Debt in a Consumer Proposal
In all simplicity, a Consumer Proposal is a legally binding agreement that provides you with immediate protection, applicable from the moment of filing from Debt Collectors.
A Consumer Proposal agreement is administered by a Licenced Insolvency Trustee (LIT), it serves as an alternative to Personal Bankruptcy and is often cited to be the preferable or “better” alternative when compared to the idea of a Personal Bankruptcy.
You are then given a period of Five Years to pay back your creditors in installments or monthly payments to settle your debts, often having to pay a portion of your debt at the start of the same time period.
The payment goes to your LIT, who distributes it to your creditors.
What Happens in a Consumer Proposal?
Almost all Wage Garnishments will stop immediately.
Interest on your debt stops being accumulated from the day you file for a Consumer Proposal.
Unlike Personal Bankruptcy, you are not at risk of losing your personal assets, for example your house or vehicle etc.
Your payments do not increase if your Income increases.
You get an R7 Credit Rating, which while not the best in any way is still preferable than the dreaded R9 Credit Rating you get when you file for Personal Bankruptcy.
You get an avenue to pay back a portion of your debt.
How the Consumer Proposal Works
You meet with a LIT, who oversees and then evaluates your current financial conditions and then offers you the options that are available for you to pursue.
If you decide to go ahead with filing for a Consumer Proposal, your LIT works with you make a Consumer Proposal that works for both you as well as your creditors in order to ensure that it is approved.
The LIT then files the Consumer Proposal with the Office of the Superintendent of Bankruptcy (OSB).
As soon as this is done, lawsuits that your creditors might have against you are dropped and they cannot legally garnish your wages anymore as well as you stop making payments to your creditors.
The LIT will then proceed to submit the agreed upon Consumer Proposal to your Creditors, accompanying the Consumer Proposal will be a report on your current personal situation alongside reasons of your financial predicament.
Your Creditors can then opt to call for a meeting of Creditors to vote on the Proposal, for this they would need to have 25% of your debt owed, in order to call for the meeting.
The Meeting must be called with 45 Days of filing for the Consumer Proposal and must be held within 21 days after the Call for the Meeting has been made, it is also possible that the OSB asks the LIT to call for such a meeting.
At the meeting, a vote is held on the proposal to determine if it will be accepted or rejected, the votes are divided based on percentage of debt owed, a simple majority, which is 50% + 1 is needed to pass the Proposal.
If no meeting is called within 45 days, then the Proposal is considered passed, after passing there is a 15 day period during which the OSB or any other party that has a vested interest can ask for the Proposal to be reviewed and/or evaluated by the court, if such a request isn’t made by any party then the Consumer Proposal will be considered to be accepted by the Court.
You will now have a specified time frame in which you have to make sporadic payments to your LIT equaling to the total amount of debt to be repaid agreed upon and attend two Financial Counseling Sessions.
Tax Debts in Bankruptcy
Contrary to popular belief, Taxation Debt accumulated such as Income Tax, General Sales Tax (GST) and Harmonized Sales Tax (HST) to name a few, are given the same treatment as that provided to debt accumulated through Credit Cards, Bank Loans and other unsecured loans.
Similar to how debts accumulated by devices that are mentioned above, Tax Debt is also forgone when Individuals in Quebec file for Personal bankruptcy or Consumer Proposals.
If you owe a fair bit of Tax Debt, the odds are something went wrong somewhere along the road, in this scenario your best bet is to have an inexpensive way to clear out your debt.
The best two ways for that remain to be either:
Short of that, it is unlikely that you will become scot-free of the debt without any hassle.
But what option do you have and is Bankruptcy the way forward for you?
Canadian Revenue Agency Policies
The Canadian Revenue Agency (CRA) has custom tailored policies for different scenarios, an example is how someone who has never filed taxes would be you wouldn’t be treated as nicely as say someone who has been filing taxes annually for the last decade, for whom it is fair to assume that they will be subjected to a “less harsh” treatment by the CRA.
The Real Question that stems from considering if you should file for Bankruptcy to erase Tax Debt is how this Tax Debt came about as a result.
Meeting with your Bankruptcy Trustee to evaluate the factors that resulted in this Tax Debt is essential, after which your Trustee will inform you of your available avenues for tackling the debt and the recommended course of action.
What if I don’t want to file for Bankruptcy?
