What duties are required during the bankruptcy process?

Personal bankruptcy laws in Canada are governed by the Bankruptcy & Insolvency Act.  Failure to complete your duties will delay your bankruptcy discharge so it is important you understand fully your requirements once you declare bankruptcy.

Duties at the start of bankruptcy

As soon as your bankruptcy begins, you must complete the following:

  • Disclose all property (assets) in your possession and deliver non-exempt assets to the trustee;
  • Hand over all credit cards to the trustee for cancellation;

 Creditors meeting

  •  Attend any required meeting of creditors or examinations by the Official Receiver.  At this meeting, your creditors will have the opportunity to ask questions about your bankruptcy. A meeting of creditors is held if requested by the Superintendent of Bankruptcy or by creditors with an aggregate of at least 25% of the proven claims. These meetings are usually held at the office of the trustee.

Income tax/other documentation

  •  Provide any documents requested by the trustee including all forms, tax returns, insurance policies etc. When you file for bankruptcy, the day you file is treated like the end of your tax year so that in the year you file bankruptcy the trustee will file two different tax returns. Any income tax debt will be included in your bankruptcy up to the date of bankruptcy.  Any refund to which you are entitled will be an asset that will come to your trustee for your creditors.

Monthly reporting 

  • Report your household income and expenses each month to the trustee, along with copies of your pay stubs; and
  • Make all required payments, including surplus income. The trustee will determine if your net income was higher than the limit allowed by law for you to live. If you have any ” surplus income”, you will be required to make a payment each month to the trustee. These funds are held in trust for the benefit of your creditors.

Credit counselling

  • Attend two mandatory credit counselling sessions. This credit counselling is designed to teach you budgeting and good money management skills so that you are less likely to have financial problems in the future.

Other duties 

  • You must keep the trustee informed as to your whereabouts (ie change of address/phone number).
  • You must respond to the trustee’s requests, assist him or her as required, and provide whatever information is requested.
  • You cannot apply for credit of more than $1,000.00 without disclosing that you are an undischarged bankrupt. This means that while you are bankrupt you will not have access to credit.
  • You may not be a director of a company.

Timely completion 

It is essential you complete these duties in a timely manner, so that your bankruptcy can be completed as soon as possible. If the duties are not completed, your discharge date will be postponed. The earlier you obtain your discharge, the earlier you will be able to rebuild your credit and live life normally again.

Give us a call for a free consultation, we would be happy to assist you with a new financial beginning.

How do I correct an error on my credit report?

It is important that you request a copy of your credit report from the two credit-reporting agencies at least once a year to verify that your personal information is up to date, that your financial information is correct, and to ensure that you have not been the victim of identity fraud. You can do this free of charge by contacting both credit bureaus in Canada: Equifax and Trans Union.  Lenders will often refuse credit even if it is clear an error has occurred on your credit report, and they will not issue credit until the mistake is rectified.

To correct an error on your credit report, both credit bureaus provide a form to complete and send back to them.  When completing this form, be as specific as possible.  Once the form is received by the credit bureau and after their investigation, they will either correct the error or not, based on their findings.  Should your dispute be valid, the information on your credit report will be changed according.  If you do not agree with an item following the credit bureau’s investigation, Equifax and Trans Union websites inform you as to how you can add an explanatory statement to your report.

The contact information for the major credit reporting agencies in Canada are as follows:

Equifax Canada

Tel: 1-800-465-7166
Fax: 514-355-8502

Trans Union Canada
Tel: 1-866-525-0262 (For all residents except Quebec)
Tel: 1-877-713-3393 (For Quebec residents)

Give us a call for a free consultation, we would be happy to assist you with a new financial beginning.

What you can keep when filing for bankruptcy.

Bankruptcy provides an individual, who is overwhelmed with debt, the opportunity for a fresh financial start.   As part of the process, the individual is left with enough possessions to maintain their dignity and to assist them towards a fresh start.  The property exempt from seizure is set by the provinces, the territories and the Bankruptcy and Insolvency Act.


