If you haven’t gathered enough information in our FAQs below, we encourage you to reach out to us for an initial chat about your situation.

Consumer Proposals FAQs

What is a consumer proposal?
Basically, a consumer proposal is an offer to your creditors (the parties to which you owe money) to settle your debts by paying off a portion of your total debt over a period of time. If accepted by your creditors, a consumer proposal allows you to have predictable and affordable monthly payments based on your ability to pay. A consumer proposal also protects you from your creditors so they cannot collect from you while you are up to date with your proposal obligations.
Why would I file a consumer proposal?
Consumer proposal are flexible so we can arrange a plan around you and your unique circumstances. Do you have a seasonal job where you are paid more in the summer? No problem, we can arrangement monthly payments that increase in the summer and decrease in the winter. Do you have an employer who is willing to pay a lump sum to get your proposal completed quickly? No problem, a lump sum proposal can be made as well.

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.

Will a consumer proposal stop collection calls and wage garnishment?
The stress of having owing debt can be overwhelming. Compounding this stress are the demand letters, wage garnishment, collection agency calls would be traumatic to anyone. In a consumer proposal, a “stay of proceedings” is initiated as soon as you file your proposal – this legally prohibits your creditors from contacting you to collect their debts, interest from accruing from the date of filing, or issuing writs which allows your creditors to collect debts by registering an interest against your property or garnisheeing your bank accounts or wages.

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.

What’s the difference between a consumer proposal and a bankruptcy?
Both options require you to make monthly payments. The main difference being that -- in a bankruptcy – in addition to making installment payments, your assets will vest your Trustee. In a consumer proposal, you’ll be able to keep your assets.

Consumer Proposal Bankruptcy
Assets You have control of your assets after the consumer proposal is filed Your assets vest with the Trustee. Exempt assets (see HERE for more details) are protected from your creditors and the value of the non-exempt asset must be paid into the bankrupt estate.
After-acquired assets can also come into the estate if they are acquired before you get a discharge from bankruptcy. 
Length Up to 5 years, but it can be paid off earlier if you have the means to do so, without penalty 9 - 21 months for first-time bankruptcy and 24 – 36 months if you have been bankrupt before
Cost The cost is based on the amount that would be payable to creditors in a bankruptcy – a consumer proposal must offer a better advantage to creditors over that provided for by a bankruptcy. Based on your ability to pay including your income and any non-exempt assets
Credit rating R7 remaining for 3 three years after you complete proposal (click here for more information about credit in Canada) R9 remaining for 6 years from the date you are discharged from bankruptcy (click here for more information about credit in Canada)

 

Should I file a bankruptcy or consumer proposal?
Though both of these debt-relief options are legal processes that eliminate debt and provide protection from your creditors, there are many factors to consider in this decision, including where you are living, are the debts enforceable or statute barred, control of your assets, are any of your debts joint with someone who isn’t filing, how will the lack of credit impact your ability to manage your finances, the impact of keeping secured assets that you owe more than they are worth, will there be an impact on your ability to earn an income, how will this impact your ability to sponsor family members to come to Canada, etc. As a firm headed by a Licensed Insolvency Trustee, Frederick and Company Ltd. is well-equipped to evaluate your situation and educate you on your options. Our goal is to empower you to make an informed decision to deal with your debt.
How do I file a proposal?
Before you decide to file a consumer proposal, it’s important that you explore and consider every option available to you. Frederick and Company Ltd. offers free consultations to help educate you on your available debt relief options. If you find that a consumer proposal best fits your circumstances, we’ll meet with you and gather information with the goal of determining an equitable and affordable proposal payment. Once we have all the necessary information, we will create the legal documentation that is needed to initiate the process. You will be provided this documentation in advance you so can read through it and make sure you understand everything. Then we will meet up (virtually during the COVID-19 pandemic) and get the documentation signed. Once we file the documentation with the Government of Canada, we will get a Certificate of Appointment which officially creates the stay of proceedings that protects you from your creditors. Your job is to take it easy and start making payments and we will notify as the creditor negotiations progress and meditate the matter between you and your creditors and work to find a win-win solution that helps you find a sustainable and viable solution for your debt and help your creditor get more than they would get in a bankruptcy.
Which creditors are included in a consumer proposal?
Your unsecured creditors will be stayed (prevented from collecting). Unsecured creditors are creditors like credit cards, lines of credit, personal tax debt that do not have an asset as collateral.

