Are you struggling with debt and feeling overwhelmed by financial stress? Consumer credit counseling might seem like the answer, but recent government investigations reveal that some debt advisory services may cost you more than they save.
As a Licensed Insolvency Trustee serving Toronto, Mississauga, Brampton, and Markham for decades, I’ve helped many people in the Greater Toronto Area navigate their debt challenges. In this comprehensive guide, I’ll explain what consumer credit counselling really offers, how to find legitimate help, and what alternatives might be better suited to your situation.
Financial difficulties affect millions of Canadians every year. The stress of mounting bills, collection calls, and uncertain futures can feel overwhelming. Consumer credit counseling presents itself as a solution, but understanding what it truly offers is crucial for making informed decisions about your financial future.
What is Consumer Credit Counseling?
Consumer credit counseling involves working with a certified credit counselor to address your debt problems. These services typically include:
Reviewing your complete financial situation
Creating personalized budgets and payment plans
Providing financial education and money management skills
Negotiating with creditors on your behalf
Offering ongoing support throughout your debt repayment journey
The goal is to help you regain control of your finances while avoiding more drastic measures like bankruptcy.
Who Can Benefit from Consumer Credit Counseling?
Consumer credit counseling can be helpful for people who:
Have steady income but struggle to manage multiple debts
Want to learn better budgeting and money management skills
Feel overwhelmed by financial decisions
Need help negotiating with creditors
Want to avoid bankruptcy or consumer proposals
However, consumer credit counseling isn’t right for everyone. If your debt is too high relative to your income, or if you’re facing immediate legal action from creditors, other debt relief options might be more appropriate.
The Empathetic Approach to Debt Relief and Financial Wellness
Legitimate consumer credit counseling recognizes that financial problems often involve more than just money. Good credit counselors understand the emotional stress of debt and provide compassionate, judgment-free support.
What empathetic counseling includes:
Active listening without blame or shame
Personalized solutions that fit your unique situation
Emotional support during difficult financial decisions
Education that empowers rather than overwhelms
Realistic timelines that consider your circumstances
The Foundation of Financial Recovery: What is Consumer Credit Counseling?
Understanding the fundamentals of consumer credit counseling helps you make informed decisions about whether it’s right for your situation.
Defining Consumer Credit Counseling
Consumer credit counseling is a service that helps people manage debt through education, budgeting assistance, and debt management plans. Legitimate consumer credit counseling agencies are typically non-profit organizations that charge minimal fees or offer free services.
Core components include:
Financial assessment and budget analysis
Debt management plan creation
Creditor communication and negotiation
Financial education and skill building
Ongoing support and monitoring
The Role of a Credit Counsellor: Your Trusted Financial Advisor
Initial Debt Evaluation: A Holistic Review of Your Financial Situation
The first step in consumer credit counseling involves a comprehensive review of your finances. This should include:
Complete debt inventory: All credit cards, loans, and other obligations
Income analysis: All sources of regular income
Expense review: Fixed and variable monthly expenses
Asset assessment: Property, investments, and valuable possessions
Credit report review: Understanding your credit history and score
This evaluation helps determine whether credit counseling is appropriate or if other debt relief options would work better.
consumer credit counseling
Why Choose Consumer Credit Counseling? Beyond Just Paying Off Debt
Credit counseling offers benefits that extend beyond simple debt repayment, addressing the root causes of financial stress.
Alleviating Financial Stress and Improving Mental Health
Financial problems create significant stress that affects your entire life. Quality credit counseling helps by:
Providing clarity about your financial situation
Creating realistic plans that reduce anxiety about the future
Offering emotional support during difficult times
Teaching coping strategies for financial stress
Restoring hope that your situation can improve
Studies show that people who complete credit counseling programs report significant improvements in their mental health and overall well-being.
Gaining Control Over Your Finances and Achieving Financial Freedom
Credit counseling helps you develop skills and habits that lead to long-term financial stability:
Better budgeting skills that prevent future debt problems
Improved money management through practical tools and techniques
Understanding of credit and how to use it responsibly
Emergency planning to handle unexpected expenses
Goal setting for future financial objectives
Receiving Personalized Financial Education and Budgeting Guidance
One of the most valuable aspects of consumer credit counseling is the education component. You’ll learn:
How to create and stick to realistic budgets
Strategies for reducing expenses without sacrificing quality of life
How to prioritize debt payments for maximum impact
Ways to increase income through career development
Long-term financial planning techniques
Stopping Collection Calls and Protecting Your Consumer Rights
When you enter a debt management plan through consumer credit counseling, creditors typically agree to stop collection activities. This provides immediate relief from:
Constant phone calls and letters
Threats of legal action
Stress and anxiety from creditor harassment
Confusion about your rights as a debtor
However, it’s important to understand that this protection isn’t automatic and depends on creditor cooperation.
Your Path to Financial Stability: The Step-by-Step Credit Counseling Process
Understanding what to expect from consumer credit counseling helps you prepare for success and identify quality services.
