A consumer proposal is binding on 100% creditors when it is approved by the majority of creditors where every dollar outstanding is a vote. The creditors with more owed to them have more of a say in the proposal.

Once you successfully complete your proposal, you are legally released from paying your dischargeable debts. There are several other advantages to consumer proposals. See this page for more information regarding consumer proposals.

There are, however, limitations to a stay of proceedings: it does not stop orders associated with ongoing debts such as your ongoing utility bills, rent, child support or spousal support obligations.

A secured creditor is someone who is owed money but they have an asset as collateral such as mortgage (where the house is collateral) or a car loan (where the car is collateral). If the secured creditor does not receive their payment, they have the option of seizing the collateral and using that to pay down the loan.

Sometimes, the secured creditor can be owed much more than what the collateral is worth. This means that the secured creditor will be owed money even after the car or the house is sold and its proceeds are applied against the loan, which will become an unsecured debt. In these situations, some people decide to include these secured creditors in their consumer proposal – if they stop making payments to the secured creditor, then this debt will be included in the consumer proposal or bankruptcy and the secured creditor cannot collect the shortfall.

Generally, unsecured creditors are paid a dividend in the proposal and anything that they do not receive is written off when the consumer proposal has been completed. However, there are some debts that are not stayed by the consumer proposal:

Ongoing debts: Ongoing debts are not stayed. Good examples of this would be your rent, utilities, child support, taxes for the time period after the proposal, etc. Also, any secured debts that you wish to keep, and you make a payment on after the date of the proposal, would continue to be your responsibility after the proposal.

Undischargeable debts: There are some debts that do not get discharged after a consumer proposal or bankruptcy. These debts are listed under section 178 of the Bankruptcy and Insolvency Act. These debts include but are not limited to child support, spousal support, fraud, a judgment arising from intentional bodily harm, and student loans that are younger than 7 years old. These kinds of debts should be discussed as part of your consultation – if any of these apply to you – so you are aware they will not be written off at the end of the process. They will be stayed during the process and will receive dividends throughout the process which will reduce the amount owing after the proposal is complete.

For the rare meetings where creditors have chosen to attend it provides the creditor a chance to ask questions if there are additional details that would help them decide their vote, discuss the proposal, request amendments to the proposal, request an adjournment to postpone the meeting, or appoint inspectors to the estate who will work with the Trustee on the estate administration. While this can sound very scary to someone filing a proposal it is not intended to be an opportunity to shame or bully you. A consumer proposal is an open and honest process and this meeting facilitates these kinds of discussions to help creditors get informed and vote accordingly.

Even while you are in the middle of your proposal, you can get credit again and start the credit rebuilding process. Most creditors do not report to the credit bureau, however there are a few creditors that continue to report during the consumer proposal, which can impact the speed at which your credit rating improves.

We recommend that you take an active part in rebuilding your credit. You could leave your credit rebuilding to chance, however, that is risky. We recommend you strategically take steps to continue to rebuild your credit during and after the proposal process - these rebuilding strategies will be discussed in the counselling sessions provided as part of the proposal process. Frederick and Company Ltd. also offers a complimentary third counselling session Focus strictly on rebuilding your credit that you can access at any point during the proposal process.

The sooner you are able to pay off the proposal, the sooner you can improve your credit rating. Click here for more information about Canada credit scores/ratings.

Having said that though, each lender has their own policies and guidelines they follow at renewal time, and these are updated from time to time. Additionally, there are frequently new rules in the mortgage world – stress tests etc. - that may or may not impact your mortgage in the future. Most importantly, though, is your payment history – the timing of your payments on your mortgage will have a strong impact on the degree in which they review your mortgage file prior to offering you a renewal.

As a result, this question is quite impossible to answer with certainty without knowing those future events and factors that could come in to play. It is always a good idea to talk to your mortgage broker to strategize about making sure you are eligible for renewal when the time comes.

Once you decide that you are keeping the secured asset – and make a payment on the loan after the proposal starts - it will be your responsibility to continue those payments. If you can no longer make payments on your secured loan, then your secured creditor has the right to seize the secured asset.

Unfortunately you cannot decide at a later date to include these debts in the current consumer proposal so it is very important to be realistic about your ability to pay for these debts moving forward.

If you get stuck in this position you still have some options available to you including bankruptcy or the filing of a subsequent proposal which would include the shortfall on the secured debts. However, this is not ideal as you would have to start back at the beginning of this process.

You also have the option of selling assets to offer your creditors a lump sum proposal. This option can be nice because you will be in and out of the process within 60 to 90 days usually. This allows you to complete the consumer proposal process and rebuild your credit very quickly.

