Last week, we briefly discussed how a bankruptcy affects your credit rating.

This week we are going to take a closer look at consumer proposals, and their advantages over a personal bankruptcy.

A Consumer proposal is basically an agreement between you and your creditors (which can only be administered by a licensed trustee in bankruptcy) to pay a portion of what you owe and no more new interest accrues.
A consumer proposal is still a “settlement” so truthfully speaking, it’s not easy on your credit rating.

A consumer proposal must be completed in 5 years (but the sooner you pay it off, the sooner you’re out of it). While the proposal is active, your credit rating will be listed at an R7 (which is not great, but better then a bankruptcy). After the proposal is paid off in full, there is a footnote on your credit report for 3 year after indicating you filed a proposal.

The reality is whether you file a personal bankruptcy or a consumer proposal, the credit rating is effectively blemished for the same duration and to the same degree.

Why would anyone choose a consumer proposal over a bankruptcy?

From a credit rating perspective, either option is the same. However in a consumer proposal, you maintain control of all your assets (home, cars, RESPs, life insurance policies etc.). You are free to dispose of these assets as you wish and nothing vests with (i.e. controlled by) your trustee.

In a bankruptcy, unfortunately the opposite is true. The trustee would have to seize any non-exempt assets and liquidate them for the general benefit of your creditors.

Whether you choose to file a proposal or a bankruptcy, you are still afforded the same legal protection. The phone calls stop, your wages are protected, no one touches your home and other assets.

Understand there are many ways to help rebuild your credit rating while you are paying off your proposal.

By keeping current on any mortgage/rent payments, car payments, cell phone bills etc. all these things will help rebuild your credit rating. If you show stable and consistent employment year after year, then your credit rating will restore itself.

One of the duties when an individual files a proposal is two (2) credit counselling sessions, where the credit counsellor will provide you with excellent resources and ideas on way you can improve your money management skills and get your credit rating back on track.

More than 50% of the clients I meet in Brampton choose to utilize a consumer proposal (versus filing a bankruptcy) to manage their debts.

If you think your debts are becoming too unmanageable and you need some relief from harassing and threatening phone calls, contact us right away 866-747-0660 to book a free consultation so we can discuss your options in person. Alternatively, feel free to e-mail us if you prefer

We hope to hear from you soon.

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A question that I get asked quite often is “how long will I be bankrupt?”.
The answer is, “ it depends”.

Here are the basic answers:
9 months, if you have less than average income and have never been bankrupt before.
21 months, if you have more than average income and have never been bankrupt before.
24 months, if you have less than average income and have never been bankrupt before.
36 months, if you have more than average income and have been bankrupt before.

These are very basic answers. They haven’t taken into account other factors which might extend your bankruptcy, such as gambling, drug addiction, failing to perform duties, or even a creditor challenging your bankruptcy.

My question to most of these people is why file a bankruptcy which will last 2 or 3 years when you have a better option: a consumer proposal.

This whole topic is complicated. If you want to read more, visit our Personal Bankruptcy in Ontario website which describes the Length of Bankruptcy in Canada: How Long Will You Be Bankrupt Under the New Rules? The best I can tell you is if you are worried about how long a bankruptcy will last, meet with a licensed trustee who will be able to assess your situation and provide you with the best advice tailored to your situation. That is what I do, day in and day out. So contact me so we can work on your situation. I assure you that I will give you the time of day and come up with a plan that is right for you and your family.

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You would be surprised to hear how many times a week I meet with a new client and the first words out of their mouth is “I need to claim bankruptcy”. They haven’t told me about their work situation, what assets they own, or who or how much they owe. But they are sure that that they have to claim bankruptcy.

Well, at least they have done one thing right; they have contacted a professional. My job is to evaluate everyone’s situation when they come it to meet with me to make sure I have considered and explained all options. If all other options are ruled out, then bankruptcy may be the last resort.

So if we fast forward this a bit, assuming that bankruptcy is the best and only solution, I must gather a lot of information and paperwork, arrange to meet with the client one more time to explain all the documentation and have it signed, and then file it with the government.

The bankruptcy process is now underway. Getting to this point is usually more than half the battle. To make it this far, the person who needs help must acknowledge this and seek out advice. Next the advice giver, a bankruptcy trustee, must confirm that bankruptcy is the best solution. Once the process has started, the remainder of the bankruptcy is mostly administrative. The bankrupt has duties to perform, including attending counselling sessions, providing the trustee with their income information so that tax returns can be prepared, reporting their monthly income to the trustee to determine how much , if any, must be paid to the creditors, and making their payments.