Step 1: The Confidential Debt Evaluation and Budget Counseling Session
Your first meeting with a credit counselor should be comprehensive and confidential. During this session:
Complete financial review: Every debt, income source, and expense
Credit report analysis: Understanding your current credit standing
Budget creation: Realistic monthly spending plan
Option exploration: All available debt relief strategies
Initial recommendations: Preliminary advice based on your situation
Important: This initial consultation should be free or very low cost (under $50).
Step 2: Crafting Your Personalized Debt Management Plan (DMP)
If a debt management plan is appropriate for your situation, your counselor will:
Calculate affordable payments based on your budget
Contact creditors to negotiate terms and interest rates
Consolidate payments into one monthly amount
Set realistic timelines for becoming debt-free
Explain all terms clearly before you commit
Key point: You should never feel pressured to sign up immediately. Take time to review and understand all terms.
Step 3: Communication and Advocacy with Creditors
Your credit counselor will serve as your advocate with creditors, working to:
Negotiate lower interest rates (often 0-10% instead of 18-25%)
Waive late fees and penalties that have accumulated
Stop collection activities during plan participation
Establish reasonable payment terms you can actually afford
Provide regular updates on your progress
Step 4: Ongoing Support, Financial Education, and Achieving Debt Free Status
Throughout your debt management plan, quality credit counseling includes:
Regular check-ins to monitor progress and address challenges
Continued education through workshops and resources
Budget adjustments when your circumstances change
Credit rebuilding guidance as you approach debt freedom
Graduation planning for maintaining financial health after completion
Most debt management plans take 3-5 years to complete, with many people becoming debt-free faster through improved financial habits.
consumer credit counseling
Debt Management Plans (DMPs) Explained: Key Benefits and Considerations
Debt management plans are the primary tool used in credit counseling, but they’re not right for everyone.
What Types of Debts are Included in a DMP?
Debt management plans typically include all unsecured debt:
Credit cards (all major issuers usually participate)
Store credit cards and retail financing
Personal loans from banks and credit unions
Medical debt and professional service bills
Some collection accounts (depending on the creditor)
Debts usually NOT included:
Secured debts (mortgages, car loans)
Government debts (taxes, student loans)
Court judgments and garnishments
Debt to family and friends
How DMPs Can Offer Interest Relief and Lower Monthly Payments
The primary benefits of debt management plans include:
Reduced interest rates: Often lowered to 0-10%
Waived fees: Late charges and over-limit fees eliminated
Single payment: One monthly payment instead of multiple bills
Fixed timeline: Clear end date for becoming debt-free
Example: Sarah owed $25,000 on five credit cards with an average interest rate of 22%. Through a DMP, her rate dropped to 8%, reducing her monthly payment from $890 to $520 and cutting three years off her repayment time.
The Impact of a DMP on Your Credit Score: Myth vs. Reality
There are many misconceptions about how debt management plans affect credit scores:
Myths:
“DMPs destroy your credit score”
“It’s as bad as bankruptcy on your credit report”
“You can’t get credit while on a DMP”
Reality:
DMPs may initially lower your score by 50-100 points
Your score typically recovers within 12-18 months
The impact is much less severe than bankruptcy or debt settlement
Many people see improved scores as they pay down debt
You can often qualify for new credit after 12 months of on-time payments
Comparing Your Options: Credit Counseling vs. Other Debt Relief Solutions
Understanding all your options helps you make the best choice for your specific situation.
Credit Counseling vs. Debt Consolidation Loans
Credit Counseling:
No new loan required
Works with existing creditors
Provides education and support
Minimal fees (usually under $100)
Available even with poor credit
Debt Consolidation Loans:
Requires qualifying for a new loan
May offer lower interest rates
No ongoing support or education
Higher fees (origination fees, interest)
Difficult to qualify with damaged credit
Best for: Credit counseling works better if you can’t qualify for a low-interest consolidation loan or need ongoing support.
Unfortunately, not all debt advisory services have your best interests in mind. Recent government investigations have revealed serious problems in Canada’s debt advisory marketplace.
Government Investigation Reveals Serious Issues
In December 2023, Canada’s Office of the Superintendent of Bankruptcy (OSB) released a position paper on The Adverse Effects of the Debt Advisory Marketplace on the Insolvency System. This position paper detailed the environment of problematic debt advisory practices. Since then, over 100 complaints have been filed against debt advisors.
Major problems identified:
Charging fees for services that should be free
Misrepresenting themselves as government officials
Requiring upfront payments before providing help
Threatening to cancel debt solutions if clients stop paying
The Hidden Costs of Questionable Debt Advisors
The financial impact has been significant. Between December 2023 and April 2025:
Debt advisor involvement in bankruptcy cases dropped 59%
Monthly fees paid to advisors fell from $2.1 million to $1.2 million
This represents nearly $1 million monthly in unnecessary fees paid by struggling Canadians
Real example: One client was instructed to put debt advisor fees on credit cards, then include that new debt in their bankruptcy filing – a practice that may violate Canadian criminal law.
Red Flags to Watch For
Immediate warning signs:
Demands for large upfront payments
Claims they work “with the government”
Promises to “eliminate your debt” quickly
High-pressure sales tactics
Won’t provide clear fee information
Prevents direct communication with Licensed Insolvency Trustees
Common misleading tactics:
“You must pay us first” – False. You can contact Licensed Insolvency Trustees directly.