Bankruptcy exemptions refer to the equity in the property that is exempt from seizure in a bankruptcy.  (For example, if you have a vehicle worth $20,000 and there is a $15,000 secured loan against it, the equity in the vehicle would be $5,000).

The exemptions in British Columbia are as follows:

  • Equity in your principal residence in Greater Vancouver and Victoria up to a value of $12,000.  In the rest of the province up to a value of $9,000;
  • Equity in household items up to a value of $4,000;
  • Equity in a vehicle up to a value of $5,000.  The vehicle exemption drops to $2,000 if the person is behind on child care payments (to facilitate the enforcement of Maintenance Orders);
  • Equity in tools of the trade up to a value of $10,000;
  • Exemptions are in effect for all registered retirement savings plans (RRSP’s, RRIF’s and DPSP’s).  Contributions made in the 12 months prior to the date of bankruptcy will be recovered (clawed back) for the benefit of the bankruptcy estate.  RESP’s are not exempt.
  • Equity in essential clothing and medical aids is unlimited.

What happens if a family member dies – Can you inherit debt?

Typically when someone dies, their personal debt does not get passed on to surviving family members.  Their debt belongs to them and them alone; it is not passed on to their family members when they die.

Normally, the person would have made a will in which an Executor would be appointed.  The Executor is the person responsible to manage the affairs of their estate.  If a person dies without a will, a Court will appoint an administrator to manage the estate.

The basic role of the Executor to identify, value and liquidate of the estates of the deceased person, pay off their debts and distribute the remaining funds to the beneficiaries.  The Executor must pay all the debts in full before he/she can distribute the funds or assets to the beneficiaries; otherwise, he/she may be held personally liable to the creditors of the deceased person.  If there are not enough assets in an estate to cover its debts, the beneficiaries of the estate will not receive anything.  Beneficiaries could be sued if they have received an inheritance before creditors are paid.

If someone has more debts than assets when they die, those debts do not have to be paid by anyone else as a result of the person’s death.  In most cases, the only instance in which another family member would be responsible for their debt is if they co-signed a loan with the deceased person.  By co-signing, both parties assume full responsibility for the loan. If one person cannot pay (for a number of reasons including, but not limited to, death), the other person carries the remainder of the debt alone.

In this circumstance, where the debt exceeds the value of the assets, the Executor may want to assign the estate into bankruptcy, so that the assets can be distributed in the appropriate manner without attracting any personal liability to the executor.

There are some assets that can flow to a beneficiary even if the deceased person has more debts than assets.  These are assets would not become a part of the estate of the deceased, such as life insurance policies with a designated beneficiary, real property that is registered a joint tenancy and property held in a trust for someone else.

Before any debts are paid out, including credit card debt, or any assets are distributed to beneficiaries of the estate, it is recommended that one should seek legal advice first.

Consumer proposals – There is life after debt!

Given the current economic conditions, more people are turning to consumer proposals to settle their debts, rather than filing outright bankruptcy.  As one of the leading Bankruptcy Trustees on Vancouver Island, we have helped many people through the consumer proposal process and onto better lives.

What is a Proposal?

A consumer proposal is legal process provided by the Bankruptcy and Insolvency Act for anyone with over $5,000 but less than $250,000 in unsecured debt, or $500,000 per couple (excluding their primary residence mortgage).  Unsecured debt might include credit cards, lines of credit, loans and unpaid income tax.  The consumer proposal is an agreement to repay a portion of the unsecured debts through the services of a Trustee in Bankruptcy. The proposal terms are normally structured over 5 years with one monthly payment.  While the amount of debt being repaid is usually substantially less than the actual amount owed, it is normally more than the creditors would get if the person went into Bankruptcy.

The consumer proposal is voted on by all the creditors involved, if the majority accepts, it is binding for all creditors.  Once a proposal is accepted by the creditors, all interest is frozen and all unsecured debt collection efforts, including calls, letters, wage garnishments, and legal actions will stop.