All of these steps and more are detailed at our Bankruptcy Canada website. We also have a lot more resource material you can read at our Hoyes Michalos web site.

One last point. Starting a bankruptcy is the easy part. Finishing it is harder. If a bankrupt, has complied with all their duties and made all their payments, most of the time they will be eligible for and get their automatic discharge after 9 months. This is when the bankruptcy is over and all their debts are wiped out.

While I have tried to explain filing for bankruptcy here, the best way to learn about the process is by meeting with a trustee who will walk you through these steps. If you would like our help, give us a call. Our toll free telephone number is 310-PLAN (310-7526, no area code required). Or send us an email. Let’s get started.

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It is not uncommon for a person to tell me, after they have filed bankruptcy in Toronto, that one of their creditors has told them that they will not allow their debt to be included in the bankruptcy and they must make arrangements to pay the debt.

Although there are a few types of debts that will survive a bankruptcy, in most situations all of your debts will be included. (You can contact us if you have any questions about what debts are not discharged in a bankruptcy. Common examples would include child and spousal support, court fines, and debts that arose as a result of fraud).

Filing a bankruptcy protects you from your creditors and stops all collection activity against you. It also prevents a creditor from getting an advantage over your other creditors. Your creditors do not have the option to “opt”out of your bankruptcy. A normal creditor cannot simply decide that their debt will not be included in your bankruptcy. Your bankruptcy will end, and your debts will be officially eliminated, when you receive a bankruptcy “discharge”.

The purpose of The Bankruptcy and Insolvency Act is to permit an honest, but unfortunate, debtor to obtain a discharge from their debts. To allow fairness, if any of your creditors believes that your conduct has not been honest they have the ability to oppose your discharge from bankruptcy. In order to do this, the opposing creditor must service notice of their opposition prior to your discharge date.

If a creditor opposes your bankruptcy discharge, a hearing is held in bankruptcy court in Toronto. At the hearing the court will decide what type of discharge to issue. The court may grant you your discharge that day, or they may suspend your discharge so that the discharge will not be effective until a certain date. The court may decide to issue a conditional discharge which imposes certain conditions that must be met in order to receive your absolute discharge (such as making extra payments).

If you are having financial difficulties and are concerned that one of your creditors may oppose your discharge if you file for bankruptcy, you might consider filing a consumer proposal. A consumer proposal allows you to negotiate a settlement with your creditors. A consumer proposal can offer your creditors a lower monthly payment over a longer period of time, allowing you to financially rehabilitate yourself without filing for bankruptcy. Your creditors are likely to accept your proposal as they will receive more money from your proposal than they will from your bankruptcy.

In simple terms, if you are worried that a creditor may object to your bankruptcy discharge, and you don’t want to risk having to appear in bankruptcy court in Toronto, you could file a consumer proposal. If the creditors agree to your proposal, you simply make the required payments, and your debts are discharged. You don’t have to worry about appearing in court for a bankruptcy discharge hearing, because you didn’t go bankrupt.

To learn more, please see this article on creditor opposition to your bankruptcy discharge.

If you are having a difficult time keeping up with your payments to your creditors, contact Hoyes Michalos for a free consultation. Once we have gathered some financial information from you, we can explain your options and how each will affect you. We can answer any questions you have, and will be able to help you decide on a plan that is right for you.

You can reach me in our North York bankruptcy and consumer proposal office, by calling 310-PLAN , or e-mail any of our Toronto area offices today to arrange a free initial consultation. There are options, so let’s get started.

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Over the last five weeks I have written about how to overcome the most common fears about filing bankruptcy in Toronto. I think the biggest and most common fear for many people is the idea that they will have to wait an entire seven years for the bankruptcy “damage” to clear.

Let me clarify so that you understand how the credit reporting system really works. During your bankruptcy, while it is “active” – we call this “undischarged” – the bankruptcy is reported on your credit report as an R9 rating – this is the end of the rating scale. After the bankruptcy is over and you are “discharged”, your credit report is updated to reflect the change and the bankruptcy notation moves to the legal section of your report. At this point the credit report indicates when you started your bankruptcy and your discharge date and will typically remain there for about six more years for a total of seven years on your credit report.