“We can get better deals than trustees” – Trustees have legal authority that debt advisors don’t have.
“Pay us or your proposal will fail” – Often a scare tactic without legal basis.
Finding Legitimate Consumer Credit Counseling Help
How to Identify Quality Credit Counseling Services
Look for these characteristics:
Non-profit status or transparent fee structure
Accreditation from recognized organizations
Free or low-cost initial consultations
Educational focus, not just debt management
Clear explanations of all options, not just their services
Willingness to refer you elsewhere if appropriate
Questions to Ask Any Credit Counseling Agency
Before committing to any service, ask:
“What are all your fees, and when do I pay them?”
“Are you accredited, and by whom?”
“What happens if I can’t make my payments?”
“How will this affect my credit score?”
“Can you provide references from past clients?”
“What other debt relief options should I consider?”
Maintain strict professional and ethical standards
Provide legal protection through bankruptcy and consumer proposal processes
Full Disclosure: Ira Smith Trustee & Receiver Inc. operates independently and has no relationships with unregulated debt advisory services.
consumer credit counseling
My Professional Experience and Qualifications
As a Licensed Insolvency Trustee serving the Greater Toronto Area for decades, I’ve helped thousands of individuals and families overcome financial challenges. My approach combines legal expertise with a genuine understanding of the emotional stress that debt creates.
Former senior banker with extensive credit and lending experience
Regular community education contributor on financial topics
Maintaining my continuing education in debt advisory and financial restructuring matters
My commitment: Every client receives honest, transparent advice tailored to their unique situation. I believe in empowering people with knowledge and supporting them through the recovery process.
Frequently Asked Questions About Consumer Credit Counseling
Q: Will consumer credit counseling hurt my credit score?
A: Quality credit counseling may initially lower your score by 50-100 points, but this recovers within 12-18 months as you pay down debt. The impact is much less severe than bankruptcy, debt settlement, or continuing to miss payments.
Q: How much does legitimate consumer credit counseling cost?
A: Non-profit credit counseling typically charges $20-50 for initial setup and $20-40 monthly for debt management plans. Be very wary of services charging hundreds or thousands of dollars upfront.
Q: Can I get out of a debt management plan if my situation changes?
A: Yes, you can exit a DMP at any time. However, creditors may reinstate original interest rates and fees. Discuss exit strategies with your counsellor, before starting.
Q: Will my creditors definitely agree to a debt management plan?
A: Most major credit card companies participate in DMPs, but participation is voluntary. Your counselor should be upfront about which creditors typically cooperate.
Q: Is consumer credit counseling better than bankruptcy?
A: It depends on your situation. Credit counseling works well if you have steady income and manageable debt levels. Bankruptcy might be better if your debt is too high relative to income or you’re facing immediate legal action.
consumer credit counseling
Taking Action: Your Next Steps Toward Financial Recovery
If You’re Considering Consumer Credit Counseling
Research thoroughly – Look for accredited, non-profit agencies
Get multiple consultations – Compare approaches and fees
Ask detailed questions – Understand exactly what you’re paying for
Review alternatives – Make sure counsellingcounsellor is your best option
Start with free resources – Many educational materials are available at no cost
If You Think You Need More Comprehensive Help
Sometimes consumer credit counseling isn’t enough. You might benefit from legal debt relief options like consumer proposals or bankruptcy if:
Your debt exceeds 40% of your gross annual income
You’re only making minimum payments with no progress
Creditors are threatening legal action
You’re using credit to pay for necessities
Financial stress is severely impacting your health or relationships
Free Consultation Available
If you’re dealing with overwhelming debt in the Greater Toronto Area, I invite you to book a free, no-obligation consultation with me. During our meeting, we’ll:
Complete review of your debt and financial situation
Explanation of how different solutions might affect your credit
Discussion of immediate steps you can take
Honest assessment of whether consumer credit counseling or other options are best for you
Clear answers to all your questions in a counselling language you understand
What makes my approach different:
We have years of experience with Canadian debt relief
Legal authority to implement solutions that debt advisors cannot
Regulated fees with no hidden costs
Genuine commitment to your long-term financial health
Comprehensive support throughout your recovery process
Conclusion: Making Informed Decisions About Consumer Credit Counseling
Consumer credit counseling can be a valuable tool for debt relief, but only when you choose the right service provider and understand all your options. The key is distinguishing between legitimate, educational counselling services and expensive programs that duplicate services available elsewhere for free.
Remember these crucial points:
Quality consumer credit counseling focuses on education and empowerment
Non-profit agencies typically offer the most trustworthy services
Be extremely cautious of high upfront fees or pressure tactics
Your current financial situation doesn’t define your future possibilities
Whether you choose credit counseling, work with a Licensed Insolvency Trustee, or pursue other debt relief options, the most important step is taking action. Financial problems rarely improve on their own, but with the right guidance and commitment, you can overcome debt challenges and build lasting financial stability.
The path to financial freedom in Canada’s current economic climate may be challenging, but it is not impossible. With the right information, a clear plan, and professional guidance, you can overcome your cost of living and debt challenges and move towards a more secure and hopeful financial future.
