In the final quarter of 2020, 8,409 consumers in Ontario, Canada, faced insolvency and either filed a proposal to pay off their debts or entered into bankruptcy.
The words insolvency and bankruptcy, especially the latter, tend to invoke fear among people who are facing unmanageable debt loads. Unfortunately, many people equate bankruptcy with failure and the loss of everything they’ve worked for in life.
It’s important to remember that you can reorganize your debts without declaring bankruptcy by filing a consumer proposal. Under this option, you retain all of your assets. If you need to discharge your unsecured debt because you cannot pay it off under a proposal, choosing to file for bankruptcy can provide you with exemptions so that you can retain important assets, such as your car, furnishings, and even your home.
If you are facing financial issues in Toronto, Ontario, or nearby in Hamilton, London, or Ottawa, contact Matthew R. Harris Law P.C., to speak with an experienced consumer insolvency and bankruptcy lawyer who can help you chart a course toward a fresh start.
The Bankruptcy and Insolvency Act (BIA) governs legal remedies for excessive debt loads, and for consumers, provides the two options mentioned above: filing a proposal or entering into bankruptcy protection.
Under the BIA, anyone who is unable to pay their debts will be considered insolvent. The BIA defines an insolvent person as anyone in Canada who is at least $1,000 in debt and either cannot pay their obligations when they become due, or whose assets would not cover the accrued debt even if fully liquidated.
A consumer proposal will be your first option if your debt load is $250,000 or less. The proposal allows you to consolidate your debts – and often reduce them – and then pay them off on a monthly basis within a maximum five-year time frame. You get to retain all of your assets so long as you pay your debts each month. The catch here is that your creditors have to approve your proposal. If they reject it, you can be forced into higher payments or even bankruptcy.
If your debt is above $250,000, you can file a Division 1 proposal similar to the consumer proposal, but if it is rejected by your creditors, you are automatically thrown into bankruptcy proceedings.
If you are unable to discharge your debts with a consumer or Division 1 proposal, you can file for bankruptcy, but bankruptcy should really be viewed as a last resort. Once you enter into bankruptcy, everything but your exempted assets will be seized and sold to help cover the obligations you owe, but you will be debt-free when discharged.
With either approach, proposal, or bankruptcy, you will be required to attend two credit counseling sessions to help you manage your finances in the future.
With either a consumer proposal or bankruptcy filing, your financial affairs will be assigned to a Licensed Insolvency Trustee (LIT). In the case of a proposal, the LIT will deal with your creditors, and you will pay him the agreed-upon monthly fee that will be spread among the creditors that you owe.
The LIT in a bankruptcy case will be responsible for selling off your non-exempt assets and using those proceeds to spread among unsecured creditors. Bankruptcy takes a minimum of nine months and stays on your credit report for up to seven years after your discharge (three years for a completed consumer proposal).
Exemptions generally vary from province to province. In Ontario, a car not exceeding $7,117 can be exempt, as are household furnishings and appliances valued at less than $14,180. Tools and property used to earn a living can also be exempt up to $14,405. These values are based on the current market value of the assets, not on replacement costs.
Equity in your home is exempt up to $10,783. If the equity does not exceed that amount, and you keep current on your payments, you can retain your residence. If the equity is above that amount, you can sometimes arrange to buy back the difference.
Your clothing is totally exempt, and Registered Retirement Savings Plans (RRSPs) are also exempt. Debts you will not be able to discharge include spousal support and child support payments, student loans that were acquired fewer than seven years ago, and any taxes, fees, or obligations owed to government institutions.
Facing insolvency or bankruptcy proceedings can be an extremely stressful situation, and the options are often so frightening that consumers find themselves unable to make key decisions to move forward in either direction. This is where a consumer bankruptcy lawyer can help.
If you can pay your debts, at least partially, a consumer proposal can instantly put you back on track for long-term financial stability. Sure, it may mean making some sacrifices, but you will be able to begin to restore some level of normalcy to your finances while being able to legally retain everything you have in your possession.
If you are too deeply in debt or too strapped for income and you fear that bankruptcy is looming, an experienced and knowledgeable lawyer can assist you in navigating the provisions of the BIA and provincial law to help you retain as many assets as possible. Remember, your creditors can not only hound you for payment, they can also force you into bankruptcy against your will.
So don’t face your financial challenges on your own. Call or reach out to Matthew R Harris Law P.C. today and let an experienced consumer bankruptcy lawyer help you explore all of your options and develop a plan that can help you achieve the fresh start you deserve.
Matthew R. Harris of Matthew R. Harris Law P.C. has both a J.D. in law and a postgraduate L.L.M with a major in bankruptcy and insolvency. He has spent his entire legal career helping individuals and businesses with financial and insolvency concerns. If you’re facing financial distress in Southern Ontario, contact Matthew R. Harris Law P.C. immediately to schedule an assessment and discuss all of your legal options for relief.