Questions About Proposals: Repayment Plans
7. What happens to my assets in a Proposal?
8. What if my situation changes and I can’t afford the payments?
9. What happens to my secured creditors (Mortgage and car loans)?
BANKRUPTCY frequently asked questions:
1. Do I have alternatives to personal Bankruptcy?
Yes, there are a number of alternatives to personal bankruptcy and doing your research will help you to determine which one is best for you. See "Options" or "Help Info" for more information or call and let us assist you personally. back to FAQ
2. Should I declare personal Bankruptcy?
Bankruptcy is not necessarily the best option for each situation. Scheduling a free confidential consultation is the first step to becoming educated and making a well informed decision. back to FAQ
3. Do I qualify for Bankruptcy?
If you owe more than $1,000.00 and are insolvent (if you can't pay your bills as they become due) you technically can file for bankruptcy. As each situation is unique, there is no hard and fast answer as to when bankruptcy may be the right solution. At BNA SOLUTIONS, we work with every individual to determine the facts and understand the issues and then explore the various options. If you are near to or have reached your breaking point, call us to talk. back to FAQ
4. How do I file for Bankruptcy?
Filing for Bankruptcy must be done through a Bankruptcy Trustee. He or she is the government licensed individual who can assist you in the process, much like any other professional. Choose one you like and are comfortable with. back to FAQ
5. Will the creditors stop pressuring me?
When you file for Bankruptcy, unsecured creditors must stop all collection proceedings and legal action against you. It is not uncommon for the phone calls and letters to continue for a short period of time until the information is relayed to the right people. It is important that you inform the creditors that you have filed for Bankruptcy and provide them with the name and phone number of your Trustee.back to FAQ
6. What does it cost to go Bankrupt?
The cost is determined by a number of factors including your income and assets. The fee will be discussed and determined at the initial interview and is payable over the duration of the bankruptcy, with no interest. At BNA SOLUTIONS, we do not require this fee up front. We realize that you are already in a difficult financial situation and that you will have a better ability to make these payments after you are relieved of your other debts. back to FAQ
7. How long will I be Bankrupt?
Several factors will affect the length of a Bankruptcy. It will depend on whether or not you have previously filed bankruptcy and whether there is surplus income to pay based upon the governments guidelines. At present, third and subsequent Bankruptcy's are subject to a mandatory Court application.
back to FAQ
8. Will I lose everything if I go Bankrupt?
NO! Every province has a list of assets that are considered “exempt” or “necessary” and are not required to be given up in a Bankruptcy.
There are some items that are considered to be non-essential that you are required to turn over to your Bankruptcy Trustee. These items are then sold and the funds are held "In Trust" for the general benefit of your creditors. The Trustee may let you purchase them from your “Bankruptcy estate” for the appraised value. This might apply to things like a large screen TV that was bought on credit but not yet paid for.
EXEMPTIONS IN ALBERTA INCLUDE:
- Clothing and Personal items to a value of $4,000.00 (resale value)
- Furniture up to a value of $4,000.00 (resale value)
- Equity in a motor vehicle up to $5,000.00.
- Equity in your principal residence up to $40,000.00
- Tools of the Trade up to $10,000.00
- If you are a farmer, a homestead of up to 160 acres
- Farming equipment required to operate the farm for the next year, if farming is your primary source of income
- A 12 month supply of food
- RRSP’s (A 12 month claw-back period may apply)
- Pensions, LIRA’s, DPSP’s.
- Lawsuits for personal injury, pain and suffering back to FAQ
9. Can I continue to work while I am Bankrupt?
Absolutely! There is no reason not to. There are some fields of employment in which a person who files for bankruptcy is required to report to a regulatory or professional body. (Life insurance sales people, accountants, lawyers, investment advisors, etc.)
During the bankruptcy you are required to report and provide proof of your income to your Trustee. back to FAQ
10. What happens to the money I owe when I file for Bankruptcy?
Immediately upon filing for bankruptcy, there is a "Stay of Proceedings", or what we refer to as 'protection'. The creditors are prevented from commencing or continuing collection action for unsecured debts. The Bankrupt person is required by the legislation to perform some duties for the Trustee and by doing so, they earn their discharge. The discharge serves to eliminate these unsecured debts. If you fail to perform the duties as required or do not finish the bankruptcy, the rights of the creditors are reinstated and they may then resume collections. back to FAQ
11. What if someone has co-signed a loan for me?
If you file for bankruptcy, the co-signer then becomes responsible to pay the debt for which they co-signed. back to FAQ
