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Frequently Asked Questions

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When is a consumer proposal a good option for me?

A consumer proposal helps you keep your assets, stops collection calls and wage garnishments, and allows you to manage your debt by allowing you to pay less. Your Licensed Insolvency Trustee handles all negotiations with your creditors, which can really help take the pressure off you. If you have nowhere else to turn, but would rather avoid the more severe credit damage caused by bankruptcy, debt settlement, or simply leaving your debt unpaid, a consumer proposal could be for you.

How is a consumer proposal approved?

If no meeting of creditors is requested within 45 days of the filing of the proposal, the proposal will be deemed to have been approved—regardless of any objections made. A meeting of creditors can be requested by one or more creditors provided they are owed at least 25% of the total value of the proven claims. The meeting must be held within 21 days of being called. At this meeting, the creditors vote to either accept or refuse your proposal.

What kind of debts can be included in a consumer proposal?

A consumer proposal significantly reduces most unsecured debts, including: credit cards, lines of credit, personal loans, payday loans, tax debt, student loans (if 7 years have passed since you were last a student), and medical bills—to name a few. Secured debts, on the other hand, are guaranteed by an asset and are therefore excluded from a consumer proposal. If you stop making payments on a secured debt (i.e., a car loan or mortgage), the creditor has the legal right to take possession of the agreed asset. They can then resell it to recover their loan. Secured creditors are notified if you file a consumer proposal, but that’s as far as it goes.

Who qualifies for a consumer proposal?

A Canadian resident with unsecured debts totalling between $1000 and $250,000 can qualify for a consumer proposal. You need to be able to repay a portion of the debt owed on a monthly basis based on what you can afford to pay, with no interest.

How do I know if the deceased’s estate is insolvent and should be declared bankrupt?

To determine whether the estate is insolvent, it’s necessary to compile a list of all assets, their estimated values, the costs to realize on each asset, and any secured loans against each asset to estimate their total realizable value. It’s also worth considering how difficult each asset is to convert to cash. Appraisals can help estimate the value of an asset. It’s also necessary to determine what is owed by the deceased by compiling a list of debt including bank loans, credit cards, taxes owed, personal loans, business debt, and any shortfall on secured debts where the value of the asset is less than the sum owed. Additionally, it’s important to determine if any other party co-signed debt for the deceased, leaving them responsible if the estate is unable to pay creditors. Finally, it’s also necessary to take funeral costs into account, which always get priority payment.

What are my responsibilities as an executor?

If you were named in the deceased’s will as executor of their estate, certain responsibilities become yours. While you’re not automatically liable for the debts of the deceased, you are liable for ensuring that the debts of the deceased are handled properly. For instance, an executor is liable if they distribute funds to beneficiaries without first making sure that all creditors are paid in full. If creditors can’t be paid using estate assets, it’s time to consider filing for estate bankruptcy. 

Do I have to act as executor?

If you’ve been named executor or estate trustee but you decline to act or cannot fulfill your designated role for any reason, the beneficiaries can nominate another person. An estate trustee can also be appointed by the court if there is no will, no estate trustee named in a will, or the validity of the will has come into question.

How can a Licensed Insolvency Trustee help administer a deceased estate?

Getting an LIT in your corner can make all the difference in the administration of a deceased estate. For starters, an LIT can prepare an affidavit on behalf of the executor outlining why the deceased is insolvent. A listing of the deceased’s assets and liabilities acts as proof of the estate’s insolvency. Your LIT will then make a motion before the court to seek an order to place the deceased estate into bankruptcy. Once this order is obtained, your LIT will prepare the necessary documents to officially file for bankruptcy on behalf of the deceased estate. Your LIT will then assume control of the estate, administering assets and distributing any available funds to creditors in accordance with the Bankruptcy and Insolvency Act.

Does bankruptcy cover all debts?

Bankruptcy will eliminate most of your debts, particularly unsecured debts such as credit card bills, medical bills, and payday loans. You may, however, still be required to make payments on your secured debts, such as your mortgage or car loan. Other debts which cannot be eliminated by your bankruptcy include court-imposed fines; debt incurred by fraud; alimony or maintenance payments; debt for damages imposed by Civil Court for intentional bodily harm, sexual assault, or wrongful death; and student loans, if bankruptcy occurs within 7 years of completing your studies.

How do I know if bankruptcy is right for me?