If you miss a payment, it is important to reach out and work with us to get caught up. If you can pay extra – even an extra $25 a month - it will help you to pay off your proposal early or help you through these tough times when making your payment is difficult.

If you are struggling with your proposal payment, make sure to reach out to us so that we can help you come up with a strategy that will help keep your proposal viable.

It’s not uncommon that when you are behind in payments and your bill has been turned over to a collection agency you will be offered a settlement amount. First it is important to understand the terms of the settlement - it is typical that settlements require a lump sum payment immediately. If you are having trouble making payments, then the lump sum amount may be difficult to manage as well. It is important to get the settlement in writing because you could be asked to pay the balance of the amount owing after paying the settlement amount if you do not have a written agreement stating it was a settlement.

All of this aside I think the most important thing to consider when you are contemplating a settlement by a creditor is to look at the full picture of your financial affairs. Is this settlement going to make your debt manageable? For clarity, manageable means that you will be able to afford the monthly payments needed to pay off your debt. Sometimes, it can be overwhelming to look at the full picture, but it is important to determine if settlement will resolve your debt issues with all your creditors, not just one creditor. It is also important to do the math to make sure this is the case or come and see a Licensed Insolvency Trustee to ensure that making a settlement will resolve your financial difficulties and not delay them.

When you are not in a bankruptcy you have the right to deal with your property. However, your creditors also have rights, and if a property has been transferred, there are numerous legislative avenues a creditor could take to challenge this transaction. It is important to talk to a lawyer about whether transferring your assets could be challenged by your creditors and whether it is a prudent step to take, especially if you are unable to pay your debts at the time of the transfer.

• It will be more difficult for you to get approved for a mortgage
• You will be less eligible for credit cards and lines of credit
• It will be more difficult for you to get decent interest rates for loans
• It isn’t uncommon for landlords to check your credit score to ensure that their potential tenants will be able to make their payments
• Employers will sometimes do credit checks on potential employees

Some assets are fully exempt and the any equity in those assets are protected from creditors Some examples are RRSPs, RESPs, and LIRAs.

Some assets are partially exempt. A portion of the equity in those assets are protected from creditors while the remaining equity in those assets would be considered non-exempt. For example, one car in Alberta has a $5,000 exemption. If the car is worth $22,000 and has a security registered against it in the amount of $10,000 then there would be $12,000 in equity. The first $5,000 of the equity is exempt – protected from creditors – while the remaining value of the non-exempt equity totalling $7,000 would be used in the calculation for determining the cost of a bankruptcy.

Click here for information about exempt and non-exempt assets.

In reality, some assets are exempt – protected from creditors – while other assets are non-exempt, which means the value of that asset must be paid into the bankruptcy. This doesn’t mean that you would have to surrender all your non-exempt assets, but rather the value of those assets would have to be paid into the bankrupt estate. This provides the bankrupt with the flexibility to decide if they would prefer to give up the asset or contribute the value of the asset into the bankrupt estate through monthly payments and thereby retain the asset.

Prior year income tax refunds as well as any income tax refunds for the year of the bankruptcy would also be payable into the bankrupt estate in most cases.

In Alberta it is the Civil Enforcement Act of Alberta - and certain sections of the Bankruptcy and Insolvency Act - that dictates which assets are exempt from seizure and thus protected from creditors. These exemptions will differ depending on your province so make sure to investigate your provincial legislation. In Alberta, the following assets are exempt from seizure:

• $5000 equity in a vehicle
• $4000 equity in household furnishings and appliances
• $10,000 equity in tools of trade required to make a living
• Your share of $40,000 equity in your principal residence
• Food required by you and your dependents for the next 12 months
• Clothing required by you and your dependents up to $4,000
• Medical and dental aids
• If your occupation is farming, up to 160 acres of land if it is located on your principal residence
• If your occupation is farming, the personal property necessary for you to continue farming for the next 12 months

Any assets not included on the above list of exempt assets are by default non-exempt assets and thus vulnerable to creditor collection outside of bankruptcy or in a bankruptcy the value of these assets are payable into the bankrupt estate. Examples include:

• Shares
• Equity beyond the exempt amounts as listed above
• Vacation property
• Boats
• Campers/motorhomes
• Mineral rights
• Art collections etc.

If you were unable to complete the required tasks or make the required payments, the Trustee will be obligated to oppose your discharge and your bankruptcy will be extended. Your bankruptcy payments can be extended through a mediation process; however, if anything else remains outstanding in addition to monthly payment then an application to court will be required. The court will grant a Conditional Order of Discharge if there are only a few items outstanding or the court can grant and Order Adjourning Discharge Indefinitely if there is a significant list of outstanding items. You will remain a bankrupt until you complete all items as required by your trusty. Once all the outstanding items have been completed and the trustee will apply to court for an Absolute Order of Discharge.