12. Will I still have to pay income taxes after I go Bankrupt?
Any income tax that you owe up to the date you file for bankruptcy can be included in your bankruptcy and written off with your other debts. Any income tax liability that occurs after you file for bankruptcy is your responsibility. During the year of bankruptcy, your tax return is split into two parts, a pre-bankruptcy tax return and a post-bankruptcy (or after) tax return. If you file for bankruptcy in June, any taxes that you owe up to that date in June are included. back to FAQ
13. Who will find out that I am Bankrupt?
When you file for bankruptcy the Trustee is required to notify your creditors, the government (Office of the Superintendent of Bankruptcy) and possibly the Court. If you have a garnishee against your wages or bank account, your employer or bank will also be notified in order to have the garnishee stopped. All corporations and a very small percentage of personal bankruptcies called Ordinary Administrations, are required to be advertised in the classified section of the local newspaper. For the most part, all though they become public record, no bankruptcies are made public. back to FAQ
14. Are all of my debts eliminated in Bankruptcy?
All debts must be disclosed, however, some debts will survive Bankruptcy. These include alimony and child or spousal support; student loans if you have been out of school for less than 7 years; Court fines; debts caused by fraud or fraudulent misrepresentation; civil claims arising from assault causing bodily harm, sexual assaults or death arising from the assaults.
Debts for mortgages and car loans are not written off in a bankruptcy unless you voluntarily surrender the asset at the commencement of the process. If you wish to keep secured assets you must continue to make the payments otherwise, you will lose the asset to a foreclosure or repossession. Once you obtain relief from the unsecured debts, it is often easier to make these secured payments.
Utility bills can also be included in bankruptcy, however, you must continue to pay the subsequent utility bills for services rendered. back to FAQ
15.How will my credit rating be affected?
Even before filing for bankruptcy, your credit rating may already be affected by late payments NSF cheques, etc. A bankruptcy will be recorded on your credit bureau for the term of the bankruptcy plus a further 6-year period. This does not necessarily prevent you from obtaining credit after the bankruptcy, but you will have to earn the privilege back by developing a better credit history. Your credit rating can only get better after bankruptcy. back to FAQ
16. Can I get credit after I file for Bankruptcy?
Yes, you can have credit after a bankruptcy, sometimes as soon as you are discharged. You will have to earn the privilege again and you may have to pay a higher rate of interest initially. The quickest method of re-establishing credit is to apply for a prepaid or secured credit card. This type of credit card requires you to provide a cash deposit and in exchange you will be given a credit limit to work within. (For example, you provide a $1,000.00 cash deposit and then you can use the card up to a that limit.) back to FAQ
17. What does a Trustee in Bankruptcy do?
Bankruptcy Trustee’s are licensed by Industry Canada. They will assist you in the process and act as a liaison between you and your creditors. Under the Bankruptcy and Insolvency Act, Trustee's actually represent the creditors and are Officers of the Court. They will advise your creditors that you have filed for bankruptcy and that you are therefore protected. Trustee's ensure that your rights are respected and that you are knowledgeable about the bankruptcy process.
Trustee's wear many hats in the process to guide you along the way and to ensure the creditors receive what they are entitled to. They are not addiction counselors, marriage counselors or lawyers, but they can recommend agencies that can help you resolve various issues. back to FAQ
18. What do I have to do during the Bankruptcy?
During the bankruptcy the Trustee will ask you to do a number of things. These items are required under The Bankruptcy and Insolvency Act, which means that the Trustee is only enforcing the legislation.
Some of the rules are there as a learning process, some of them as a monitoring process and some of them as a legal requirement.
Firstly, you are required to be up front and honest with your Trustee. Keep him/her aware of any change in your circumstances. If you move, get married, change jobs, have a baby etc., all of these things can affect the administration of your bankruptcy. Trying to hide things, usually only ends up causing a lot more problems and can lead to an extended bankruptcy process. You must disclose all of your assets and all of your debts and provide him with any information that is required or asked of you, such as income tax records.
Secondly, you may be required to attend meetings with the creditors or with the government. The Trustee will advise you of this and give you whatever instructions are necessary.
You must turn over all of your credit cards, including ones where no outstanding balance exists.
You are required to attend two individual counseling sessions that last about 30 minutes. They are part of the learning process aimed at avoiding a future bankruptcy and to deal with any underlying causes. You will review budgeting, money management and goal setting. The first session usually occurs with 30 - 45 days after filing for bankruptcy and the second session about four months later.
