When you file an Assignment in Bankruptcy, you are allowed to keep sufficient of your income to allow you to live a normal life. The trouble is that the definition of a “normal life” is based on a cross-Canada average that is calculated annually by the Office of Superintendent in Bankruptcy. It starts with your net after tax take-home pay and has an allowance for special non-discretionary expenses such as child and spousal support payments, child care expenses, expenses of a medical condition, court imposed fines or penalties that are being paid and any expenses related to your employment that are recognized by the Income Tax Act. Unfortunately, the average of high cost areas such as Toronto and Vancouver are merged with low cost areas. If you live in a high cost area, the average cost of living does not work – but you still have to abide by it.
Once surplus income is calculated, 50% of the surplus amount must be paid to your Licensed Insolvency Trustee who will divide the amount among your creditors. For the first time bankrupts, you must pay the surplus for 21 months, for 2nd time bankrupts, you must pay for 36 months. For a more detailed reading of Directive 11R2 – 2016, please go to Office of the Superintendent of Bankruptcy Canada (/eic/site/bsf-osb.nsf/eng/home)
Will I lose my RESP if I file a Consumer Proposal?
No, you will not lose an RESP in a Consumer Proposal. In a Consumer Proposal, you are making an offer to your creditors to settle your debt to them based on the terms of your offer. The terms of your offer is usually that you are prepared to pay a percentage of your debts over a period of time–usually 60 months with no interest. It is rare that the creditors will ask that you collapse the RESP to pay the money into the proposal. Even if they ask, you have the right to refuse.
Please see related article – Will I lose my RESP in a Bankruptcy?
An RESP is set up usually by a parent or other family member by way of a contract with an institution (the scholarship fund) for the benefit of their child. The standard wording in the contract results in the RESP being considered an asset of the parent or other person that is divisible among their creditors in the bankruptcy. If you are in this situation, speak to your Licensed Insolvency Trustee about buying the RESP back from the bankruptcy so that it can continue to be of benefit to your child when he or she starts their post-secondary level of education. The purchase price and terms of payment can be negotiated but generally start at the dollar amount that the trustee would get if the RESP plan was collapsed. The usual payment terms are that you must pay the settlement amount for the RESP before you are discharged.
Please see related article – Will I Lose my RESP in a Consumer Proposal?
I filed a Consumer Proposal and my trustee tells me that he has to file an Administrator’s Report. What is this?
Your trustee is acting in this situation as the Administrator of your proposal. As such, there is a requirement under the legislation that he submits a report to your creditors:
The proposal was filed with the Officer Receiver who represents the Office of the Superintendent of Bankruptcy
Your financial situation and assets listed on your documents are reasonable
Your list of creditors (with balances higher than $250) is reasonably accurate
Explains what is the cause of your financial problems
A brief summary of your net income per month, type of employment, the fact that you do not wish to file a bankruptcy and the amount that the creditors will receive in the proposal. If you and your partner are filing individual proposals at the same time, the joint creditors will be notified of the concurrent proposal so that they realize that they receive payments from both proposals. If the administrator has determined that the payment in the proposal is lower than the creditors would receive in a bankruptcy, there is an obligation to disclose that fact but add any mitigating factors for the creditors to consider before deciding whether or not to vote for or against your offer.
In many cases, the creditors start reviewing your proposal by reading the Report of the Administrator. It is a very important document.