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.

Are there debts that are not included in a consumer proposal?

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.

Who gets to vote on my proposal?
Your unsecured creditors will vote to accept or reject your proposal. If the proposal is accepted by the majority of voting the creditors (each dollar owed to a creditor is a vote), the proposal becomes legally binding on all of the creditors, even those that voted against it. If a creditor of abstains from the vote they are still bound by the proposal if it is accepted by the majority of voting creditors. It is a rare case where a creditor will vote against a proposal and not be interested in a counteroffer – most creditors voting against a proposal are looking to negotiate on the terms of the proposal prior to accepting an amended proposal. If 25% of voting creditors vote against the proposal, we are required to call a meeting of creditors – this gives us extra time to continue negotiating with creditors to continue to work towards a win-win solution. You are required to attend the meeting; however, it is a rare to have creditors attend the meeting as they are typically requesting a meeting to continue our negotiations.

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.

If the proposal is accepted, what do I have to do?
Once a proposal is accepted, you’ll be required to make the agreed upon payments, attend two counselling sessions, and perform any additional duties that you agreed to in your proposal.
Will my proposal payments change based on how much I earn?
An advantage of a proposal over bankruptcy is that the amount you agreed to pay in the proposal is not subject to a change. In other words, if you agreed to pay $300/month for 5 years, and you get a substantial raise at work or receive an inheritance from a family member, your proposal payments will stay the same. You could at that time increase your payments or pay off the consumer proposal - without penalty – which would reduce the duration of the proposal and allow you to complete it sooner.
What if I can pay off my proposal early?
Awesome! Your proposal only stipulates the minimum payments you must make. If you can afford to pay a lump sum or increase the amount of your monthly payments, you’ll be able to finish your proposal sooner.
What happens to my credit rating during and after a consumer proposal?
The proposal will be reported on your credit bureau as an R7 for 3 years after the date you complete your proposal. During your proposal, however, the consumer proposal may appear on your credit bureau as an R9.

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.

Will a consumer proposal affect my ability to get a mortgage?
Rebuilding your credit is key to getting new credit in the future. Once you have rebuilt your credit, qualifying for a mortgage can be in your sights once again. You must rebuild your credit history with two revolving pieces of credit - a credit card or line of credit - for two years if you want to be successful in obtaining a mortgage in the future. Be careful, though, one missed payment will undermine your efforts to rebuild your credit to the degree necessary to obtain a mortgage after bankruptcy or a proposal.
Will a consumer proposal affect my ability to renew my mortgage?
Our experience is that most people that make their mortgage payments on time do not have an issue renewing their mortgage during a consumer proposal.

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.

Will a consumer proposal impact my ability to buy a new house (get a new mortgage)?
It will be very difficult to obtain a new mortgage during a consumer proposal. It is important advise your Trustee about any future plans to sell your house or purchase a new house prior to filing a consumer proposal so those plans can be discussed and taken into consideration.
Can my car or house be seized in a consumer proposal?
You need to decide in advance of the consumer proposal if you are going to be keeping your secured assets such as your car or house. It is important to take into consideration the monthly cost of these assets, your ability to continue paying them after the proposal has been initiated, the difference between the value of the loan and the value of the asset and whether there is a shortfall (you owe more than the asset is worth).

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.

If I can keep my assets in a proposal, why are you asking about them?
There is a lot of misinformation out there about bankruptcy which creates fear about losing everything. It is understandable that people who are filing for bankruptcy and consumer proposals to be worried about their assets being taken away from them. When a Trustee administers a consumer proposal, they must compare it to a bankruptcy to provide creditors with a comparison so creditors can see the benefits and consumer proposal will provide that are above and beyond the estimated dividends available in a bankruptcy. As a result, some of the questions we ask (e.g., information about your assets) will allow us to determine what a bankruptcy would look like.
Should I sell my assets to fund a consumer proposal?
This is entirely up to you. We will be reviewing your budget as part of our review – we review your budget to make sure your consumer proposal payment manageable month in and month out. As such there should be no need for you to sell your assets unless you wish to pay off your proposal early or if you no longer require the asset.