You’re not alone in this. There’s a path forward, and it starts with reaching out for the right kind of help. Take that step—you deserve it. If you’re a GTA resident dealing with overwhelming debt, don’t wait for your credit situation to get worse. As a licensed insolvency trustee serving Toronto, Mississauga, Brampton, Vaughan, Markham, and surrounding areas, I’m here to help you understand your options.
Remember: Your current financial situation doesn’t define your future. With the right help and information, you can overcome both debt challenges and credit score problems.
As a licensed insolvency trustee serving the Greater Toronto Area, I encourage consumers and business owners to view financial difficulties not as failures but as challenges that can be addressed with proper guidance. By understanding the warning signs of insolvency and seeking professional advice early, many people and businesses can find a path forward – whether through restructuring, strategic changes, or in some cases, an orderly wind-down that protects their future opportunities.
Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.
If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help entrepreneurs understand their options and find a path forward during financial challenges.
At the Ira Smith Team, we understand the financial and emotional components of debt struggles. We’ve seen how traditional approaches often fall short in today’s economic environment, so we focus on modern debt relief options that can help you avoid bankruptcy while still achieving financial freedom.
The stress of financial challenges can be overwhelming. We take the time to understand your unique situation and develop customized strategies that address both your financial needs and emotional well-being. There’s no “one-size-fits-all” approach here—your financial solution should be as unique as the challenges you’re facing.
If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. Ira Smith Trustee & Receiver Inc. is a Licensed Insolvency Trustee serving Toronto, Vaughan, Mississauga, Brampton, Markham, and the entire Greater Toronto Area. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.
The information provided in this blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc., and any contributors do not assume any liability for any loss or damage.
A Recent Ontario Court Decision Every Business Owner Should Know About
As a Licensed Insolvency Trustee practicing in the Greater Toronto Area, I’ve guided many businesses through difficult financial times. Today, I want to share an important recent court decision showing the legal development of how companies handle creditor payments when facing money troubles.
What Happened: The $400,000 Payment That Backfired
A company called Specialty Chemical Industries was struggling financially
They owed over $11 million to various parties in respect of various secured loans and unsecured creditor suppliers’ unpaid debts
One supplier, American Pacific Corporation (AmPac), was their main supplier
Specialty paid AmPac $400,000 to get $100,000 worth of chemicals
They hoped this would help them fill an order for their main customer
Less than two months later, Specialty went bankrupt
The court ruled that this $400,000 unsecured debt payment was a “preference” – meaning Specialty unfairly favoured one creditor (AmPac) over all their other creditors. AmPac was ordered to return the money.
When a business is going under, the law says all creditors should be treated fairly. Section 95 of the Bankruptcy and Insolvency Act (BIA) calls this “creditor equality.”
A preference happens when:
A debtor pays one creditor shortly before bankruptcy (within 3 months)
This payment gives the payee better treatment than others
The debtor knew it couldn’t pay all its debts
The law assumes any payment made within 3 months of bankruptcy was intended to prefer that payee. It’s up to the business to prove otherwise.
Why Did Specialty’s “Business Survival” Argument Fail?
The argument was that Specialty paid AmPac under unsecured credit terms because they needed to keep their business going. It was argued this wasn’t preferring one over others – it was trying to save the company for everyone’s benefit.
The court didn’t buy this argument. Here’s why:
No solid plan: Specialty had no clear plan showing how this payment would help the company and all stakeholders
Poor financial position: After the payment, they had only $35,000 left but owed $11 million
Low profit margins: Their profit margins were only 2-10%, not enough to dig out of debt
No testimony: No company director testified to explain their plan
Failed strategy: Their main customer left anyway
FULL DISCLOSURE: My Firm was the licensed insolvency trustee administering the company director’s bankruptcy. The personal bankruptcy occurred by the court issuing a Bankruptcy Order in January 2019, through a legal proceeding initiated by RPG. Both the director and my Firm have since been discharged. My Firm was not involved in this court case I am writing about.
What This Means for Your Business
If your business is facing financial problems, this case offers important lessons:
Do:
Treat all creditors fairly if you’re approaching insolvency
Document your business plans that show how payments benefit all stakeholders
Seek professional advice early from a Licensed Insolvency Trustee
Don’t:
Pay one unsecured party a large sum when you can’t pay others
Make last-minute payments, hoping to save your business without a solid plan
Assume “business necessity” justifies preferring one over another
I often see business owners make decisions based on hope rather than reality when facing financial trouble. They think, “If I just pay this one supplier, I can keep going.”
The court’s message is clear: hope isn’t enough. If you can’t prove your plan truly benefits all stakeholders,, not just one, the payment could be considered a preference and later clawed back.
Key Takeaways
All unsecureds rank equally under bankruptcy law
Payments made shortly before bankruptcy are carefully scrutinized
Commercial pressure doesn’t justify preferring one over another
Only evidence-based rescue plans can justify paying one over others
Protecting Your Business from Preference Issues
As a business owner, you need to understand these rules before financial troubles hit. If you’re struggling to manage all your payments, it’s time to speak with a Licensed Insolvency Trustee about your options.
