Don Allen - Bankruptcy Trustee & Receiver
Trustee & Receiver
705-733-1511 1-888-504-1511
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Consumer Proposal FAQs

Consumer Proposal

Best alternative to Bankruptcy

To avoid bankruptcy and settle your debts, a consumer proposal is the best alternative. It is a negotiated settlement made between you and your creditors, which is legally binding, to settle your debts for a percentage of what is owing (often 30% to 40%). Your debts must be between $1,000 and $250,000 (not including your mortgage).

You offer to pay an amount you can realistically afford for a fixed period of time of up to 5 years. We can customize your payments to suit your income stream variations to make the consumer proposal manageable.

In Ontario for the six months ended June 30, 2011 there was an increase in consumer proposals of 12% over the same period last year. Half of the insolvency filings were consumer proposals – the other half were bankruptcies.

See our debt options calculator to see how a consumer proposal is more affordable than many of your alternatives.

In a consumer proposal, you get to keep your assets – you will have a binding contract with your creditors, with no payments other than the consumer proposal contract -  no more interest or hassles from creditors.

Here is what we do with you in a consumer proposal:

  • We meet with you to review your options and the proposal process.
  • We help you prepare a payment schedule for your creditors that will work for you and is considerably less than the total you owe.
  • We prepare and have you sign the consumer proposal paperwork and then we file it.  This will end any garnishments or collection calls.
  • We will send the consumer proposal to your creditors for approval – they have 45 days to do this. If over 50% of dollar volume of creditors approve it, the consumer proposal is accepted.
  • If no more than 25% of them request a meeting of the creditors, there will be no meeting required
  • If the proposal is not accepted as originally filed, we will work with you and the creditors to adjust it to make it acceptable.
  • Once it is accepted, you will make the agreed payments in the consumer proposal to us as Trustee and we will make agreed upon dividend distributions to creditors who have proven their claims.
  • If you want to speed up the proposal time period to get your discharge earlier, you can do so by making payments faster.
  • Your consumer proposal will deal with all unsecured debts (credit cards, lines of credit, personal loans, payday loans, income taxes).
  • Secured debts (car loan, mortgage) are not dealt with in a consumer proposal. You either keep them and continue payments or turn them back to the secured lender. Any shortfall they experience when they sell the asset will be an unsecured claim in your proposal.
  • When you make all your agreed payments, the remaining balances of your debts are forgiven, with a few exceptions.
  • If you can’t make a payments in a certain month as agreed, the proposal will not be annulled until 3 consecutive months of payments are missed. We will help you get these back on track to avoid this.
  • After making all your payments as agreed, we will issue you a Certificate of Completion that ends the proposal process.
  • Your agreed proposal payments will cover our fees as well – there will be no extra monies you will have to pay.
  • A consumer proposal will remain on your credit file for three years after you complete the proposal. You will be scored somewhat better than after bankruptcy. We will review with you how to start to rebuild your credit rating even during the time you are completing the payments of the proposal and as well, after your proposal payments are completed.

Call us at 888-504-1511 or email us to let us help you get control of these problems in a FREE consultation in person or over the phone. We review your options and find out if it is realistic to consider filing a Consumer Proposal to avoid bankruptcy. We will guide you on your Road to Recovery.

Exceptions - Alimony payments, child support, certain student loans, fines or penalties imposed by the court or debts arising from fraud.

Credit card debt – when we file for you a consumer proposal or bankruptcy, unsecured  creditors (like credit card companies) will be stayed ( put on hold) from taking further action to collect or charging further interest for debts up to your filing date. You will not have to make further monthly payments to them for these debts, as you have in the past, and whatever credit cards you still have will be turned over to the Trustee when you sign up.   See the real cost of your credit card debt by trying our Debt Options Calculator

Collection agency calls – after we file a consumer proposal or bankruptcy for you, these will stop shortly thereafter. For more information see Collection Agencies

Credit reports – see our description on how to obtain, understand and manage your credit report – Credit Reports

Assets to keep – Once you are bankrupt you will be required to turn over your assets to a Trustee. These assets will then be sold and the money earned will be distributed amongst your creditors. However, not all assets will be turned over and sold.  Under Ontario law there is a list of items which are exempt from being sold.
Some bankruptcy exemptions include:

  • Maximum of $ 5,650 in personal possessions (clothing, jewelry etc.)
  • Maximum of $5,650 for motor vehicles (cars, trucks, etc.)
  • Maximum of $11,300 for furnishings
  • Maximum of $11,300 for any tools of trade (equipment that is used to earn a living)
  • Certain types of life insurance and investments.

