Too much debt: consumer proposal or bankruptcy
When debts exceed the ability to pay, the Bankruptcy and Insolvency Act provides two main solutions: the consumer proposal and bankruptcy. This guide presents these rules in general terms.
In short
Consumer proposals and bankruptcies are administered by a Licensed Insolvency Trustee.
A consumer proposal generally allows you to keep your assets.
Some debts are not erased by bankruptcy.
What is a consumer proposal?
It is an offer made to creditors to settle debts, administered by a Licensed Insolvency Trustee.
It is available when total debts do not exceed $250,000, not including, among other things, a mortgage on the principal residence.
Its term cannot exceed 5 years.
It is accepted when creditors representing more than half of the dollar value of the claims vote in favour. It is also deemed accepted if no meeting of creditors is requested within 45 days.
The person generally keeps their assets, provided they keep paying their secured creditors, such as the mortgage lender.
What happens to ongoing collection?
Once a consumer proposal is filed, the person stops paying their unsecured creditors directly. Wage garnishments and lawsuits by these creditors are stopped.
What is bankruptcy?
Bankruptcy is also administered by a Licensed Insolvency Trustee. For a first bankruptcy, when the other conditions are met, the discharge is automatic:
after 9 months, when the person has no surplus income to pay;
after 21 months of payments, when the person must pay surplus income.
Which debts are not erased by bankruptcy?
Some debts remain owing after discharge, including:
support payments to a former spouse or to children;
fines and monetary penalties imposed by a court;
debts arising from fraud;
student loans, when fewer than 7 years have passed since the person stopped being a full-time or part-time student.
What documents should you bring to a consultation?
A list of debts, with the latest statements
Collection letters, formal notices, lawsuits or garnishment notices
Proof of income and a monthly budget
Property titles and mortgage statements
Consulting a lawyer
This guide presents general rules. Every situation is different and must be assessed on its own facts. To learn more about our practice, see the Bankruptcy and Insolvency Law page or request a consultation.
This guide contains general legal information. It is not legal advice and does not create a lawyer-client relationship.