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.

What happens when I finish my consumer proposal?
Upon the completion of a consumer proposal, you are issued a Certificate of Full Performance, a document that acts as a legal release from the dischargeable debts under the consumer proposal.
What if I miss a payment in a proposal?
We will set up an automatic payment system to withdraw funds from your bank account to avoid having you come in each month with a payment or waiting for a cheque to cash – but it is important that you ensure that there is enough money in your account to cover the payment.

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.

What happens when my consumer proposal is annulled?
You can miss two consumer proposal payments; however, once you have missed three payments your proposal will be deemed annulled – this means that the stay a proceedings which protected you from your creditors is lifted, and your creditors can pursue you for a collection again. This is why it is very important to be realistic about the expenses in your budget, to continue to review your expenses and set a budget. We can help you review your budget in your counselling session. Prior to the filing of the consumer proposal, we will review your expenses to make sure that they are reasonable and realistic as well.
What are my options when a consumer proposal is annulled?
When your proposal is an annulled, we can review your situation and look at the option of reviving your proposal which would allow you to continue with your proposal if your creditors did not object to the revival. This would restart the proposal and allow you to continue the payments as agreed.
What if I lose my job and can no longer make payments?
When it becomes difficult to make it the proposal payment, sometimes, we find that this is when people can stop reaching out, stop asking for support, and stop communicating with us. But it is very important to keep in touch so that we can help you through these tough times and look for solutions that can help you get back on track. Just because you are in a proposal does not mean life is not going to happen – it will happen, and we will be there to help you if you’re struggling with your payments. If you are unable to continue making payments due to a change of your circumstances, call Frederick and Company Ltd. right away and we will guide you through your options.
What is covered during counselling sessions?
If you enter into a consumer proposal, you are required to attend two counselling sessions. These sessions are intended to educate and empower you to build healthy financial habits. The topics covered in these sessions include money management, spending habits, warning signs of financial difficulty, and obtaining/using credit. At Frederick and Company Ltd., these sessions are one-on-one with our certified counsellors, so the conversation will be focused specifically on you and the questions you would like answered.
Should I take a settlement offer offered by my creditor?

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.

Can I transfer my property before filing for a proposal?

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.

Credit

What is the difference between a credit score and credit rating?

In casual conversation, these two terms can be used interchangeably. Technically, however, there is a difference. Your credit score is a number that ranges from 300 to 900. A higher rating tells your lenders that you are a more reliable person to lend money because you have a history of paying your debts back on time each month. Factors that affect your credit rating are your payment history, outstanding debt, length of your credit history, and applications for new credit. The factors that influence your credit score can be broken down as such:

Overall Credit Score
Your overall credit score will be the combined impact of all these different factors. Here are some examples of scores based on performance:

300-574 – new to credit, damaged credit, repeated late payments or missed payments, sent to collections or bankruptcy.

575-649 – inconsistent credit history, missed bill payments, default on loan. 650-719 – responsible with credit, bill & loan payments paid on time.

720-779 – responsible with credit, bill & loan payments paid on time, length of good credit.

780-900 – consistently responsible when it comes to managing credit. You can obtain a free credit report from credit karma. https://www.creditkarma.ca

A credit rating, however, applies to each account that is on your credit report. Canadian credit bureaus, such as Equifax and TransUnion, will give a rating on each of your accounts with a letter and a number:

I = “Installments” – your loan is being repaid in installments over a period of time.
O = “Open” – you’ve opened a new credit, e.g., a line of credit.
R = “Revolving” – you have opened up an account that lets you repeatedly borrow money and pay it off in fixed periods, e.g., credit cards

The number for your credit rating ranges from 1 to 9. A higher number indicates a worse credit rating.

1 indicates that you have made all your payments on time.
2, 3 indicates that you have made your payments on time, mostly.
4, 5, 6 indicates that you are more erratic with your repayment and that you are less reliable
7 indicates that you’ve entered into an agreement through a debt relief program such as a consumer proposal.
8 indicates you have had a repossessed asset
9 indicates that your account is in bankruptcy.