If you’re considering bankruptcy, it’s likely because it seems like the only available option. Before considering bankruptcy, however, it is important to be sure you’ve considered all other options, namely consumer proposals. While filing for bankruptcy is not the right solution for everyone, under certain circumstances, it’s the best and only solution. Upon declaring bankruptcy, all collection calls and legal actions stop immediately, and you’re legally protected. Late fees and interest on your debts are immediately frozen. Not to mention, the vast majority of bankruptcies in Canada are automatically discharged after a period of nine months. In other words, most people can get on with their lives rather quickly after filing for bankruptcy. 

Do I qualify for bankruptcy?

To be eligible for personal bankruptcy, you must either reside, do business, or have property in Canada, be unable to pay your debts and owe at least $1000 in unsecured debts (debts that are not secured by your assets). You must also owe more in debts than the value of the assets you own.

Will bankruptcy lower my credit rating?

Filing for bankruptcy does affect your credit rating. A bankruptcy will be reported as an R9 on your credit report. If it is your first bankruptcy, it will remain on your report for 6 years. This is extended to 14 years for a second bankruptcy. It should be noted, however, that if you aren’t eligible for a loan before filing for bankruptcy, your credit rating is probably already very low— bankruptcy can be the first step to repairing your credit by getting rid of your debt.

How do I know bankruptcy is right for me?

As you may know—an insolvent company is a major stress factor for all involved. Sometimes, bankruptcy is the only sure way of ending the situation and allowing owners and directors to rediscover a quality of life not characterized by crippling financial worries. Whether you’re ready to call it a bankruptcy or you’re still unsure what option is best for your situation, your Licensed Insolvency Trustee can guide you through the decision-making process to find the best possible solution for your company under the circumstances.

How will a bankruptcy affect a small business?

The consequences of a corporate bankruptcy depend in part on whether the business is a small sole proprietorship or partnership, or a corporation. If your business is a sole proprietorship or a partnership, it is important to recognize that corporate bankruptcy will result in your personal bankruptcy as well, since, by law, a business and its owners are considered one entity. As such, your personal assets are included in the bankruptcy and could be sold to satisfy your business debts.

Will bankruptcy lower my credit rating?

If your company is a small business, the bankruptcy will appear on your personal credit report, having the same effect as a personal bankruptcy on your credit rating—such is not the case for a large corporation. If your corporation files for bankruptcy, it will not show up on your personal credit report. However, if you signed an agreement making you personally liable for any of the debts of your company and/or if you were a Director of the corporation, you may be personally responsible for unpaid payroll remittances, unpaid GST, and certain wages. There may also be some personal exposure associated with your corporate income taxes, particularly if you were paying yourself dividends from the company. Your Licensed Insolvency Trustee will walk you through everything, including a solid plan to rebuild credit, if applicable.

Do I need a lawyer to file bankruptcy?

You don’t need to hire a lawyer to file for bankruptcy. If your circumstances are particularly complex or you would like to involve a lawyer in your filing, your Licensed Insolvency Trustee will work with your choice of counsel. Most bankruptcy filings, however, do not require a lawyer.

How does a corporate proposal work?

It starts with a preliminary meeting and analysis of your company’s situation. Following this, documents are prepared and filed, and a notice is sent to creditors to attend a meeting within 21 days, at which time a vote on the proposal is held. A proposal is approved if the majority of creditors (50% +1) vote in favour. However, those in favour must also represent two thirds or more of the total debt value. If they don’t, the proposal is rejected.

What happens if the proposal is rejected?

If the proposal terms cannot be met even temporarily, you may be able to get permission to miss a payment or two. Ultimately, however, this likely means that either the proposal needs to be revised, or that your business is not viable and other options need be explored.

How can I make sure my proposal will be approved?

In short, your proposal must offer a better return than creditors would get on a bankruptcy. We can help you craft the best proposal possible to maximize your chances of approval. When a proposal is accepted, your Licensed Insolvency Trustee[1]  sends an application to the court for approval while you continue with the activities of your company, in accordance with the terms of the proposal.

Is my business actually eligible to file a proposal?

Your business is eligible to file a corporate proposal if it is insolvent or financially unviable. Bonus points if your business could survive with partial debt forgiveness or a moratorium on debt repayment. Extra bonus points if you’re motivated to do the work required to save your company.