What is debt exclusion from bankruptcy? A bankruptcy or proposal will get rid of most of your debts, but not necessary all of them. This is because certain debts are secured to your assets. The most common being a mortgage on your home or a loan on your car. If you want to keep the house or car, you must continue to pay the debt secured to the asset. In addition, other debts listed in Section 178 of the Bankruptcy and Insolvency Act specifically exclude certain debts from being included in bankruptcy as a matter of public policy.
These debts include spousal support, child support, debts originating in fraud, debts incurred while acting in a fiduciary capacity. These also include debts resulting from an assault, fines and penalties awarded by a court (income tax, traffic and criminal). Finally, student loans are not included in your bankruptcy unless you have not been a student for seven years. However, in cases of severe hardship, a court can reduce the seven year limit to five years.
God put us on the earth for a limited amount of time. Why then does he make us sleep for about 8 hours each day? We could be producing something of value for 24 hours each day. The answer of the sages is profound. We have all heard the phrase “I am having a bad day” which really means “leave me alone.” God decided to give us a fresh start every 24 hours. A new day begins with a fresh attitude and renewed energy.
This same fresh start is a basic principle of The Bankruptcy and Insolvency Act. If you are an honest but unfortunate individual who is overwhelmed by your debts, the legislation is there to help you get rid of your debts, teach you how to budget properly and train you on moving forward without the mental stress and burden of debt. This applies whether you file an Assignment in Bankruptcy or a Consumer Proposal.
What went wrong yesterday is in the past, today we start anew.
If you have filed a proposal, you should have been told by your trustee that the creditors must vote to accept your offer. The creditors can vote “yes” or “no” or ask for an adjournment of the vote while they consider their position or ask you to supply them with more information. What do they consider when looking at your proposal? You spend hours putting together information and signing papers at the trustee’s office and – guess what – the creditor reviews proposals at the average rate of five (5) per hour. Not much time for you to convince them to accept your offer.
The first thing they look at is the amount that you are offering – obviously, the more you offer, the better your chance of success. The reason why you are in a financial difficulty is very important. Is your problem long term (e.g. medical, psychological, etc.) or short term (e.g. unemployment, divorce, separation, short-term injury, etc.) or somewhere in between. The creditor will review your history of payments. You will not get much sympathy if you stopped making payments two (2) years ago but only became unemployed four (4) months ago. Some creditors such as Canada Revenue Agency (CRA) have information on their computer system such as the purchase of RRSP’s, RESP’s, investments that the average creditor does not have access to. A quick note regarding Canada Revenue Agency. If you are filing a proposal and Canada Revenue Agency is a creditor, please make sure that all of your tax returns have been filed up to date. CRA wants to know how much you owe (with interest and penalties) before they decide on whether or not to vote “yes” on the proposal.
One final thought. The size of your proposal and the amount of your debt to each creditor does matter. If you owe $100,000 total but it is split between 50 creditors @ $2,000 each, no individual creditor is going to spend too much time to evaluate your proposal. The next person could owe the same total of $100,000 debt but owes $20,000 to each of five (5) creditors. Each of these creditors will, of course, spend extra time to review your proposal simply on the basis of the size of your debt.
When putting together a successful proposal or debt consolidation offer to your creditors, everything is important. There is your current status, history with your creditors, future prospects, family situation, value and type of your assets and whether or not you lose any assets in your bankruptcy, all of which must be considered when preparing and submitting your proposal to your creditors. The skill an reputation of your trustee has been earned over many years of experience in dealing with creditors. Take advantage of that experience and knowledge when you are putting together your proposal. The trustee usually has a good idea of which creditors will vote “for” your proposal and which creditors will vote “against” the proposal. Remember, the creditors have no animosity against you personally. It is all about the money that they will lose in accepting your offer to settle.
Can a Senior File a Consumer Proposal or go Bankrupt?
There are no rules that prevent anyone from filing a Consumer Proposal just because you are 65 years of age. With today’s average of $69,000 in unsecured debt for those 60 years and over, the need to take action is important. The advantage that a senior has is that their pension income is a constant cash flow which can be used to finance the payment required for the Consumer Proposal. As well, creditors seem willing to accept a more reasonable (i.e. lower) settlement than they would if the offer to settle comes from a younger person. When every dollar counts, it pays to take advantage of anything you can.