Smythe Ratcliffe Debt Advisors

If your problems are so serious that debt consolidation or other remedies are not practical, then a proposal or personal bankruptcy may be the answer.

There are two types of proposals legislated under the Bankruptcy and Insolvency Act:

• Division 1 Proposal – a settlement offer to creditors for individuals with debts more than $250,000, (excluding your mortgage) or a restructuring of debt payments by a corporation. (The rules for Division I proposals are more complex; please contact us for more details).
  
  
• Consumer Proposal – a settlement offer to creditors available to anyone owing under $250,000 (excluding your mortgage).

Either type of proposal is a legal way to settle your debts by freezing interest and paying only a portion of your debts, either by making a lump sum payment or several monthly payments over a period of time (usually between three to five years).

Bankruptcy is a last resort for debtors that are unable to make any other settlement arrangements with their creditors. It is a legal process regulated by the Bankruptcy and Insolvency Act. It provides immediate relief, halting the collection actions of all your creditors who may have a claim against you. It is generally a nine month process designed to permit an honest but unfortunate debtor to have the majority, if not all, of his or her debts extinguished.

In order to declare bankruptcy, you must meet the following conditions:

• Owe at least $1,000 and
• Be unable to meet regular payments as they fall due.

OR

• Be unable to pay your debts if you sold all of your non-exempt assets.
• You are not presently in bankruptcy.

A trustee is licensed by the Federal Government to process personal and corporate bankruptcies as well as administer proposals to creditors. A trustee is an officer of the court whose primary role is to ensure that your rights and your creditors’ rights are maintained throughout the process.

No. A bankruptcy will only affect the person filing and in no way will reflect on the spouse's credit rating.

However, if you file for bankruptcy any person that has co-signed for any of your debts may be responsible for the full amount outstanding.

It is very common for a spouse to have a supplementary credit card on your account. Pursuant to some card holder agreements the spouse may be held responsible for the whole amount outstanding if they have made a purchase with the card.

The trustee will not take possession of certain assets if they are exempt from seizure. Exempt property varies from one province to another. In BC, an individual may claim the following assets as exempt:

• All necessary clothing and all required medical aids (of a debtor or a dependent).
• $4,000 in household furnishings and appliances (garage sale value).
• $10,000 in tools of the trade (garage sale or pawn shop value).
• $5,000 equity in 1 motor vehicle.
• $9,000 equity in your residence outside the Capital Regional District and Metro Vancouver.
• $12,000 equity in your residence in the Capital Regional District and Metro Vancouver.
• RRSPs less the value of contributions made in the year preceding bankruptcy.

Depending on the type of RRSP/Pension Plan you have, it may be protected from your creditors by law.

Cash assets such as GICs, term deposits, savings, stocks, bonds, etc. must be turned over to the trustee.

Any RRSP contributions made within one year prior to your bankruptcy.

Personal effects such as jewellery, collectables, recreational equipment, etc. are not exempt and must be either turned over to the trustee or you may choose to purchase these assets from the trustee at liquidation value if you wish to keep them.

You will continue to receive your income. Based on your earnings and the size of your family you may be required to make monthly payments.

Income tax refunds, including GST, for the calendar year of your bankruptcy and for any prior unfiled years will come to the trustee.

All income tax debts up to the date you file a proposal or bankruptcy will be extinguished on your discharge or completion of proposal.

No. Your employer will only know if a garnishee needs to be stopped.

Student loans are erased in a bankruptcy if it has been at least 7 years since the debtor ceased to be a full or part-time student.

Any student loans that do not meet this requirement will survive the bankruptcy and the debtor will have to make arrangements to pay in the future. In the mean time, the bankrupt will be protected from creditor collection activity.

If the bankrupt continues to experience financial difficulty, the legislation allows for a separate application to be made by the bankrupt to the courts to have the debts erased once the five years have expired.

Generally a person needing either a proposal or bankruptcy already has a negative credit report and nothing will make it any worse.

A proposal will remain as a notation on your credit report for three years after completing the proposal.

A first bankruptcy will remain as a notation on your credit report for six years after your discharge. A second bankruptcy will remain as a notation on your credit report for fourteen years after your discharge.

You will be a better credit risk after a proposal or bankruptcy because you will have no debt. Most individuals are able to rebuild quickly and are eventually able to obtain mortgages, car loans/leases, and credit cards and return to normal life.

You can negotiate directly with your creditors with the help of a CIRP/Trustee or a Credit Counselor to repay your debts in full at a reduced interest rate. However, Credit Counselors/Agencies cannot settle Canada Revenue Agency debt; to do this a proposal must be made by a Trustee under the Bankruptcy & Insolvency Act.

Before committing to this option, ask about the counselor’s qualifications, training, if they receive funding from any of your creditors and how they are paid for assisting you.