You must complete a monthly budget of your income and expenses and provide proof or evidence of income and certain non-discretionary expenses such as daycare and child support. This is also part of the learning process. The Trustee will monitor your income and compare it to the Standard as set out in the Bankruptcy and Insolvency Act. If you have what is considered “surplus income”, it may be necessary for you to make an additional payment to the Trustee for the benefit of your creditors. back to FAQ
19. Will I lose my house?
As long as you continue to make your mortgage payments and property taxes as required, and keep those payments in good standing there is usually no reason to worry about losing your home. If your mortgage is up for renewal, it is a good idea to renew the mortgage documents prior to filing for bankruptcy.
Under the Bankruptcy and Insolvency act you are allowed to keep $40,000.00 equity in your home. (The difference between what it is worth and what you owe.) If you have a more than $40,000.00 equity in your home, Bankruptcy may not be the best option for you and you should talk to a Bankruptcy Trustee for advice. back to FAQ
20. Is my spouse affected by my bankruptcy?
Your debts are your debts, and your spouse can not be held responsible for them. The exception to this is if they co-sign a loan or credit card application with you. In those cases if you go bankrupt, the lender or creditor can go after your spouse for the debt. If most of your debts are joint with your spouse, they may need to consider bankruptcy as well and you should discuss this together. back to FAQ
21. Will I lose my car if I file for bankruptcy?
Not normally, that is if you continue to make the required payments to the lender. If you don't, they have the right to repossess the vehicle.
In Alberta you are entitled to have $5,000.00 equity in a vehicle before it becomes an issue in the bankruptcy. This means if you have a vehicle worth less than $5,000.00 and you own it free and clear, you can keep it under the Bankruptcy Act. If you have a vehicle worth more than $5,000.00 but have a loan against it and the difference is less than $5,000.00, once again it is considered exempt under the Act. For example if your car is worth $9,000 and you owe $6,000.00 the difference or equity is $3,000.00 and it is considered exempt. If you own a vehicle and the amount of the equity is more than $5,000.00 the Trustee will discuss the situation with you and give you advice on how the vehicle will be handled. In all cases, the vehicle needs to be declared to the Trustee.
On the other hand, if you own a vehicle and owe more money than the vehicle is worth, (Being up-side down on a loan) a bankruptcy is one way to legally enable you to return the vehicle to the lender and write off or eliminate the balance of the loan. back to FAQ
22. Will the bankruptcy stop all the garnishees?
The bankruptcy will normally stop all garnishees and legal proceedings for collections against you. The exception to this may be Maintenance Enforcement. back to FAQ
23. Will my employer find out?
Not normally, but it is also not guaranteed. If you are being garnisheed we will need to contact your employer with the legal documents to stop the garnishee. Also if you fail to provide the information as requested it may be necessary to contact your employer for information. back to FAQ
24. What happens to all of my credit cards?
All of your personal cards must be turned over to the Trustee. back to FAQ
25. Will I lose my RRSP’s and pensions if I file for Bankruptcy?
Recent changes to the Bankruptcy and Insolvency Act protect RRSP’s in a bankruptcy. Pensions have been protected all along. That means that if you have an RRSP or Pension the government is allowing you to keep them if you file for Bankruptcy. This is their incentive for you to prepare more for retirement and be less dependent on the government. There may a 12 month claw back rule that applies for any contributions to your RRSP in the last 12 months. back to FAQ
26. What if I win a lottery or get an inheritance during the Bankruptcy?
First of all, lucky you! Secondly, make sure you tell your Trustee. Your Trustee will discuss with you what happens with these “windfalls”. Sometimes if the “windfall” is large enough the Trustee will encourage you to convert the bankruptcy to a Proposal and be able to pay off all of yours debts and have a little nest egg left over for you. Smaller windfalls can be handled in a number of ways. Just make sure once again that you are honest with your Trustee. Trying to hide these is a difficult thing to do and will often cause you more problems. back to FAQ
27. How do I get out of Bankruptcy?
If this is your first time filing for bankruptcy in Canada and you have done everything that is asked of you by the Trustee you will normally be discharged “released” from Bankruptcy after nine months, if you have no surplus income to pay or 21 months if you do. If for some reason there are outstanding issues to deal with, the bankruptcy will be extended for a period of time. Some of these issues need to be dealt with by the Court and some can be dealt with by the Trustee’s office.
If you fail to co-operate with the Trustee he can ask the courts to “Adjourn your Bankruptcy Sine Die”. This is a Latin term that means essentially date unknown. It means that you are still bankrupt and will be for an unknown period of time. It also means that your Trustee can withdraw the protection he has given you from your creditors and allow them to proceed with collections and garnishees against you again. back to FAQ
28. Can I have a bank account?
Absolutely, there is nothing in the Act that prevents you from having a bank account and you are encouraged to start saving and not living on credit.