We can help you develop strategies that comply with the law while giving your business the best chance for recovery, or at least ensure you will not be giving yourself bigger headaches and legal liability if bankruptcy becomes necessary.
Final Thoughts on Fairness
The law may seem harsh, but it serves an important purpose: ensuring everyone is treated fairly when a business fails. Without these rules, stronger or favoured suppliers would get paid while others get nothing.
Remember: when it comes to creditor treatment during financial distress, good intentions aren’t enough. The law demands fairness – even when that’s difficult.
Preference FAQ: Your Questions Answered
What exactly does “anti-preference” mean in bankruptcy law?
The anti-preference rules in the BIA stop businesses from playing favourites when they’re about to go bankrupt. These rules make sure all regular unsecureds are treated fairly and share equally in whatever assets are left. This is the cornerstone of Canadian bankruptcy law – fairness for all stakeholders.
When might a payment to a creditor be considered unfair?
A payment might be considered unfair (or “void”) when:
It’s made within 3 months before bankruptcy
It’s made while the business can’t pay all its debts
It gives that party better treatment than others
If these conditions are met, the court assumes the payment was meant to give special treatment.
What is a “rebuttable presumption” regarding creditor payments?
This legal term simply means the court starts by assuming any payment made to a creditor within 3 months of bankruptcy was intended to favour them. It’s then up to the business to prove this wasn’t their intention. Even if a creditor was putting pressure on the business, that pressure alone isn’t enough to justify the payment.
Can a business explain that they were under pressure from a creditor?
Yes, but with limits. A business can tell the court about pressure put on them to help explain their situation, but pressure alone won’t justify the payment. The court will consider this information as part of the whole picture, not as a valid reason for favouring one over others.
How can a business prove they weren’t trying to favour one creditor?
A business must show that its main goal wasn’t to give one stakeholder special treatment. They need to prove, with clear evidence, that they had a different reason for making the payment, like trying to keep the business going with a solid plan that would benefit all stakeholders in the long run.
When is “trying to save the business” a valid reason for paying just one creditor?
This reason only works if the business had a realistic plan that would help everyone, not just one. Having a vague hope or wish isn’t enough. The business needs to show:
A sensible business plan
Evidence that the plan could realistically work
Proof that the plan would benefit all stakeholders, not just one
That the financial situation wasn’t already hopeless
Why does a business continuity plan need to be “reasonable”?
The “reasonable plan” requirement ensures businesses don’t drain their remaining assets, helping one or two parties while leaving nothing for everyone else. A reasonable plan aligns with bankruptcy law’s core purpose – fair treatment for all. If a payment is part of a genuine strategy that could improve the situation for everyone, then it isn’t considered unfair to others.
What factors do courts look at when deciding if a business plan was reasonable?
Courts consider several practical factors:
Was there a clear, sensible business plan?
Was the business already too far gone financially?
Did the potential benefits outweigh the payment amount?
Would a bankruptcy trustee have made the same decision to maximize recovery for all creditors?
Six Key Lessons from the Preference Case
This case teaches us important lessons about how creditors are treated when a business is heading toward bankruptcy. Let’s break down what the Court of Appeal for Ontario said in simple terms:
1. All Creditors Must Be Treated Equally
The court firmly reminded us that the foundation of bankruptcy law is treating all creditors fairly. Section 141 of the BIA states that “all unsecured creditors rank equally and share equally in the bankrupt’s assets.” This isn’t just a nice idea – it’s the law.
2. Payments Shortly Before Bankruptcy Can Be Reversed
When a business pays one creditor right before bankruptcy (within 3 months), that payment can be “voided,” – meaning the creditor has to give the money back. This happens when:
The business was already unable to pay all its debts
The payment gave that creditor better treatment than others
In this case, AmPac had to return the entire $400,000 payment.
3. Courts Assume Preferential Intent
If arrangements with creditors, including a payment, check the boxes above, the court starts with the assumption that the business intended to give that creditor special treatment. This is called a “rebuttable presumption,” which means it’s up to the business to prove otherwise.
4. Pressure from a Supplier Isn’t an Excuse
The court clarified an important point: just because a creditor was demanding payment doesn’t justify giving them special treatment. While the court will consider creditor pressure as part of the whole story, it can’t be the main excuse for the payment.
5. Business Continuation Plans Need to Be Realistic
The court established a clear standard: if a business claims they made a payment to stay afloat (not to prefer one creditor), they must show they had a reasonable plan. This plan must:
Be more than just wishful thinking
Shows real potential to benefit all creditors, not just one
Be something a bankruptcy trustee might reasonably do to help all creditors
6. Courts Look at Hard Facts, Not Just Good Intentions
When deciding if a business plan was reasonable, courts look at practical factors:
Was there a sensible, detailed business plan?
Was the business already beyond saving?
Did the potential benefits outweigh the payment amount?
Would the plan help satisfy all creditor claims?
The Hard Truth About Equality
The outcome of this case might seem harsh. AmPac provided goods, Specialty made a payment, and now AmPac has to give the money back. But bankruptcy law has a greater purpose – making sure one creditor doesn’t get special treatment while others get nothing.
