements for the running of it while you’re in the bankruptcy. A sole proprietorship will continue as normal unless you decide to cease operations.
Do consider whether it’s a good idea to continue with your business, especially if some of your debt was accumulated through the business, and the business has not been profitable enough to repay it.
We understand that it can be a stressful and difficult step to reach out for help with debt. Our aim is to welcome every person with compassion and understanding, talk through your situation, and provide you with the information to make the right decision for you.
When we first talk, either over the phone, over video, or in person, we’ll need to understand your current situation as well as what has led to your financial difficulties.
After talking, if you’re interested in exploring our options further, we’ll ask you to complete an application form and to gather some supporting documents. These will be things like ID, income proof, statements from your creditors, vehicle registration, tax information, and other documents depending on your situation.
Having a consultation with us is not a commitment to proceeding, and neither is completing the application form. The more information we have, the better we can inform you of your options so that you can make the choice that makes sense to you.
We also often speak with people who regularly send funds to support family overseas. While there is no rule that says you cannot do this, when creditors are considering whether to vote to accept your proposal, they may see this as a negative. Their view will likely be that your obligation is to repay the funds you borrowed from the creditors before sending money elsewhere, and they often ask for the funds to be paid into the proposal before they will vote to accept the proposal.
For family living in your household, the surplus income standards do take into account household size – if you’re unsure of who you can include in your ‘household’, please discuss this with us.