The CRA does not in any form negotiate or settle the debt that it is owed, you are free to try and strike up a conversation in the hopes of reducing the amount owed, but it will prove simply futile, this is due to the CRA simply not being willing to engage in any form of Negotiations.
That does not mean you do not have alternative options in the case of you not wanting to file for Bankruptcy.
You can apply to the Fairness Commission of the CRA to have the penalties and interest on your debt reduced.
This will not in any way reduce the debt owed to the CRA, but it may reduce the penalties and interest if you have a sufficiently valid reason as to why the debt wasn’t paid.
Tax Court of Quebec
You can object to a Tax Assessment and if your objection is unsuccessful, you are clear to file an appeal to the Tax Court of Quebec.
You will need a Tax Lawyer and an Argument explaining how the application of the Tax Laws present within the Country are not applicable to your case in particular and you should be exempted.
If you win, your debt is reversed, but however if you lose; you will owe the Debt, the Penalties, the Interest alongside the now large Legal Bill you would have accumulated.
There exists only one sole Federal Government or Debt Settlement Program in Quebec where you are able to clear your Tax Debt for an amount lower than that of the amount you owe.
And that is filing a Consumer Proposal.
Debt Relief Help From a Consumer Proposal Administrator
Both are legal procedures to help you regain financial health.
However, only authorized individuals known as trustees are allowed to file these two proceedings.
The Office of the Superintendent of Bankruptcy provides the license necessary for someone to practice as a Licensed Insolvency Trustee (LIT).
Recently, Consumer Proposal Administrators have made their appearance.
It must be mentioned that by law the only authorized professionals allowed to file either bankruptcy or a consumer proposal are referred to as LIT’s.
Nevertheless, a Consumer Proposal Administrator is responsible for filing consumer proposals.
Duties of a Consumer Proposal Administrator
A consumer proposal is different from bankruptcy by the fact that it is a negotiated agreement between the debtor and the creditors to pay part of the debt and the rest forgiven, while bankruptcy is a process by which the debtor’s assets, savings, and part of their income are retained as forfeiture.
To file a consumer proposal, the Bankruptcy and Insolvency Act requires the assistance of a Licensed Insolvency Trustee (LIT) who acts as a Consumer Proposal Administrator.
He/She has the following duties.
- Decide whether the debtor should file for a consumer proposal as a solution for debt relief depending on their circumstances;
- Act as a referee between the debtor and the creditors to negotiate a repayment deal;
- Opens up a consumer proposal by filing the necessary forms to the Office of the Superintendent of Bankruptcy;
- Ensure that the debtors takes care of their responsibilities by attending the mandatory counselling sessions and pays the agreed amount;
- Collect and remit the payment made by the debtor;
- Initiate the procedure for discharge when all responsibilities are satisfied by the debtor.
They will provide a certificate of completion.
From the above, it is clear that the consumer proposal administrator plays a significant role throughout the entire procedure of filing for a consumer proposal.
If fact, without the consumer proposal administrator, you cannot file a proposal because they are the only ones allowed by law to file a consumer proposal.
When you visit a Consumer Proposal Administrator, he/she will work with you closely to produce an acceptable consumer proposal that you can present to your creditors.
They will provide you with all necessary information and what to expect.
It’s therefore important to find a consumer proposal administrator you are happy to work with.
Selecting a Consumer Proposal Administrator
The internet is the first means you’ll go to when searching for a consumer proposal administrator.
Official websites or others with authority dealing with debt relief often have in their repertoire a list of Licensed Insolvency Trustees in your neighbourhood. It’s important to consult more than one trustee.
The initial consultation is free of charge.
However, if you do find a consumer proposal administrator you desire to work with, there are administration costs and the fee of the trustee for handling your case.
The bankruptcy legislation in Quebec sets the fees you’ll have to pay to the consumer proposal administrator.
They are usually paid by a tariff out of the payment you make in the proposal.
Quebec has a set of particular rules that along with the Bankruptcy and Insolvency Act serve as guidelines a debtor, creditors and the consumer proposal administrator must follow when dealing with a consumer proposal claim.
Consumer proposal administrators act as referees between the creditor and the debtor.
The administrator ensures that the entire procedure of filing for a consumer proposal is undertaken according to the guidelines.
The rules governing a proposal are set from the Bankruptcy and Insolvency Act.
They are the only professionals allowed by law to file a consumer proposal.