In the end, the court ordered AmPac to return the entire $400,000. This reinforces an important principle: when a business is heading toward bankruptcy, fairness to all creditors matters more than the survival of one relationship.
For business owners, the message is clear: when you’re facing financial trouble, you can’t play favourites with creditors – even if it feels like the only way to keep your business alive. The law demands fairness, even when fairness is difficult.
As a licensed insolvency trustee serving the Greater Toronto Area, I encourage business owners to view financial difficulties not as failures but as challenges that can be addressed with proper guidance. By understanding the warning signs of company insolvency and seeking professional advice early, many businesses can find a path forward – whether through restructuring, strategic changes, or in some cases, an orderly wind-down that protects their future opportunities.
Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.
If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help entrepreneurs understand their options and find a path forward during financial challenges.
At the Ira Smith Team, we understand the financial and emotional components of debt struggles. We’ve seen how traditional approaches often fall short in today’s economic environment, so we focus on modern debt relief options that can help you avoid bankruptcy while still achieving financial freedom.
The stress of financial challenges can be overwhelming. We take the time to understand your unique situation and develop customized strategies that address both your financial needs and emotional well-being. There’s no “one-size-fits-all” approach here—your financial solution should be as unique as the challenges you’re facing.
If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.
The information provided in this blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc., and any contributors do not assume any liability for any loss or damage.
Very soon we will all start receiving our slips to prepare our 2024 income tax return. Tax season can be a stressful time, especially when you realize you owe money to the Canada Revenue Agency (CRA). It can feel like a huge weight on your shoulders, and sometimes it might feel like you’re drowning in debt. If you’re in this position, it can be hard to know where to turn, and it may feel like your finances have reached a tipping point. You’re not alone, and there are options to help you regain control. One of these options is a consumer proposal CRA to eliminate your tax debt.
As a Licensed Insolvency Trustee (LIT), I help people explore their options for managing debt, and I’m here to explain how it can work for you to eliminate your financial difficulties, especially when dealing with the CRA.
Understanding a Consumer Proposal CRA
A consumer proposal is like a formal legal agreement between you and the people you owe money to (your creditors). It is a debt management plan to legally reduce the amount of debt you have to pay back [1]. It’s a way to combine all your unsecured debts into one monthly payment, making it more manageable.
Think of it as a new arrangement that gives you a chance to repay your debts – or a portion of them – on terms that are more reasonable for you. This is a federally regulated debt reduction program [4] managed by a Licensed Insolvency Trustee. With a consumer proposal, you often end up paying back significantly less than what you originally owed. A great benefit is that interest doesn’t keep adding up, which can save you a lot of money in the long run.
consumer proposal CRA
How a Consumer Proposal CRA Helps with CRA Tax Debt
You might be surprised to hear that income tax debt is actually considered an unsecured debt, just like credit card debt and other consumer debts. This means that even though is can be called a government debt, it can be included in a consumer proposal CRA debt. One of the biggest advantages of filing a consumer proposal is that it immediately stops the CRA from taking further action to collect the debt.
This includes things like garnishing your wages, freezing your bank account or constantly calling you for payment. With this tool, instead of having lots of individual payments to different creditors, you make one single monthly payment to the LIT, making it much easier to manage your finances. The periodic payments are structured and typically spread out over a specific period of time of no more than five years . It also gives you legal protection from your creditors.
CRA Requirements and Considerations for a Consumer Proposal CRA
The CRA has specific requirements when it comes to consumer proposals. It is essential that all your tax returns are up to date before you file. This means that even if the CRA has made an estimate of what you owe because you haven’t filed (called a notional assessment), you still need to file proper tax returns. You must also be prepared to file your future tax returns and pay your taxes on time during the period of the proposal.
You can include an estimate for the income tax you owe for the current year, up to the date you file the proposal. The CRA will look at your past earnings to make sure that the income you report is accurate. The CRA will also check to make sure that your proposal offers fair and reasonable terms, and that you are not trying to pay as little as possible. It’s important to know that the CRA will only be able to reduce your tax debt through a formal insolvency proceeding and will not accept other informal types of debt settlements.
consumer proposal CRA
Benefits of a Consumer Proposal CRA
Filing a consumer proposal has several advantages:
It reduces your overall debt: You could end up paying significantly less than the total amount you owe.
It protects you from collection actions: A consumer proposal CRA means that they have to stop contacting you and cannot take further legal action against you.
It consolidates your payments: You make one single monthly payment instead of multiple payments to different unsecured creditors.
It stops interest: Interest on your debt will stop accumulating.
It offers flexible payment terms: You can discuss a payment plan that works best for you.
It can save you significant money: Many people save a considerable amount of money when they use a consumer proposal CRA.
Is a Consumer Proposal CRA Right for You?
It’s important to know that it is not right for everyone. To qualify, your total unsecured debt must be less than $250,000, not including your mortgage. Unsecured debts are things like credit cards and other consumer debt not secured by a specific asset. Secured debts, such as mortgages and car loans, are not included. The best thing to do is to think about your personal circumstances and get advice from a LIT. A LIT can help you figure out if it is the best option for you.
