FAQs: Debt Advice and Debt Solutions to Common Questions
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- What alternatives do I have in dealing with my creditors?
- How can I stop harassment from creditors?
- Can a wage garnishment be stopped?
- What if I have income tax debt?
- I’ve had a drop in my income. How can I deal with this?
- What assets am I going to lose, and what do I get to keep?
- What happens to my credit score?
- Will filing for bankruptcy or a proposal affect my spouse?
- Will my personal information be kept private?
- How much does debt consolidation and bankruptcy cost?
You may attempt to get a debt consolidation loan to pay off your creditors. However, for many individuals, this option isn’t viable either because of a bad credit history or an inability to service the payments on the consolidated loan.
Another option is to negotiate a settlement or new payment terms with your creditors. This option may be ideal when there are a small number of creditors. However, if you have many creditors, it may be difficult to get all of them to agree to payment terms favourable to you.
A more practical alternative to repay your creditors may be a Consumer Proposal to your creditors with the assistance of a Licensed Insolvency Trustee. A trustee will work with you in determining how much you can afford to pay and what payments will be acceptable to your creditors.
If none of the above options are viable, you may want to consider filing for Personal Bankruptcy with the assistance of a trustee.
Upon filing a bankruptcy or proposal, your creditors are prohibited from making contact with you. The trustee will stand in your shoes and deal with your creditors. The legal term for this is called a “stay of proceedings”.
Upon filing a bankruptcy or proposal, creditors are prohibited from further garnisheeing your wages. The legal term for this is called a “stay of proceedings”. The trustee will notify the garnishing creditor of your bankruptcy or proposal and instruct it to lift the garnishment.
Personal income tax debt is treated just like any other debt, and Canada Revenue Agency (“CRA”) is prevented from taking any or further action against you (i.e., wage garnishments, freezing of financial assets, etc.) upon the filing of a bankruptcy or proposal. The trustee will notify CRA of your bankruptcy or proposal and instruct it to stop any proceedings it has taken against you to collect its income tax debt.
Reductions in income due to a job change or job loss are common. If you’ve fallen behind on your debts and your creditors are taking (or threatening to take) collection action against you, you may want to consider filing a proposal, which will allow you to make reduced debt payments. If you have insufficient income to pay a proposal, you may want to consider filing an assignment in bankruptcy.
Generally speaking, proposal proceedings need not have any consequences on your assets unless you wish to voluntarily liquidate your assets to fund the proposal.
Upon filing an assignment in bankruptcy, certain items you own are exempt under provincial law. These exempt items vary from province to province. In Ontario, these items are:
- Household furnishings and appliances up to $13,150
- All necessary clothing
- Tools of trade up to $11,300
- A vehicle having a value of up to $6,600
- your principal residence is exempt from seizure IF the equity in your home does not exceed $10,000. If the equity does exceed $10,000 then your principal residence is subject to seizure and sale
- Other special exemptions for farmers
- Certain life insurance policies and certain RRSPs
The trustee for the benefit of your creditors, may sell other assets you have. However, in most cases arrangements can be made to allow you to acquire assets that would normally be sold.
Your credit score is affected whenever you do not pay your bills on time, regardless of whether or not you file a proposal or a bankruptcy.
Upon filing a proposal, credit bureaus will receive a notice of the filing of the proposal and your credit score will be registered at an R9 during the time the proposal is being paid off. After you complete the payment(s) under your proposal, your credit score will be moved up to an R7, which will remain on your credit file for 3 years. After 3 years, the R7 is deleted from your credit file.
Upon filing for bankruptcy, credit bureaus will receive a notice of your bankruptcy assignment and your credit score will registered at R9 during the time you are bankrupt (which is 9 months if you are a first-time bankrupt) and for 6 years after you receive your discharge from bankruptcy. Therefore, a first-time bankrupt’s credit score will be at an R9 for 6 years and 9 months after he/she files for bankruptcy. After that time, the R9 is deleted from the credit file.
Your spouse will not be directly affected by your bankruptcy or proposal.
We generally recommend that both spouses come to see us to explore their options in solving financial difficulties.
In the case of credit counselling and informal arrangements in dealing with your debt, the information you provide to us remains confidential and will only be disclosed to others with your permission.
In the case of any formal proceedings such as a Proposal or an Assignment in Bankruptcy, the Office of the Superintendent of Bankruptcy will maintain a record of your filing. In a bankruptcy, a trustee is required to file your income tax return for the year in which you filed for bankruptcy. Therefore, Canada Revenue Agency will also have a record of your filing.
Finally, your creditors will receive a notice of your bankruptcy/ proposal after it has been filed with the Office of the Superintendent of Bankruptcy.
In the case of a proposal, the trustee’s fees are paid out of the proposal funds you contribute in financing your proposal. Therefore, there is no additional payment to the trustee other than the payments you are making to fund your proposal. The trustee’s fees and disbursements are restricted by a tariff as outlined in the Bankruptcy and Insolvency Act.
In the case of a bankruptcy, the trustee’s fees and disbursements are paid out of the assets that are liquidated. If you do not have any assets, then flexible payment arrangements can be made with the trustee to pay for his/her professional time and expenses.
It should be noted that fees are subject to court approval (i.e., can be ordered lower, not higher).