When you file a Consumer Proposal in Ontario, there is a hold on all legal proceedings that your creditors can take against you. Interest on all debts stop as of the day the court accepts the Consumer Proposal and confirms the appointment of your Licensed Insolvency Trustee who acts as the Administrator of your proposal. If the creditors accept the offer in your proposal, then your only obligation is to make payments in accordance with the terms of the proposal, which may or may not include an interest factor. If the creditors refuse your proposal, then you have options. Normally, your trustee will contact the creditors who refused to agree to your proposal and ask what they would accept in payments to change their decision. This may take several months of negotiating back and forth. You want to pay as little as possible. Your creditors want as much as possible. Somewhere in the middle is what is reasonable in these circumstances.
In cases where no proposal can be negotiated with the creditors and the proposal is refused by a majority of creditors, then you, as the person filing would be back at square one. The full rights of all creditors are reinstated and their right to claim interest is back to the day you filed the Consumer Proposal when the interest was stopped. If you subsequently file another proposal or a bankruptcy, the interest stops again.
Contact Rumanek & Company Ltd. for more information on bankruptcy in Ontario and debt solutions. Please fill out the bankruptcy evaluation form. To learn more please visit our YouTube Channel. Rumanek & Company have been helping individuals and families overcome personal bankruptcy in Ontario for more than 25 years.
The average Canadian owes more than $1.60 for every $1.00 of after-tax take home income. No wonder, we are all feeling stressed. A major cause of this is the high cost of living in major cities like Toronto or Vancouver in relation to other parts of Canada. If you are only making the minimum monthly payments on your debts or even taking cash advances from one creditor to make those payments to another creditor, consider meeting an experienced professional who has the experience to assess your situation and offer a plan of action that will result in getting out of debt. The options that should be considered are:
This is mainly a self-help approach although there are several for-profit and not-for-profit agencies that will assist you. You or the counsellor will contact each individual creditor to try to get them to waive some of their late fees, reduce their interest rate and set up a long-term payment plan. This is a long-term program that must be negotiated with each creditor individually. There is no court assistance or other court approval for this option. There is no requirement for any creditor to negotiate with you or the counsellor, although, creditors will often negotiate some settlement out of goodwill.
You or a debt settlement company hired by you at your expense approach each of your creditors to negotiate a reduction in the debt that you owe. No creditor is required to negotiate anything with you but they usually will negotiate a reduction in the total of your debt if you will tell them that the reduced amount will be paid in full over a specified short period of time. The cost of hiring a debt settlement company must be factored into your eventual saving of the debt owing. They normally charge a fee based on a percentage of what they save you but this is also subject to negotiation.
A consumer proposal is administered by a Licensed Insolvency Trustee who will negotiate a reduction in the overall debt as well as the payment of the reduced amount over a period of time with no interest (usually 60 months or less).
The advantages of a Consumer Proposal are:
You keep your house, car, RRSP, RESP, etc.
You lose no assets unless you decide to sell the assets and pay the money into the proposal as a lump sum
Once 51% of creditors agree to your proposal, the other 49% are bound to abide by the terms of the proposal
All interest charges by creditors stop on the day your trustee files the proposal with the court
All legal actions, wage garnishees, etc. stop on the day the trustee files the Consumer Proposal with the court
The proposal once approved by the creditors and the court is a legal process that can be enforced against all creditors
When all else fails, bankruptcy is the final solution. As long as you are unable to meet your financial obligations as they come due and your debts exceed $1,000, you can legally file an Assignment in Bankruptcy using the services of a Licensed Insolvency Trustee. You will be placed under the protection of the court to prevent any creditor from suing you, garnisheeing your wages or bank account or taking any actions against you to collect their debt. If your situation is not complicated, you may be able to obtain your discharge from the bankruptcy process in as little as 9 months. Your trustee will still take much time after your discharge to complete the administration of your file. Your trustee will still continue to assist you in rebuilding your credit score even after your discharge.
The above are the four (4) main solutions to a person with debt problems. Please consider meeting with a Licensed Insolvency Trustee for a free initial consultation to determine which of the above or any other options are best for you.
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)
You have graduated from University and have been unable to find a good paying job in your area of expertise. The periods of non-repayment and interest relief of your student loan debt have been maxed out. You are starting to get letters and/or phone calls from a collection agency. A friend tells you that he was in the same situation last year. He solved his problem by paying his student loan payments with his credit card. His logic was that the collection agency got off his back and he had no stress. If he got a good job, there would be enough money to pay everyone – even though he knew that the interest on the credit card was higher than the interest on the student loan. Plus, he got “points” on his credit card. The friends’ research pointed out that if he ever had to go bankrupt in the future, all of the credit cards debt should be included in the bankruptcy but student loans could not be included in the bankruptcy unless he was out of the school for more than seven years. He had the ultimate “win-win” situation.
Well, not quite. The interest rate on the average credit card is so high in relation to the interest on student loan debt, that any benefit from “points” is insignificant. If you do wind up filing an assignment in bankruptcy and your trustee (or the creditors) determine that you intentionally converted your student loan debt to credit card debt, be prepared for there to be an examination under oath before an Official Receiver (a representative of the Office of the Superintendent of Bankruptcy) who may recommend an opposition to your discharge from bankruptcy. At the very best, you will have to convince the licensed insolvency trustee/creditors/court that you had every intention of paying your debts and it was only a change in your financial circumstances that caused you to file the bankruptcy. As the worst, there will be a finding of an intent to commit fraud – a debt for fraud is not discharged in bankruptcy.
If the above is similar to your situation, please have a discussion about it with your trustee before signing any papers.