When you file for bankruptcy if you owe money to the bank you have your account with, you are encouraged to open a new account at a different bank not just a different location of the same bank prior to filing for bankruptcy. back to FAQ
29. Do I need a lawyer?
No not normally. It is a very rare instance that a lawyer is required and that is usually only if bankruptcy offences have been committed or it is a very complicated file. back to FAQ
30. How are Student Loans handled?
Student loans are a little different than most other creditors in that their debts will survive (not be written off) in a bankruptcy if you have been out of school for less than 7 years. During the time period that you are bankrupt they are prevented from pursuing collection from you, but you will have to resume paying them after your discharge from bankruptcy. If you have been out of school for more than 7 years they are handled the same way as all other unsecured debt. If you have been out of school for less than 7 years, you may still apply to the court after 5 years have passed to apply to have the loan discharged or removed due to hardship. back to FAQ
31. What happens to my income tax returns?
During the year that you file for bankruptcy, your income tax return is split in to two parts, a Pre (before Bankruptcy) and a Post (after Bankruptcy). The main reason for this is to enable you to include in your bankruptcy any money that you owe to Revenue Canada (Income tax debt) up to the date of bankruptcy. This is particularly important for self employed people. If you file for bankruptcy in June, you want to include any taxes that you owe up to the date in June that you file for bankruptcy. Any taxes that are owed after the date that you file for bankruptcy are your responsibility.
If you have not filed your tax returns for the previous years, your Trustee will usually prepare these for you as well. If you have been self employed you will need to be involved in preparing the information for filing.
Any refunds that result from filing these tax returns are issued to your bankruptcy estate. back to FAQ
32. What are the two different types of Bankruptcies?
There are two different types of bankruptcies. “Summary” (the most common) and “Ordinary” (less common) ( This doesn’t seem to make sense, if they are less common, you would think that Ordinary would be the common one.)
The type of Bankruptcy you file is determined by a number of things and will be decided upon by the Trustee at the time you file for bankruptcy. Occasionally, a file can be changed from Summary to Ordinary during the process.
The most common reason for filing a bankruptcy as “Ordinary” is if the Trustee believes that he will recover more than $10,000.00 worth of assets in your bankruptcy to be divided up amongst your creditors.
The other reason is if the Trustee believes that the administration of your bankruptcy is going to be more complicated than usual and will require more time to administer it. back to FAQ
33. When I make payments to the Trustee or he sells my assets, what happens to the money?
Every person who files for bankruptcy has what we call a “bankruptcy estate account”. In that account any payments you make, any assets that are sold or income tax refunds that are received, interest, etc are deposited. At the end of the bankruptcy the Trustee provides an accounting of this money to the Office of the Superintendent of Bankruptcy and they approve the distribution of the money. From this money, the Trustee receives his fee for time and expenses, the court and the government fees are paid and the remainder is divided up amongst the creditors on a pro-rata basis. All creditors get the same percentage. back to FAQ
34. Can I be sent to jail?
In general no, but there are things called “Bankruptcy Offences”. These offences are serious enough that they can be referred to the RCMP for investigation. They can result in fines or up to three years of imprisonment. It all goes back to the premise that bankruptcy is for the honest person to get a fresh start and to deal with his debt. Some examples of offenses are:
• Failure to comply with duties under the Act.
• Fraudulent disposition of Property
• Falsifying a statement or accounting
• Concealing or removing property
• Obtaining credit by false representation
• Selling property obtained on credit but not paid for
• Obtaining credit while being an undischarged bankrupt and not disclosing this fact
back to FAQ
PROPOSAL frequently asked questions:
A Proposal is a formal repayment plan to your creditors that is administered by a Bankruptcy Trustee under the Bankruptcy and Insolvency Act. It provides you with protection from your creditors while giving you time to pay back your creditors. back to FAQ
2. Who can file a Proposal?
Any one who owes at least $1,000.00 can file a Proposal. Generally, someone who only owes $1,000.00 can make an informal arrangement with their creditors to repay this money. If you owe less than $250,000.00, excluding your mortgage, you can file a Consumer Proposal, if you owe more than $250,000.00 you can file a different kind of Proposal also under the same Act called a Division One Proposal. The other determining factor in whether or not you can file a Proposal is your ability to make the payments. The Trustee will discuss this with you and determine if you can afford to do this based on your budget. back to FAQ
When you meet with the Bankruptcy Trustee he will discuss all of your options with you. If you then decide that a Proposal is a good option for you, the Trustee will review your budget and the amount that you owe and the two of you will determine an amount that you “propose” as a repayment term to your creditors. This amount must be more than the creditors would receive if you filed for bankruptcy and it also must be an amount that you can realistically afford to pay back. There is no point proposing an amount that is going to be too difficult for you to repay. You can also vary the payment terms if you have seasonal employment or other factors that affect your income.