Filing for Bankruptcy a Second Time in Quebec?
Find Out Why it Will Cost More
Filing bankruptcy is a step towards resolving your debt problems and involves the court for this legal process in order to reduce your debts.
When you file bankruptcy for the first time it does not cost much, just the ordinary fees that it takes.
But when you file bankruptcy for the second time it costs more.
There are situations where an individual feels the need to file bankruptcy for the second time.
It happens and it does not mean you are in trouble and cannot file it.
Technically there is nothing wrong in filing bankruptcy twice.
However filing it again and again can be problematic for you as when you file bankruptcy after the third time, it means asking the court to discharge you and there are higher chances of not being discharged by the court.
But let us focus on filing bankruptcy for the second time for now.
Surplus Income and Filing Bankruptcy
We will start with the basics of how the government sets a threshold for the citizens of Quebec.
The government sets a standard for your income for the purpose of maintaining a standard living which would be suitable and equal for all the citizens.
They look if your additional money can come under your surplus income that can be applied to reduce your debts or not.
For this, we have explained this question through the importance of surplus income for your bankruptcy.
Filing bankruptcy twice is not only expensive but it takes longer too, especially when it comes for people with surplus income because when you have surplus income it would mean you have extra money which can be applied for your bankruptcy debts.
Your surplus income varies from person to person likewise when you would be required to pay the amount of money in bankruptcy every month; it will depend on how much your surplus income is.
The amount required for bankruptcy is half the amount of your surplus income.
For example, if from your family income, your surplus income is $500 then the cost of filing bankruptcy from this amount would be $250 which you would be required to pay every month until 21 months are completed making a total of $5,250.
But if you’re filing bankruptcy for the second time then the same amount from your surplus income that is $250 would be required to pay every month till 36 months making a total of $9,000.
Hence it is evident that the cost of filing bankruptcy twice is expensive and takes much longer than filing the bankruptcy for the first time.
When you are deciding on filing for bankruptcy a second time in Quebec it is recommended that you consult a local trustee when you are in bankruptcy.
By doing so, you can gain a better understanding of the cost and time span involved in filing bankruptcy for the second time.
You can also seek guidance regarding the consumer proposal and look for all the possible solutions that would be best for your debt and report.
It is suggested that you avoid coming under bankruptcy again and again but if you do, quickly file for bankruptcy and filing twice is alright but try to make things right without filing for bankruptcy after the third time.
What is the 5 Year Hardship Provision For Student Loans & Bankruptcy in Quebec?
This ruling has been made as a sort of extension of the 7 year ruling that all student loans must be absolved after the mentioned amount of years.
This was made in order to help the people who are not as capable to paying back their loans as other people are.
This may be due to various hardships, such as unstable employment.
This ruling was established by the government as a form of relief.
How can one apply for the Hardship Provision?
Firstly, in order to apply for this relief one must first be in debt (student debt).
Secondly, one must show proof of his educational background i.e. a certification or degree in order to verify the claim.
And lastly, a valid reason as to why the individual is applying for the financial relief.
The application process
When in front of the Bankruptcy Judge, the individual must make it clear how the debt has affected him/her in a very negative way i.e. how their hardships became progressively unbearable as time passes to such an extent that it has become an impossible hurdle to overcome.
He/she must make sure that all were in “good faith”.
What we mean by good faith is that how they spent their lives in conjunction with the debt.
When considering ‘good faith’ the courts will look at how you used your student loans.
What happens next?
The decision solely lies on the judge.
However various other factors can influence his decision.
The presence of a high interest credit debt can change the verdict as this may ultimately eliminate the latter debt thus making the student debt more bearable to shoulder.
And also the fact that the debt will be counted from the day that the individual’s schooling had ceased not from when any debt has been accumulated.
Whether or not a person can apply for this ruling is rather difficult to understand.
So one can consult a local lawyer or a student loan support agency to know whether one is eligible for this.
If the person in debt has used the money he has been given in any other way then using it to pay off his loan or bettering his own life then the request is automatically nullified as the negative actions would make it clear cut that the money was used for things other than paying off the loan rather to enjoy life.
In conclusion, this extension has proven to be a godsend to the young citizens of this country.
They can finally get the quality education they deserve so that they can live a better life without any hassle of a debt hanging on their heads.
By reducing the amount of time to dissolve a loan, it gives the student ample time to get back on track and live the dream that they’ve had for so long.