How does a low credit score or rating affect me?
  • 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
How do I improve my credit rating?
Your credit rating is based on your credit history, so it’s important that you use two pieces of revolving credit (e.g. a credit card or a line of credit) to build credit. Likewise, it’s important to ensure that your payments are made on time, every time. The more consistent your credit history is, the more trust your lenders will have in your ability and willingness to repay your creditors.

Secured Creditors

What is a security agreement?
A secured creditor is someone who you can enter into a security agreement with – they are owed money but they have an asset as collateral. The security agreement will dictate which asset specifically is secured to the loan such as a 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 options for realizing on the security – selling the asset list in the security agreement to apply to the outstanding loan - to pay down the loan.
What is negative equity or shortfall?
Negative equity is a euphemism for shortfall and they both mean the same thing: a shortfall is the amount owing after taking into consideration the asset that is secured to the loan which does not cover the full outstanding balance. For example, if you have a car loan to pay in the amount of $10,000 and the car is valued at $7,000. If the car was sold and the proceeds of $7,000 were paid towards the loan there would be a $3,000 shortfall.
Can a shortfall be included in a consumer proposal?
If you have a secured asset that you can no longer afford, you have the option to surrender the asset back to your lender. If there is shortfall in the sale of the asset, this shortfall can be included as an unsecured claim in your proposal provided no payments were made towards the secured debt after the date of the proposal. By making a payment after the date of the proposal you have – by the act of paying them – effectively reconfirmed your intention to the agreement. What that means is any shortfall owing will continue to be your responsibility and cannot be included in the proposal.
What is equity and why is it relevant in a bankruptcy or consumer proposal?
Equity is the value of an asset minus the amount of any loans registered against it.
For example, if you have a car that is worth $12,000 today and the loan balance is $8,000, you have $4,000 equity in that vehicle. Equity is the value of the vehicle that would be payable to you if the car was sold after the outstanding balance to the secured creditor. With each payment to the secured creditor, you are reducing the loan amount and increasing your equity amount by the amount that is applied to the principal balance.

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.

What if I have sold a vehicle with a loan against it?
The act of selling a vehicle that has security against it is called conversion and it is unlawful.. Conversion may be a reason why a creditor could vote against a proposal or object to a bankrupt’s discharge. If this has occurred, it is advisable to seek legal counsel.

Bankruptcy FAQs

What is bankruptcy?
A bankruptcy is a legal process that provides “an honest but unfortunate debtor a fresh start” according to the Bankruptcy and Insolvency Act. Bankruptcy is a process that available across Canada however there are legislative differences in each province so make sure to investigate the legislation that applies to your province. The answers below pertain specifically to Alberta legislation.

Bankruptcy is intended to balance the interest of the debtor and the interest of the creditor. If you are in a situation where you cannot pay everything, and it is unfair to pay nothing then bankruptcy can help to rebalance the debtor’s finances.

The cost of bankruptcy is determined primarily by one’s ability to pay – which is determined by your exempt assets and your income.

What happens with your assets when you file a bankruptcy?
When an individual goes into bankruptcy, their assets vest with the Trustee. This does not mean that the Trustee is going to come and sees all your assets – this is a misconception out there about bankruptcy that makes it scarier than it really is.

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.

What happens to new assets acquired during the bankruptcy?
Assets continue to best with the trustee until you receive a discharge from the bankruptcy. Any windfalls that come to you such as an inheritance, lawsuit, insurance payout, lottery winning could be payable into the bankrupt estate.

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.

What are “exempt assets” and what am I entitled to?

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
What is meant by “non-exempt assets”?