This amount does not have to be 100% of what you owe if that amount is unattainable for you. You can “propose” to the creditors that you will pay back 75 cents on the dollar or 50 cents on the dollar (1/2 of what you owe), whatever the amount that you and the Trustee decided you can afford to pay. This amount must be greater than what the creditors would receive if you filed for bankruptcy.
This Proposal is then registered with the government “The Office of the Superintendent of Bankruptcy” and then sent to all of your creditors for approval.
Your creditors have 45 days to “vote” or approve the proposal. A majority vote (dollar value) is required to approve the proposal and then it is binding on all creditors. If no votes are received the Proposal is “deemed” to be accepted and is binding on all the creditors.
If the majority of creditors do not approve the Proposal, a meeting of creditors is called and you can amend or revise the proposal to make it more appealing to the creditors. If you filed a Consumer Proposal and it is still not approved you can not file another Proposal on these same debts without a Court Order. This happens rarely as the creditors are usually more agreeable to accepting some sort of repayment term rather than receive nothing. The exception to this rule is if most of your debt is to Revenue Canada. Revenue Canada usually will want payment in full on a Proposal. At this point you may decide to file for bankruptcy if the Proposal is not approved.
If you had filed a Division One Proposal (You owed more than $250,000.00) you automatically become bankrupt. That is why is important to discuss all possibilities with the Trustee.
Once the Proposal has been accepted by the creditors, all creditors are bound by the Proposal and must stop any collection proceedings.
You will make payments to the Trustee on behalf of your creditors as agreed upon in the Proposal and the Trustee will administer the funds (add interest etc) and distribute the money up amongst the creditors on a pro–rata basis on a pre-determined schedule. (Usually once a year.) back to FAQ
A Consumer Proposal must be fully paid in 5 years or 60 months. A Division One Proposal can be paid over a longer period of time.back to FAQ
5. Are there additional fees?
The Trustee does not charge an additional fee to administer the Proposal. His fees are paid out of the proposal so there is no additional cost to you and no interest is charged. back to FAQ
No interest is charged on the Proposal, and no further interest can be added to the amount that you owe the creditors after the date that the Proposal is filed. back to FAQ
7. What happens to my assets in a Proposal?
Your assets are not affected in a Proposal like a bankruptcy, but they do need to be declared. If you have assets that would need to be surrendered to the Trustee in a bankruptcy, the value of the Proposal must be greater than the value of those assets. back to FAQ
8. What if my situation changes and I can’t afford the payments?
Firstly, keep the Trustee informed of your situation. In a Consumer Proposal if you miss more than 3 payments the Proposal is automatically annulled and the rights of your creditors are reinstated and they can begin collections again. You must file an amendment prior to the Proposal being annulled. You can not file another Consumer Proposal on these same debts without a Court Order. You can however decide to file a Division One Proposal, but remember if the creditors do not approve it a second time you will automatically become bankrupt. If you filed a Division One Proposal, you can only be one month in arrears with your payments.
If your situation changes on a permanent basis you can amend the Proposal with the approval of your creditors to reflect a lower payment or reduced number of payments. This is much better than to have the Proposal annul due to lack of payments. back to FAQ
9. What happens to my secured creditors (Mortgage and car loans)?
These creditors are not affected by the proposal and you must continue to make these payments. The exception to this would be a car loan or lease agreement when you can no longer afford the payment. A proposal is one of two ways (the other is bankruptcy) that enables you to void the loan or lease (by returning the vehicle) and not having to pay the remaining balance separately. This amount can be included in the amount of your proposal. back to FAQ
10. What happens to my credit rating?
A Proposal is slightly better for your credit rating than a bankruptcy. It shows an effort on your part to make the repayment to your creditors. It will remain on your credit bureau for a shorter period of time than a bankruptcy, but remember a bankruptcy will usually be over in 9 - 21 months and stay on your record for 6 years. If you are paying on a 5 year Consumer Proposal and it is on your record for 3 years, both are an 8 year process.back to FAQ
11. Can I be fired for filing a Proposal?
NO! Federal law prohibits an employer from dismissing, suspending or laying off an employee solely on the premise that they have filed a Proposal. The same is true for a landlord, you can not be evicted and your utilities can not be disconnected for debt incurred prior to the Proposal. You must however, remain up to date with the current charges. back to FAQ
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