During the process, a person can miss two payments, which would then be added on to the end. If a third payment is missed during this process, the proposal would be annulled and the creditors rights would be revived to purse the person for collections of their account, including the interest since the time the proposal was filed.

The main benefits of filing a consumer proposal over bankruptcy are as follows:

  • allows a person to keep their assets including a home and investments like an RESP (note: secured loans on assets must be paid in order to retain those assets);
  • the person works in a profession that does not allow bankruptcy;
  • the stigma of bankruptcy is totally unacceptable to the person;
  • bankruptcy may prohibit sponsorship of a family member for immigration purposes;
  • going into bankruptcy may force a spouse into bankruptcy;
  • repay less than they owe and make the monthly payment manageable, yet still receive the same creditor protection they would receive in a bankruptcy;
  • make their payments over a period of up to 5 years, with the flexibility to pay their balance off earlier; and
  • actually make lower monthly payments than they would in a bankruptcy if they have a higher than average income.

Contact us today.  We will assess your financial situation to review all your financial options.  If it’s determined that a consumer proposal is the best choice for your situation, we will prepare all the necessary paper work and table your offer to the creditors.  While this arrangement may not work for everyone’s financial situation, a consumer proposal may be the best way to provide you a financial fresh start.

Is my retirement plan/pension safe if I file for Bankruptcy?

The vast majority of Canadians who file for bankruptcy are honest but unfortunate debtors who will go to great lengths to pay off their debts.  Some of these people have cashed in their RRSPs in a desperate, futile attempt to pay off their creditors. By the time they file for bankruptcy, their RRSPs are gone – leaving them no savings for their retirement years.

Under the Bankruptcy and Insolvency Act, a trustee is appointed to administer a person’s file.  When a person files for bankruptcy, they assign over their assets to the trustee.  One of the trustee’s duties is to take the assets, convert them into cash, and distribute them amongst your creditors.  Under the Act, the government of Canada supports a person’s right to hold on to their RRSPs, even in a bankruptcy.

The Act provides that a person, who files for bankruptcy, can retain the following

  • All Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFS) are exempt from seizure in bankruptcy, except for contributions made in the 12-month period leading up to the bankruptcy
  • An RRSP that is locked-in as a result of a previous employment. The most common example of a locked-in RRSP is an employee who works for a company with a pension plan. The employee leaves the company before retirement, so the employee’s accumulated pension entitlement is converted to a locked-in RRSP.
  • RRSP’s that have a life insurance element are usually exempt in a bankruptcy.

To discuss your RRSP investments and bankruptcy, make an appointment today.  We offer a free initial consultation to explore options for a financial fresh start.

How to avoid bankruptcy – File a Consumer proposal

A Consumer Proposal is a formal procedure that is governed by the Bankruptcy and Insolvency Act (“Act”).  It allows insolvent debtors to settle their debts for less than they actually owe, while avoiding bankruptcy.   Declaring bankruptcy can cause embarrassment, seizure of your assets, and can pose a financial hardship if required to pay surplus income.  A consumer proposal can deal with most of your unsecured debts, including:

  • credit cards of all kinds
  • overdraft accounts
  • unsecured lines of credit
  • loans
  • personal loans from family, friends and others
  • student loans (if older than 7yearsj)
  • income tax debt
  • ·GST

Secured debts, such as mortgages owing on your home and leased or financed vehicles would not form part of a Consumer Proposal and must be dealt with directly with the secured creditor.

The Act ensures that you are protected from legal actions by your creditors and means that your debt repayment follows a strict and monitored process. Your trustee will negotiate a settlement between you and your creditors, and you will typically make one monthly payment over a 5 year period.  Once you have made your final payment, your debts will be eliminated. Though you will be repaying more to your creditors than you would in a bankruptcy, these payments are spread out over a longer period of time.

What are the Advantages?