A Certificate of Discharge and an Absolute Order of Discharge both function to discharge the debts outstanding – the remaining balance owing on dischargeable debt will be written off by the creditor.

Yes, if they have reason to do so. The courts can set the terms of your discharge, suspend your discharge, or refuse your discharge. If the Court feels that you have not been rehabilitated and have seriously abused the integrity of the bankruptcy process, they may consider refusing your discharge or suspending your discharge for a period of time.

A Conditional Order for Discharge requires the bankrupt to do something before they are discharged. Often, the bankrupt is required to pay more money into the estate, file outstanding returns or provide certain information.

An Order Adjourning Discharge Indefinitely is granted in situations where too much information is missing and the court is unable to determine the proper course of action. In these cases, you remain on discharged until you have returned to the trustee, completed the outstanding duties, and a further application to court is made. In these cases, you remain on discharged until you have returned to the trustee completed the outstanding duties and a further application to court is made for an Absolute Order of Discharge.

An Order Suspending the Discharge means the details of the estate dictated that your discharge should be delayed. This would mean that while your file has gone to court the discharge has been dated sometime in the future. The date has passed then this order acts the same as an Absolute Order of Discharge.

If you do not wish to continue with the trustee that administered your bankruptcy or significant time is passed, making it very difficult to complete the tasks assigned to you, you have the option of filing a proposal out of bankruptcy which will resolve your old bankruptcy by replacing it with a proposal.

Creditors can also object to your discharge, which stops the automatic discharge process. The objection is filed with the court and a date is set where the creditor, the trustee, and you (it is not required, but it is advisable for you to participate) go to court where the Registrar will listen to all parties and then determine what additional terms you must complete to receive a discharge or what additional information must be provided to the court. The duties required can be above and beyond the initial duties as listed above.

If you owe more than $200,000 of personal taxes and this forms a significant portion of your total debt, then you be in a situation where you are considered a “high income tax debtor.” High income tax debtors must go to court for their discharge and their discharge will be opposed by the Canada Revenue Agency. A lawyer from the Department of Justice will appear at your discharge hearing and it is likely additional terms and provisions will be required prior to you being eligible for a discharge. If you are considered a high-income tax debtor, there are no additional provisions or terms required if you were to file a proposal instead of a bankruptcy.

At the outset of the bankruptcy your surplus income payment will be calculated. It is important to note this will be an estimate of the amount you have to pay and it will not be the final number. Your final payment could increase or decrease depending on changes in the number of people in your household, or income fluctuations. It will be important to continue to review this calculation with your trustee to ensure you are on track to be discharged on time. If your income changes, the number of months you are required to be in bankruptcy can change as well. Your bankruptcy could fluctuate from nine months to 21 months or from 21 months to nine months depending on increases or decreases in the surplus income payment.

A consumer proposal is based on your ability to pay as determined by the bankruptcy - the amount payable into the consumer proposal will vary significantly from person to person based on their individual information. There is no interest charged on a consumer proposal.

A consumer proposal is the only process – besides bankruptcy – where you can settle Canada Revenue Agency debt such as GST and income tax.

Debt consolidation does not settle your debts for less than you owe – you would be paying all of your debts off with the consolidation loan and then maintaining a consolidation loan moving forward. The interest charged on a debt consolidation loan will vary from person to person. It is important to review the terms of the agreement as it will impact the total amount payable.

There would be no negative impact to your credit rating because you have paid off your debts and replaced them with the consolidation loan. Provided your ongoing payments for the consolidation loan are made on a timely basis you can maintain a good credit rating moving forward.

As a general rule, banks do not consolidate debt outstanding to Canada Revenue Agency.

When considering an informal settlement, one of the major factors you should consider is the number of creditors that you have. The fewer creditors you have, the more feasible an informal settlement will be. There are other challenges to informal settlements:

• You will need to negotiate with each creditor with regards to interest rates, payment amounts, and repayment schedules
• Agreements made under informal settlements are not legally binding. This means creditors have no legal obligation to the agreement and can modify and terminate it if the agreement is not recorded on a legally binding document.

With this in mind, the most important thing to consider when you’re contemplating a settlement is to look at the full picture of your financial affairs. Will this one settlement make your debt manageable? For clarity, manageable means that you’ll be able to afford the monthly payments needed to pay off your debt. Sometimes, it can be overwhelming to look at the full picture but it’s important to determine whether the settlement will resolve your debt issues not with just one creditor, but all of your creditors. It’s also important to do the necessary budgeting to make sure a settlement will make your debt manageable. During your consultation with us, we will ensure that making a settlement will resolve your financial difficulties, not just delay them.