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.
What are my duties during a bankruptcy?
When you file for bankruptcy, you will then be termed a “bankrupt”. As a bankrupt, you’ll have various duties to complete during the course of a bankruptcy, filing monthly income and expense statements with your Trustee, providing your tax information with your Trustee, attending two counselling sessions, making monthly payments, attending a meeting of creditors (should one to held), and providing the Trustee with complete information regarding your assets, liabilities and income. Should you fail to complete your duties in a bankruptcy, your discharge could be delayed thereby increasing the term of the bankruptcy.
Can my creditors refuse my bankruptcy filing?
No, creditors do not get to vote in a bankruptcy proceeding – the decision to file the bankruptcy is up to you. Once you have consulted with a Trustee and made an informed decision to declare bankruptcy you will sign some documents which lay out your assets or liabilities along with an Assignment into Bankruptcy which causes your assets to vest with the Trustee.
Who can go bankrupt?
An insolvent person – someone who is unable to pay their debts - who owes at least $1,000 in debt is eligible to file an assignment into bankruptcy. Note that a person’s credit rating and ability to still make minimum payments on their debts does not have any bearing on their eligibility to file for bankruptcy.
What happens to my credit rating after bankruptcy?
Bankruptcy will drop your credit score to the lowest possible score and your credit rating will be notated as an R9. This note will be on your credit bureau for 6 years after you complete your bankruptcy if this was your first time filing for bankruptcy or 14 years after a second-time bankruptcy. Although you’ll have a bad credit rating after you get out of bankruptcy, you can rebuild your credit after initiating the bankruptcy - getting credit again is the key to repairing your credit.
How do I get a mortgage after bankruptcy?
You must rebuild your credit history with two revolving pieces of credit for two years if you want to be successful in obtaining a mortgage in the future. One missed payment will undermine your efforts to rebuild your credit to the degree necessary to obtain a mortgage after bankruptcy.
What is covered during counselling sessions?
If you enter into a bankruptcy, you are required to attend two counselling sessions. These sessions are intended to educate and empower you to build healthy financial habits. The topics covered in these sessions include money management, spending habits, warning signs of financial difficulty, and obtaining/using credit. At Frederick and Company Ltd., these sessions are one-on-one with our certified in-house counsellors so the conversation will be focused on you and the questions you’d like answered.
Can the Trustee object to the bankrupt’s discharge?
The Trustee can object to your automatic discharge. This will likely happen if you have not completed all the duties required or if you have committed an offense under the Bankruptcy and Insolvency Act. When the Trustee objects to a discharge, they can request the Court to issue a Conditional Order of Bankrupt’s Discharge or an Order Adjourning Discharge Indefinitely which require the bankrupt to perform the remainder of the initiate duties and/or to complete additional duties. After fulfilling the terms of the Order, the bankruptcy will be eligible to receive an Absolute Order of Discharge.
What happens when I finish my bankruptcy?
At this point, you’ll receive a discharge from bankruptcy, meaning that your bankruptcy has been completed. If you complete all your duties within the minimum term of the bankruptcy, you are eligible to receive an automatic discharge and a Certificate of Discharge will be issued to you. This means that you’ll no longer have to pay the outstanding debts included in the bankruptcy.

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.

Will I have to go to court if I file a bankruptcy?
It is strongly recommended that the bankrupt attend court if a creditor has opposed their discharge, if they are advised by their Trustee to attend which usually would occur in estates where they have been bankrupt twice previously or there are concerns in the file and the Trustee is likely to ask for additional terms.
Can the courts refuse my discharge?

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.

What happens if my bankruptcy discharge is refused?
The creditors’ rights are reinstated, and you will remain an undischarged bankrupt. At this point, you should consult your Trustee to determine the path for you to be discharged.
What happens if I don’t get discharged from bankruptcy?
If you do not receive a discharge from bankruptcy, then you will remain a bankrupt indefinitely. This is likely to impair your future financial progress and is therefore not recommended. The best course of action is to complete your bankruptcy in a timely fashion.

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.

What debts survive a bankruptcy?
There are some debts that do not get discharged after a 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 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.
How are creditors involved in bankruptcy?
While creditors usually take a passive role in the bankruptcy process, the Bankruptcy and Insolvency Act includes provisions that allow creditors to be a very active part of the process. Creditors can participate in the ongoing administration of the estate by attending meetings of creditors or being appointed as an inspector. As an inspector they oversee the administration of the estate which can include approving the sales process of the assets.

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.

What happens if I owe personal income taxes?
If you owe personal income taxes this that will be dischargeable upon your discharge from bankruptcy.