However, it does not mean that you will not be able to obtain new credit; it does mean that potential lenders will know you did file and complete a bankruptcy. It will be up to the lender to determine your suitability for new credit. They will base this decision on many factors, including job stability, income, and household size, to name a few. The notation is not as much of a roadblock for most people as you might think it would be. We do hear from people who filed bankruptcy with us in the past and they have turned their lives around after bankruptcy and purchased new homes, and started new businesses.

I hope that the past five weeks have helped you to overcome some of your reservations and fears about contacting us at Hoyes Michalos to review your financial situation and come up with a plan that will work for you. Our goal is to make the process as easy and comfortable for you as we can. We are here to help you come up with a plan today, so don’t hesitate to call us at (416) 730-8060 or 310-PLAN (7526), or send us an e-mail to feed your knowledge by calling us with your bankruptcy questions today and your fears will starve to death while you digest the truth about filing for bankruptcy in Toronto.

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I would like to take credit for that quote, but it was Marie Curie, a very wise woman who said it first. Last week I started to discuss the five most common fears that people have about bankruptcy in Toronto – the fears that stop people from investigating their options with regard to debt.

Last week I discussed the common fear that filing for bankruptcy means you will lose all of your personal belongings and household furnishings – which of course is not true.

This week the topic is obtaining new credit. Many people visit my office and tell me that they have heard that if they claim bankruptcy they will NEVER have credit again. This is typically not true unless you do not want to apply for any new credit. But you will have a life after your bankruptcy ends and most people do eventually apply for new credit after bankruptcy.

Here are the facts: as part of the bankruptcy process, you are required to attend two credit counseling sessions. One of these sessions is about rebuilding your credit once you have finished your bankruptcy. Typically the minimum time to be in a bankruptcy is nine months. Once you are done, or discharged, from your bankruptcy, you can start to rebuild your credit and the counsellor will give you some tips for starting over. Rest assured, there is life after bankruptcy and that life will likely include new credit, be it a secured credit card, a car loan, or a mortgage on your first home – you will be able to start over.

So if you’ve been putting off that call because your fear of a credit-less future has been getting in the way – you don’t have to wait any longer. If you are ready to put a plan into place to deal with your debts please feel free to contact us today at (416) 730-8060 or 310-PLAN (7526), or send us an e-mail.

Next Week’s Fear: What happens to my spouse if I file for bankruptcy?

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Every person that files bankruptcy in Toronto with me asks the same question: What’s involved? What do I have to do to make sure my bankruptcy finishes as quickly as possible.

I realize how nerve wracking and stressful bankruptcy can be, so I try to simplify the process by giving every person who files bankruptcy a sheet that lists their duties and responsibilities. Here’s a quick summary:

1. In a bankruptcy, the individual must report their family income to their trustee for us to determine how much, if any, must be paid to their creditors as part of the bankruptcy process. These rules are referred to as “Surplus Income” rules. Simply put, the more you earn, the more you pay while you are bankrupt in Toronto. Each month you will send my office copies of your pay stubs, and based on your actual earnings we will calculate your required payment.
2. There are two mandatory financial counselling sessions to attend. They last about an hour and focus on budgeting and credit repair. Most people tell me these are great sessions, and help them learn how to budget so they don’t get into financial problems in the future. That’s why I call bankruptcy a "fresh start".
3. It is a requirement that the Trustee file the tax returns for the year of bankruptcy and the previous year, if it has not already been filed.
4. Each month the bankrupt person will also make a contribution to their estate to cover basic administration costs. The cost of your bankruptcy will depend on a number of factors, including what you earn, and the size of your family.

This is a quick summary of your duties as a bankrupt in Toronto. For a more detailed explanation, and to find out what would happen in your specific situation, please call our office in Toronto at 310-PLAN, or e-mail us for more information.

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I found the Registrar to be fair, and genuinely concerned about the well being of each bankrupt. He wanted to know why the bankruptcy occurred, and what steps the bankrupt had taken to ensure that there were no future problems.

One of our debtors had a gambling problem, so the Registrar wanted proof that the bankrupt was no longer gambling (he had excluded himself from the casino) and proof that he had attended gambling counselling. With that proof, the Registrar granted him his discharge, subject to certain conditions.

In other cases, where the bankrupt had not completed their duties, they were not given a discharge.

The lesson is this: bankruptcy is a legal matter, and it is important to complete your duties to receive your discharge. When you meet with us we will explain in detail your obligations, and provided you complete them, your bankruptcy should end as scheduled.

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