  • You are able to retain your assets.
  • It can be 75% less expensive then repaying your debts on your own.
  • Your creditors cannot commence or continue legal actions against you once the proposal is filed.
  • Professional accreditation can be retained which may not be in bankruptcy (for example, insurance brokers, director of a corporation, licensed real estate broker)
  • Interest if frozen at the date of your proposal.
  • Under a proposal, you will still be able to sponsor a family member through the Canadian immigration process, were it may be hampered under a bankruptcy.
  • It is an effective alternative to bankruptcy from the aspect of its effect on your credit rating: with a proposal your credit rating is not as adversely affected as in a bankruptcy.
  • If filing a second/third bankruptcy, the process can be lengthy and stressful.  A proposal would avoid this.
  • You likely won’t lose your income tax refunds.
  • If you opt to declare bankruptcy, it can be costly.  You may be required to make additional monthly payments, called surplus income payments. The more you earn at your job, the more you will pay monthly and the longer the duration.

More and more Canadians are looking at the Consumer Proposal option to provide them a financial fresh start.  At Doug Lee & Associates Inc, we will work out the numbers for you and ensure that the proposal is fair and reasonable.  Give us a call for a free consultation, we would be happy to assist you with a new financial beginning.

Not all debts are Forgiven

A consumer proposal or a bankruptcy is a formal process under the Bankruptcy and Insolvency Act that allows people to get discharged from their debts that they owe to creditors.  Certain debts/obligations will survive the process and you will be still required to pay them.  The five most common debts that would survive are as follows:

1)        Student loans less than 7 years old:  A consumer proposal or bankruptcy can only discharge student loans that are over 7 years old.  If you have a student loan that is more recent than this, the debt will still be yours to repay even after completion of the process. If you have other debts, a consumer proposal or bankruptcy would eliminate these obligations possibly making it earlier to service your student loan debts.

2)        Child support: If you have been ordered by a court to pay child support, a consumer proposal or bankruptcy will not affect this arrangement. You will be required to continue to make payments.  As well, whatever payment arrangements you have will remain in effect during the process.

3)        Alimony: Similar to child support, alimony or spousal support is not discharged in a consumer proposal or bankruptcy. Even after completion of your bankruptcy, you are not released from spousal support payments.

4)        Debt related to fraud or misrepresentation: Any debts accumulated as a result of fraud will not be discharged through a consumer proposal or a bankruptcy. For example, if prior to your consumer proposal/bankruptcy, you racked up expensive charges on your credit cards (with no intention of paying these debts back), your creditors can apply to have this debt excluded from your discharge.

5)        Court-imposed fines: If you have been fined in a court of law, you will have to pay the fine regardless of your consumer proposal or bankruptcy.

Dancing with the Taxman – Proposals to Canada Revenue Agency

You can often make a deal with the Canada Revenue Agency (CRA) for taxes you owe. You can either negotiate payment terms or file a Consumer Proposal under the Bankruptcy and Insolvency Act (BIA) rather than filing for bankruptcy.

If you owe CRA and cannot pay the balance in full, you can explain your financial situation to negotiate a payment plan. If you are unable to successfully negotiate terms,CRA may take further action against you to collect the taxes owing by withholding your tax refunds and HST Credits, garnish your wages, take funds from your bank account and/or place a lien on any real property you own until your debt is paid in full.They do not have to go through the Courts so they can act very quickly.

You will be relieved to hear that CRA will consider a reduction on your tax debt through a Consumer Proposal. CRA will not negotiate an informal offer with you on the principle amount owing unless you file a Consumer Proposal. This will ensure to CRA that you have disclosed all of your assets, and that all debts are being treated equally.

A Consumer Proposal is a legal process under the BIA that enables you to make an offer to all creditors to modify your payments or to pay them a percentage of what you owe. A proposal allows you to have a fresh start without going bankrupt.