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.

How does bankruptcy impact my credit rating?
After receiving a Certificate of Discharge or Absolute Order of Discharge, the bankrupt can start rebuilding their credit rating. In Canada, two credit bureaus track credit ratings: Equifax and Trans Union. There will be a notation on the credit bureau record for 6 years after a discharge for a first-time bankrupt and 14 years for someone who has previously been bankrupt.
How long is does bankruptcy last?
The minimum term of a first-time bankrupt is 9 or 21 months depending on if you have surplus income. The minimum term of a second time bankrupt is 24 or 36 months depending on if you have surplus income.
What is surplus income and how does it affect a bankruptcy?
Your household income, how many people reside in your household, and whether you filed a bankruptcy before will all factor into your surplus income payment. This payment is intended to determine whether you can chip more money towards your creditors or whether you cannot chip in any extra towards it because you have no surplus income. This calculation is intended to fairly balance your needs with your ability to pay your creditors. Canada is a vast land with infinite regional differences however there is one only one guideline for the whole the country so this calculation may not always be a perfect fit for everyone.

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.

What if I live in a remote area, do I have to travel to the Trustee’s office to file a bankruptcy?
If there is a Trustee’s office within 100 kilometers of your residence, then you need to travel to that office to file a bankruptcy. If you live farther than that, you should consider discussing the options of filing a bankruptcy remotely with your Trustee.

Debt Consolidation FAQs

Is debt consolidation a good option to relieve my debt?
People often take a new loan to pay out credit cards or smaller loans. It can be easier to deal with one monthly payment and this new loan (the consolidated debt) may have a lower interest rate than your previous debt.

It is very important to cut up and cancel the credit cards and loans that were included in the consolidation loan. This will help your success in payoff of your debts. If you fail get rid of the extra credit, you might fall into the trap of reloading those credit cards and end up being unable to pay them off, putting yourself in a far worse situation.

I applied for a consolidation loan, but the bank refused to give me one. Why?
When evaluating whether you are eligible for a consolidation loan, lenders look at a few things: your credit card balance(s), credit report, and current income and if any of these indicators were not within preferred range they may decide against offering you the loan. Additionally, economic factors such as the COVID pandemic or the slowing of the Alberta economy can also impact a banks willingness to take on additional debt especially if they would be consolidating debt from other banking institutions.
How does debt consolidation differ from a consumer proposal?
Consumer proposals are a form of debt settlement, which means you’ll be paying just a portion of your total debt to settle your debt. As you are settling your debt and not keeping that original loan agreement there is a negative impact on your credit rating as a result.

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.

Orderly Payment of Debt FAQs

What is the difference between an OPD and a consumer proposal?
OPD and consumer proposals both impact your credit reading the same way as you are not keeping to your original agreement and settling your debt for a lesser amount.

Consumer proposals are a form of debt settlement, which means you’ll be paying just a portion of your total debt to settle your debt. As you are settling your debt and not keeping that original loan agreement there is a negative impact on your credit rating as a result.

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.

An OPD is a structured repayment option available to Alberta resident only.

You can calculate your orderly payment of payment by taking your total debt load adding 5% interest and dividing by a maximum of 60 months.

You cannot include any amounts owing to Canada Revenue Agency in this process.

Can Frederick and Company Ltd. help me file an OPD?
Orderly Payments of Debts are operated by Money Mentors in Alberta. For detailed information visit www.MoneyMentors.ca or call them at 1-888-294-0076. Please tell them Frederick and Company Ltd. sent you!

Informal Settlements FAQs

What is an informal settlement?
An informal settlement is a do-it-yourself method to settle a debt. You can personally contact your creditors and offer a settlement or hire a credit of debt counselling company to settle the debts for you.
Should I try to settle my debts privately?

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.
Should I take a settlement offer offered by my creditor?
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. This can be considered an informal settlement. 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 already having trouble making payments, the lump sum will be difficult to manage. It is important to get the settlement in writing because you could still be asked to pay the balance of the amount owing after paying the settlement. In this situation, if you don’t have a signed and written agreement stipulating the terms of the settlement, you will not have proof that you have settled your debt.

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.