Documentation Required for Submission
If you’re considering this option, here are the steps to take:
Gather your financial information: Make a list of all your assets, and your debts. You should also be able to list your monthly income and expenses – in other words, your monthly budget, on an after tax basis.
Assessment of Your Financial Situation
Consult with a Licensed Insolvency Trustee: A LIT will review your information, discuss options with you and guide you through the recommended process.
Create a proposal: If the proposal route is right for you, you will work with your LIT to develop the proposal for your unsecuted creditors.
A LIT will explain how a consumer proposal CRA could affect your finances and help you decide if it’s right for you. It’s best to contact a LIT early so that you can address any issues before they become worse.
consumer proposal CRA
Frequently Asked Questions about Consumer Proposals and CRA Debt
What exactly is a consumer proposal and how does it work?
A consumer proposal CRA is a legally binding agreement between you and your creditors (those you owe money to). It’s a formal debt reduction program, regulated by the federal government and administered by a LIT. Essentially, you offer your creditors a revised repayment plan, typically over a specific period of time up to five years.
This usually involves paying back a portion of your total debt, often significantly less than the original amount owed, and importantly, interest on your debts stops accruing. This creates a structured repayment plan, with one single monthly payment, and offers a way to manage your unsecured debts.
Can I include my Canada Revenue Agency (CRA) tax debt in a consumer proposal?
Yes, absolutely. Income tax debt owed to the CRA is considered an unsecured debt, just like credit card debt or bank loans. This means it can be included in a consumer proposal. A consumer proposal will protect you from further collection actions by the CRA, such as wage garnishments, court actions and persistent collection calls. The CRA will deal with tax debt through a formal consumer proposal and will not consider informal debt settlements.
What are the key benefits of using a consumer proposal to manage CRA debt?
There are several advantages. Firstly, you can significantly reduce the overall amount of tax debt you have to repay. Secondly, it provides legal protection from collection actions by the CRA. Also, it consolidates all your debt payments into one manageable monthly payment. Critically, interest stops accumulating on the included debts, which can save you a lot of money over time. Finally, the process allows for flexible payment terms, which are negotiated with your creditors via an LIT.
What are the CRA’s specific requirements for accepting a consumer proposal?
The CRA has a few key requirements. First, you must have all of your past tax returns. This is crucial, and even if the CRA has estimated your taxes via a notional assessment, you will still need to file your proper tax returns to get all tax filings up to date.
Second, you must agree to file future tax returns and pay your taxes on time during the course of the proposal. You can also include an estimate for the income tax you owe for the current tax year up to the date you file the proposal, even though that tax filing is not due yet. The CRA will also review your income and expenses, to ensure the proposal is offering fair and reasonable terms and that you are not trying to minimize payment.
What types of debts can be included in a consumer proposal, and what debts are excluded?
A consumer proposal is primarily designed for unsecured debts. These are debts not linked to an asset, such as credit cards, bank loans, payday loans, and CRA income tax debt. Secured debts such as mortgages and car loans, are not included in consumer proposals. Also, some debts cannot be discharged through a consumer proposal. These typically include child support, spousal support and any court-ordered fines or penalties.
How do I know if a consumer proposal is the right solution for me?
A consumer proposal is not for everyone. To be eligible, your total unsecured debt must be less than $250,000 (excluding your mortgage). The best way to determine if it’s right for you is to assess your individual circumstances and consult with a Licensed Insolvency Trustee (LIT). An LIT can assess your financial situation, review all your options and advise you if a consumer proposal is the best choice for you and what your proposal payments may be. It is beneficial to seek help early before debt problems become worse.
What are the first steps I should take if I’m considering a consumer proposal?
First, gather all your financial information: income statements, a comprehensive list of all your debts and your monthly expenses. Then, consult with a Licensed Insolvency Trustee (LIT). They will explain the process, assess your eligibility and help you develop a consumer proposal for your creditors. It’s important to address debt issues promptly and with a professional, rather than ignoring them, to prevent further issues developing.
Will a consumer proposal CRA completely eliminate my debt?
A consumer proposal does not eliminate all debts entirely. It eliminates or reduces the unsecured debts it includes; any secured debts such as a mortgage, and non-dischargeable debts, like child support, will still need to be paid. The proposal offers a structured way to repay a significant portion, or all of the unsecured debts included in it, and a reduction of the overall debt burden. Remember that the key goal is to agree a manageable repayment plan that is affordable.
Conclusion: Navigating the Consumer Proposal CRA Process
Dealing with CRA debt can feel overwhelming and scary, but a consumer proposal CRA can be a way to find your path to financial freedom. It’s important to seek help rather than ignore the problem. Taking action early can prevent things from spiralling out of control. Contact a Licensed Insolvency Trustee today to start exploring your options and take that first step towards a more secure financial future.
I hope you enjoyed this consumer proposal CRA Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.
You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern debt relief options to get you out of your debt troubles while avoiding the bankruptcy process. We can get you debt relief freedom using processes that are a bankruptcy alternative.
The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a plan, we know that we can help you.
We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.
That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage.
