consumer proposal,  personal bankruptcy,  personal finance

Here are your options to deal with debt

  Debt Management Plan (DMP) Consumer Proposal Bankruptcy
What’s the difference? A DMP is a voluntary agreement with some or all of your creditors that often includes interest relief and the payment of your debts over time. A consumer proposal is a legal process designed to relieve honest but unfortunate debtors of their debts. A proposal is an offer to your creditors to pay all or some of what you owe them over a specific period of time. If the proposal is accepted, and once all the terms of the proposal are met, you are legally released from the debts included in the proposal. Bankruptcy is a legal process designed to relieve honest but unfortunate debtors of their debts. Your assets (with some exceptions) will be used to pay off your outstanding debts.
At the end of the process, once all your duties have been fulfilled, you are legally released from the debts you had when the bankruptcy was filed (with some exceptions).
How do I access this option? You should consult a reputable, provincially regulated credit counselling agency or credit counsellor to access DMP services. A Licenced Insolvency Trustee (LIT) has an obligation to review all your options with you and can refer you to a reputable credit counsellor.
Getting help from a credit counsellor
Licenced Insolvency Trustees (LIT) are the only professionals able to offer this service. An LIT has an obligation to review all your options with you. Licenced Insolvency Trustees (LIT) are the only professionals able to offer this service. An LIT has an obligation to review all your options with you.
What do I have to give up? If some or all of your creditors accept the payment terms of your DMP, you’ll make regular payments to the credit counselling agency or counsellor and they will use your payments to pay off those creditors according to the DMP. You have to make periodic or lump sum payments to the LIT and follow any other conditions in the proposal. You must attend two financial counselling sessions to help improve your financial health. The BIA provides that some assets are exempt and can be kept even if you become bankrupt. This would include, for example, certain RRSPs, RRIFs, pension plans, disability savings plans, insurance contracts, and personal assets such as reasonable house furnishings, clothes, etc. 
To the extent that some of the assets are not exempt, those assets, if any, will need to be turned over to a Licensed Insolvency Trustee (LIT), who then realizes on those  assets to satisfy your outstanding debts. The LIT also assesses whether you have to make payments based on your income. You must attend two financial counselling sessions to help improve your financial health.
The assets that may or may not be exempt from the process vary from province to province. An LIT can explain which assets you will be able to retain through this process. 
How much of my debt do I have to pay back? You are obligated to pay back the entire debt, but sometimes without interest. You will typically be required to pay back a percentage of your debt. An LIT will assess your financial and personal situation, and will develop a proposal to your creditors based on your situation and the causes of your financial difficulties. The payment amount will also depend on what your creditors are willing to accept. What you pay is based on the value of your assets and your ability to make surplus income payments. This is why the amount varies for each person. When the process is over, you will be released from your debts, except for specific debts as provided by the law. An LIT can explain which debts are or are not released through this process.
What will it cost me? Fees for this service are not regulated and can vary depending on the financial professional offering the service. Ask for clear information up front on fees and services. Fees to submit a consumer proposal are regulated by the Bankruptcy and Insolvency Act. Money from the periodic or lump sum payments you make to the LIT will be used to pay fees related to your consumer proposal and your creditors. LITs may provide  a free, initial consultation. Ask for clear information up front on fees and services.  Fees to file for bankruptcy are regulated by the Bankruptcy and Insolvency Act. Money collected from the realization of your assets and from any additional payments you make will be used to pay fees related to your bankruptcy and your creditors. LITs may provide a free, initial consultation. Ask for clear information up front on fees and services. If you can’t find an LIT to help you at a rate you can afford, please contact the OSB for assistance.
How does it help me? A DMP agreement may include some interest relief and provide for the payment of your debts over time, via your credit counsellor, making the amount more manageable.
Creditors who have agreed to the DMP will stop collection action including lawsuits or garnishment actions to take your salary or wages.
Once all the terms of the DMP are satisfied, you are contractually released from those debts.
A proposal may allow you to pay a percentage of your total debts over time, via your LIT , making the amount more manageable.
Creditors are legally required to stop collection action including lawsuits or garnishment actions to take your salary or wages.
Once all the terms of the proposal are satisfied, you are legally released from the debts included in the proposal.
A bankruptcy allows to satisfy your debts based on your assets and income. You may be required to make monthly payments to your LIT who will guide you through the process. 
Creditors are legally required to stop collection action including lawsuits or garnishment actions to take your salary or wages.
Once you have satisfied all the requirements for your bankruptcy process, you are legally released from the debts you had when the bankruptcy was filed (with certain exceptions).
Will my credit score be impacted? For 2 years after you complete your DMP, your credit report will indicate that you have made payment arrangements with a credit counselor.
Your credit score can be rebuilt by making payments to your creditors on time, using less than 30% of your available credit and maintaining good habits over a period of time.
The Office of the Superintendent of Bankruptcy reports all consumer proposal filings to Canada’s credit reporting agencies (Equifax, TransUnion) and reports when your obligations have been fully performed.
Equifax removes a consumer proposal from your credit report 3 years after you complete the proposal.
TransUnion removes a consumer proposal from your credit report either:
3 years after you complete the proposal, or
6 years after you sign the proposal (whichever is sooner).
Your credit score can be rebuilt by making payments to your creditors on time, using less than 30% of your available credit and maintaining good habits over a period of time.
The Office of the Superintendent of Bankruptcy reports all bankruptcy filings to Canada’s credit reporting agencies (Equifax, TransUnion) and reports when you have been discharged.
For 6 or 7 years after you are discharged as a first time bankrupt, depending on your province, your credit report will indicate that you filed for bankruptcy.
For 14 years after you are discharged, for second or subsequent bankruptcies, your credit report will indicate that you filed for bankruptcy.
Your credit score can be rebuilt by making payments to your creditors on time, using less than 30% of your available credit and maintaining good habits over a period of time.
If you are not discharged from your bankruptcy, you have the obligation to disclose your undischarged status to potential lenders.
Can I keep my credit cards? You can only keep credit cards that are not included in your DMP. Any credit card included in the DMP must be closed and cancelled. Often, you are able to use credit during a DMP. However, credit counsellors will usually recommend that you don’t take on any new debt. The counsellor may ask you to sign a statement that you will not get or use credit. During your consumer proposal, your credit cards with a balance will be cancelled by the financial institution. You may keep credit cards that have no balance owing at the time of filing. It may be possible to obtain secured credit cards and/or credit cards with a small limit during your consumer proposal. In a bankruptcy, you are required to give to your LIT , for cancellation, all credit cards that have been issued to you or are in your possession or control. It may be possible to obtain secured credit cards and/or credit cards with a small limit during your bankruptcy.
What happens to my income? You will be responsible for managing your income and for paying the agreed upon amounts to the credit counsellor. You will be responsible for managing your income and for paying either the agreed upon lump sum or periodic payments to the LIT . Depending on your income and the number of people in your household, you may have the obligation to make monthly payments to your LIT as Surplus Income payments. Surplus Income is calculated based on an OSB Directive which sets a contribution based on a specific formula that takes into consideration income and expenses. The contribution is to be paid toward your debts.
What happens if I don’t make my payments or don’t otherwise fulfill my obligations? If you don’t make payments on time, your DMP may be cancelled. Your consumer proposal will be deemed annulled if:

>You are making monthly payments and miss three payments;

>Your payment schedule is less frequent and your last payment is more than three months past due;

>Your consumer proposal can also be annulled by the court if you are in default of any other obligation under your consumer proposal, which means that it could be annulled even if you only miss one payment.

If your consumer proposal is annulled it means your creditors will be able to take action to collect any outstanding money you owe them, unless a court orders the revival of the consumer proposal or authorizes the filing of another consumer proposal. A consumer proposal that has been deemed annulled may also be automatically revived under certain conditions.
If you don’t fulfil your duties, you may face consequences from the court including a delayed or denied discharge or a requirement to make additional payments to creditors.
How long will it take? 1 to 5 years. Up to a maximum of 5 years. 9 months for a first bankruptcy with no surplus income payment obligations (unless someone opposes your discharge).
21 months for a first bankruptcy with surplus income payment obligations (unless someone opposes your discharge).
24 months for a second bankruptcy with no surplus income payment obligations (unless someone opposes your discharge).
36 months for a second bankruptcy with surplus income payment obligations (unless someone opposes your discharge).
For third or more bankruptcies, there is no automatic discharge and terms will be determined by the court.
Source: Office of the Superintendent of Bankruptcy – Compare debt solutions

Victor is the President of Fong and Partners Inc. He is a Licensed Insolvency Trustee and Chartered Professional Accountant. With many years of experience in the insolvency field, Victor has been involved in both corporate and consumer insolvency engagements. Previously with a large national firm, Victor founded Fong and Partners Inc. so that he could dedicate his professional life to help people from all walks of life to deal with their debt.