Difference between revisions of "Dealing with Debt (10:V)"

{{REVIEWED LSLAP | date= July 8, 2022}}

#determine the amount(s) owed and to whom (verify with the creditors rather than relying on the debtors);  

#determine how much money is available to pay to creditors, keeping the basic standard of living in mind;  

#consider if the debtor has assets, bank accounts or investments at risk;  

#consider the nature of the debt and if someone else would be impacted if the debtor is unable to make full payment, e.g. a joint credit card;  

#work out a payment plan for the creditors on a pro rata basis;  

#write the creditor a short letter outlining your situation and providing proof of reduced financial capacity, e.g. EI stub;  

#send or fax the above letter with supporting documentation and retain proof of the creditor receiving said letter (e.g. fax transmission report), retain a copy for your file;  

#update creditor periodically, e.g. if debtor's situation stays the same or improves and if they’re able to resume contractual payments.  

*From March 13 to December 31, 2020, debtors are allowed to miss up to 3 additional proposal payments before the consumer proposal will be deemed annulled

*The time for holding meetings of creditors (ss 51, 66.15 and 102 of the BIA) and mediations (s 105 of the BIA) is extended by the time of the Suspension Period (April 27, 2020 to June 30, 2020, or 65 days)

*The Trustee’s obligation to apply to court for a hearing following a bankrupt’s failure to comply with a mediated surplus agreement under s 170.1(3) is extended by the time of the Suspension Period

The debtor is required by law to engage a trustee to administer their bankruptcy.  Personal bankruptcy using a trustee may cost the debtor approximately $1685 (including $85 per counselling session, of which two are mandatory for a first-time bankruptcy and GST).  Usually, the trustee will require a minimum payment to initiate the proceedings; however, the first appointment with a Trustee is free.  The timelines for automatic discharge, in addition to being subject to fulfilment of the terms and conditions of the bankruptcy, are dependent on both bankruptcy history and the individual’s surplus income (as prescribed by the Superintendent of Bankruptcy standards – Directive 11R2). For monthly surplus income under $200, a bankrupt is not required to pay any amount to the bankrupt’s estate (Directive 11R2, 5(6)), and for monthly surplus income equal to or greater than $200, a bankrupt is required to 50% of their surplus income (Directive 11R2, 5(7)). For the 2020 version of Directive 11R2 and example calculations, visit https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br03249.html

The average monthly surplus income is calculated at different times (Directive 11R2, 7(1)) depending on whether there have been any material changes in the bankrupt’s financial circumstances. Examples for calculating the average monthly surplus income can be found at https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br03249.html. The period of the discharge may also be extended for certain prescribed reasons under the BIA. Consult the Office of the Superintendent of Bankruptcy or trustee.

*an amount owing on a fine, penalty or restitution order imposed by a court in respect of an offence or debt arising out of a recognizance or bail;  

*an award of damages by a court in civil proceedings in respect of bodily harm intentionally inflicted or sexual assault (including wrongful death resulting therefrom);   

*a court order or a separation agreement regarding alimony or maintenance;  

*an amount obtained under false pretences while acting in a fiduciary capacity;   

*a debt resulting from obtaining property or services by false pretences or by fraudulent misrepresentation (other than a debt arising from an equity claim);  

*any debt or obligation for federal and provincial student loans where the date of bankruptcy occurs before the date on which the bankrupt ceased to be a full or part-time student or, as of June 18, 1998 through an amendment to the Act, within 7 years after the date on which the bankrupt ceased to be a full or part-time student (BIA, s 178(1)(g)).  

See [[Creditors%27 Remedies against Debtors (10:II)#3. Exemptions from Seizure | Section II.B.3: Exemptions from Seizure]] for a list of what the ''COEA'' allows a debtor to retain.  

:'''NOTE:''' A debtor who is on a low end fixed income, such as a fixed income pension, with circumstances unlikely to change may have no need  to declare bankruptcy as they would be, in essence, judgment-proof. Refer to [[{{PAGENAME}}#C. Communicating with Creditors when Unable to Make Contractual Payments | section C above, Communicating with Creditors when Unable to Make Contractual Payments]].

:'''NOTE:''' Due to COVID-19, effective April 2021, the Government of Canada has suspended the accumulation of interest on Canada Student Loans until March 31, 2022. Subject to Parliament approval, the Government of Canada has proposed to extend this measure until March 31, 2023.