House – This a complicated question and the answer will vary depending on your individual circumstances. Generally, if you don’t have significant equity in your house, then claiming bankruptcy should not affect your house. If you can afford to keep up all payments related to the house, you can keep it. See your House.)

Car
In Ontario, a bankrupt is permitted to keep one motor vehicle worth up to $5,650. If your car has no liens and is worth more than $5,650, you may keep the car by paying the Trustee, for the benefit of your creditors, the difference. Thus, if your car is worth $6,650 with no liens, you can keep the car by paying $1,000 to your Trustee for distribution to your creditors.  If you lease the car, you can keep the car if your lease payments are current and you are able to keep up the payments. Again, if there is more than $5,650 of equity in the car, you will need to pay the Trustee that excess toward your estate.

Tax debts – to Canada Revenue Agency (CRA) are included with other unsecured debts in bankruptcy or a consumer proposal and filing stops interest from continuing to be added. If CRA has issued a lien, they are a secured creditor for this. If they have garnished your wages, this will be stopped. See more at Canada Revenue Agency.

Garnishments Under the Ontario Wages Act, the maximum a creditor can garnishee is 50% of your gross wages.
If a creditor has already gone to court and obtained a garnishee summons allowing them to garnishee your wages, the wage garnishment will only stop once it is paid, or if the creditor agrees to stop it. The longer you wait to deal with the wage garnishment, the more you will lose from each paycheque.

If you are threatened with a wage garnishment, or are currently being garnisheed, call us immediately to determine your options. In most cases, filing a consumer proposal or personal bankruptcy will stop a wage garnishment from banks, credit card companies, CRA, pay day loan companies, credit unions and most other types of creditors. If you file a consumer proposal or a personal bankruptcy with us, we can stop the garnishment of your wages within hours after you file by us notifying your employer directly. Note that wages garnished for child support or spousal support cannot be stopped by the filing of a consumer proposal.

Judgments – judgement actions are stayed (put on hold) once we file a consumer proposal or bankruptcy
for you.

Fines – fines are not included in a bankruptcy or consumer proposal and need to be paid. This can be done over a period of time. See Discharge.

Alimony payments – these must still be paid and are not eliminated by bankruptcy or a consumer proposal .See Discharge

Student loans – If you have been out of school for 7 years, these are eliminated in a bankruptcy. If you have been out of school between 5-7 years, you can apply for relief on account of hardship. If you have been out of school for less than 5 years, the loans remain.

If you have been out of school for less than 7 years, you could try contacting student loans office to negotiate a new payment arrangement.: If you cannot maintain your payments,  you may want to meet with a credit counselor. They will summarize your debt,; create a multi-year repayment plan and then negotiate with your creditors. This process is called a debt management plan.

Filing a consumer proposal with us is an alternative to credit counselling and often costs less. A consumer proposal is a legal settlement which allows you to repay only a portion of your debts and still have them eliminated.

Bankruptcy will clear your Ontario student loan only if you've been out of school for more than seven years. If it's less than seven years, your government guaranteed student loan will not be automatically discharged if you file bankruptcy. If you have other significant debts, bankruptcy may still be a good option. Filing bankruptcy can help clear other debts and make repaying your student loan more manageable.

Medication, Gambling – medication is an allowable expense as part of your standard living requirements. If you have an addiction, we will help you deal with it.

Employer – we do not normally contact your employer unless you need us to help to eliminate a garnishment of your wages.

Joint debts with my partner – As long as your debts belong solely to you, then claiming bankruptcy should have no impact on your spouse or their credit rating. If your spouse has not co-signed or guaranteed any of your debts then those debts belong solely to you.
However, if your spouse has co-signed any of your debts, they as well become fully liable if you file for bankruptcy.

A supplementary credit card has the same account number as the primary credit card. If your spouse has used a supplementary credit card with their name on it, they will be considered jointly responsible for all debts accumulated under that credit card account. This means that if you – as the primary card holder – claim bankruptcy, your spouse will be liable for all the debt accumulated, regardless of whether or not they signed the initial credit card application form.