There are several things to consider before making a Consumer Proposal to CRA.  A major success factor in dealing with CRA is communication.  You must have all of your tax returns filed and up to date prior to making an offer.  It is CRA’s mandate to ensure all tax returns are filed and that you are in compliant with the IncomeTax Act. CRA will require detailed information on your financial situation, the causes of your difficulties and the steps taken by you to get back on solid financial ground. CRA needs to be convinced that you have not been abusing the process, that the proposal is the best deal possible and that it will result in a greater return than CRA would realize in a bankruptcy.

In addition, there are a number of provisions required in a proposal prior to its acceptance by CRA:

  1. Income tax installments and returns will have to be kept current going forward; and
  2. If applicable, HST collected and payroll taxes deducted will have to be remitted on a timely basis going forward; and
  3. If applicable, payroll source deductions in arrears are required to be paid within 6 months after the approval of the proposal by the court, or within a timeframe mutually agreed to by CRA.
  4. In some cases, CRA may require additional terms.  

When making an offer to CRA, you must offer them more than they would receive in a bankruptcy situation. CRA will often start negotiating from the standpoint of being paid “100 cents on the dollar” of what it’s owed. This of course is unrealistic given the financial circumstances of most tax debtors. The return expected by CRA will vary depending on your financial circumstances.  It is essential to put one’s best foot forward at the start by submitting a proposal that is fair and reasonable in your circumstances.  Figuring this out on your own can be complicated.  At Doug Lee& Associates Inc, we will work out the numbers for you and ensure that the proposal is fair and reasonable.  Give us a call for a free consultation, we would be happy to assist you with a new financial beginning.

Surplus income in Bankruptcy

When you make an assignment into bankruptcy, you are required to make a surplus income payment, a contribution to your estate, each month based on your income.  Somewhat of a confusing term, as surplus income is based on your net take-home pay on a monthly basis and not based on what available funds you may have left after you pay your monthly bills.  The more you earn above the established limits, the more you are required to contribute.  Surplus income is accumulated in a trust account and dispersed amongst all your creditors at the end of the process. 

Here are the income limits set for 2012, based on your family size:

          Family Size          Limit

                1                 $1,980
                2                 $2,465
                3                 $3,031
                4                 $3,680
                5                 $4,174
                6                 $4,737
                7+               $5,241

 As an example, a single person in 2012 is allowed to have take-home pay each month (income after taxes) of $1,980. For every dollar their income exceeds this limit in a month, they are required to make a contribution of 50% of the amount they are over the limit to the trustee, in form of a surplus income payment.

If that person earned net-take home pay of $2,500 in a month, they are $520 over the limit, so they would be required to contribute $260 (which is referred to surplus income) to their bankruptcy estate for the current month.

Each month you would be required to submit proof of your net take-home pay to the trustee.  If you have proof of the following payments, you can deduct these amounts from your net take-home pay – spousal/child support payments, child care payments, medical bills, fines and employment expenses, as allowed by Canada Revenue.

The duration of your bankruptcy will be based on your surplus income requirements as follows:

  • A first time bankrupt with no surplus requirement is entitled to an automatic discharge in 9 months.  If you have $100 or more in surplus requirements, you will be bankruptcy for 21 months.
  • A second time bankrupt with no surplus requirement is entitled to an automatic discharge in 24 months.  If you have $100 or more in surplus requirements, you will be in bankruptcy for 36 months.
  • A third (or more) time  bankrupt would be required to go to bankruptcy court, and the bankruptcy court will decide how long you would be in bankruptcy (quite possibly for more than three years if you have excess earnings).
  • A bankrupt who has debt owing to Canada Revenue Agency in excess of $200,000 is not eligible for an automatic discharge.

If you require additional information, please contact us for a free consultation.  During the process, we would calculate your surplus income.  The most important thing to understand is what your limit is, so you can estimate the cost of your bankruptcy.  For further information, you can visit the website of Office of the Superintendent of Bankruptcy at www.osb.ic.gc.ca