In Ontario, if you get divorced, all matrimonial property is split between the husband and wife. However, with joint debts if you get divorced the debt is not split and you both remain equally responsible to ensure all debts are fully repaid.

Even if you have a legal separation agreement which states that each person is to assume half of any joint debts this will not release you from your spouse's portion.
The reality is, each of you cannot owe half of any joint debt and it is not a 50/50 split. As soon as one party defaults on their payments, or claims bankruptcy, then a creditor can legally pursue the other spouse for all amounts outstanding.

How much can I make – we encourage you to make as much as possible. If your income reached a certain level, you have to contribute a portion of it toward your estate in a bankruptcy - see Surplus Income.

One of your duties in your bankruptcy is to submit monthly Statements of Income and Expense to us to help you through the process and see if you are required to make Surplus Income Payments to your estate. The government has set net monthly income amounts for a person or a family to maintain a reasonable standard of living in Canada. Every dollar that a bankrupt family makes above the level set by the government is subject to a Surplus Income payment of 50% over that amount while a person remains bankrupt.

Calculating Surplus Income Payments

The Bankruptcy and Insolvency Act (“BIA”) requires bankrupts to submit monthly Statements of Income and Expense to their Trustee for the purposes of determining if the bankrupt has surplus income. The government has set net monthly income thresholds for a person or a family to maintain a reasonable standard of living in Canada. Every dollar that a bankrupt family makes above the level set by the government is called surplus income, and the bankrupt is required to pay to the Trustee for the bankrupt estate 50% of this surplus income while they are bankrupt, and if they have surplus income, a first time bankrupt will be discharged in 21 months instead of 9 months.

Use our Surplus Income Worksheet to help you determine if you have Surplus Income and what your required Surplus Income Payments will be. We will help you with any questions.

How long is the process - Discharge - The goal of claiming bankruptcy is to obtain your bankruptcy discharge. 
A bankruptcy discharge is legal document that officially and permanently eliminates your debts and is the  beginning of your Road to Recovery.
By receiving your discharge, you are legally released from all debts covered under your bankruptcy. This means you are no longer liable for payments and you are legally protected from your creditors for those debts to the date of bankruptcy. See more about Discharge

How do the Trustee’s fees get paid? – in a bankruptcy or a consumer proposal, the Trustee is acting on behalf of you and the creditors as well.  The fees are paid out of the monies you contribute to the bankruptcy or consumer proposal and are set by the Bankruptcy and Insolvency Act.

How much will a bankruptcy cost?
The exact cost of filing a bankruptcy varies, as it is based on your monthly income, expenses, family size and assets. Without knowing the specifics of your individual situation we cannot give you the exact costs. However, we can walk you through all the calculations that a Trustee uses when determining the costs of a bankruptcy.

The different types of costs associated with filing a bankruptcy include: Monthly Contributions, Surplus income payments, and Assets.

Monthly contributions:
You are required to make a minimum contribution to your bankruptcy for each month that you are bankrupt. This contribution covers administrative costs such as: government fees, your trustee's time, mailing etc.

Surplus income payments:
See Surplus Income Worksheet

Assets
The final "cost" of a bankruptcy is the assets that you lose when you go bankrupt. In order to be rid of your debts you will need to surrender certain assets to your trustee.
The most common assets you will be required to pay to the Trustee for the benefit of your creditors are:

  • Equity in your house
  • The value of a car with no loans (over the $5,650 exemption limit);
  • Investments (like Canada Savings Bonds or other non-exempt assets);
  • Quarterly GST credits - These will be automatically forwarded to the trustee;
  • Tax refunds for prior years that you haven't yet filed and for the entire year that you are bankrupt;
  • Any RRSP contributions that you have made in the last year (but not your RRSP)

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The actual costs of a bankruptcy are somewhat complicated and vary by individual case. Contact us for a FREE initial discussion to get a better idea of what it will cost you.

Consumer Proposal vs. Personal Bankruptcy
Click here for a comprehensive comparison.

 

Bankruptcy Assistance Program – the Bankruptcy Assistance Program is potentially available to individuals who cannot afford the regular cost of bankruptcy. We participate in this program and would be happy to see whether this can apply to your situation.

info@allentrustee.ca
1.888.504.1511

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