Finance Minister and Deputy Prime Minister Chrystia Freeland introduced the 2024 Federal Budget on April 16. During her presentation in Parliament, she advised that Budget 2024 will include that any capital gain will be taxed from the current 50% to two-thirds. April 30 was the last day for most Canadians to file their 2022 personal income tax return.
At the end of April, Ms. Freeland announced that Budget 2024 would not include the capital gains tax change. Rather, she will ask Parliament to approve a stand-alone Bill which will include the capital gains tax change, no doubt combined with other initiatives such as more Federal money for access to housing, in a crass move to try to score voter points when the Conservatives vote against the Bill because of the tax increase. So income tax owed to the Canada Revenue Agency (“CRA”) is on everyone’s mind.
Canadian entrepreneurs are up in arms over the Budget 2024 capital gains taxation change. People are concerned over the level of taxation disclosed in their personal income tax returns. Some Canadians do not have the money to pay their calculated income tax payable.
This Brandon’s Blog discusses the complex world of Canadian bankruptcy and CRA debt, along with other potential options, to achieve financial stability. I aim to equip people with the necessary knowledge and strategies to make informed choices.
Definition of Bankruptcy and CRA Debt
Bankruptcy is a legal condition where consumers or companies admit they are unable to pay their outstanding debts. The bankruptcy process is a supervision and administration process overseen by a licensed insolvency trustee and the court. Under the bankruptcy legislation, people and businesses can either: (i) restructure to eliminate their debt by only paying a percentage of the amount owing; or (ii) liquidate most of their assets for the proceeds to be paid to the creditors in priority as outlined in the legislation.
CRA debt is one kind of debt that individuals or companies may owe for unpaid taxes, penalties and interest. Understanding the workings of bankruptcy and CRA debt will help people owing taxes they cannot repay make informed decisions on how to deal with their debts to get back to a financially healthy and stress-free life.
bankruptcy and cra debt
Bankruptcy and CRA Debt: Importance of Debt Management and Tax Relief
Effective debt management and tax relief are crucial aspects of financial stability for individuals facing Canadian bankruptcy and CRA debt. By implementing sound strategies for managing debt and seeking relief from tax obligations, individuals can regain control of their finances and work towards a brighter financial future.
Debt management techniques such as budgeting, debt consolidation, and credit counselling can help individuals navigate the complexities of bankruptcy and CRA debt. Additionally, exploring tax relief solutions such as deductions, payment plans, and professional assistance can alleviate the burden of tax liabilities. Prioritizing debt management and tax relief is key to overcoming financial challenges and achieving long-term financial well-being.
Bankruptcy and CRA Debt: Understanding Bankruptcy in Canada
What is bankruptcy?
Having a solid grasp of how bankruptcy can affect a person is vital for those experiencing financial difficulties. Things such as the different types of bankruptcy, the procedure for initiating bankruptcy proceedings, and the real-life impact it has on a person’s daily life are crucial for anyone considering personal bankruptcy to understand. By examining the intricacies of bankruptcy, I hope you will gain valuable insights into how to effectively navigate this intricate legal process.
Whether contemplating personal or corporate bankruptcy, understanding critical aspects such as which assets can be liquidated by a Trustee, how your debt gets discharged, and creditor negotiations is essential. With the appropriate knowledge and assistance, people can make well-informed choices to manage their debts to head towards a new financial beginning.
Bankruptcy laws in Canada
Bankruptcy laws in Canada are a set of legislation and regulations that govern obtaining bankruptcy protection and the subsequent handling of a person or business’ financial affairs. These laws are designed to provide individuals and companies with a second chance to manage their debts and start afresh.
In Canada, the main governing legislation for bankruptcy is the Bankruptcy and Insolvency Act (BIA), which outlines the procedures and requirements for obtaining relief to restructure debts under either a consumer proposal or a Division I proposal.
If restructuring is not a possibility, the BIA also covers the procedures for what is always the last choice, a liquidating bankruptcy. The BIA also covers the rights and responsibilities of debtors, creditors and insolvency trustees. Additionally, each province has its legislation that may impact the result of bankruptcy under federal laws.
In the case of larger and more intricate corporations, the Companies’ Creditors Arrangement Act (CCAA) presents an additional federal statute to be considered. This legislative provision enables such substantial entities to effectively reorganize their operations and financial matters, thereby ensuring their sustained business activities and provision of employment opportunities for Canadians.
Individuals and businesses alike must gain comprehensive knowledge of these legal frameworks and diligently seek expert counsel before undertaking any bankruptcy-related determinations.
bankruptcy and cra debt
Bankruptcy and CRA Debt
Overview of the CRA
The CRA is entrusted with the pivotal responsibility of overseeing the execution of tax laws and programs on behalf of the Canadian government at the federal level. From 1867 until 1999, the Department of National Revenue, commonly referred to as Revenue Canada bore the responsibility of overseeing tax services and programs. However, in 1999, a comprehensive reorganization took place, resulting in the establishment of the Canada Customs and Revenue Agency (CCRA).
Subsequently, in 2003, the CCRA underwent further transformation, giving rise to the inception of the Canada Border Services Agency (CBSA), thereby altering the agency’s core focus and subsequently prompting its name change to CRA.
The CRA’s mandate revolves around the proficient and equitable collection of taxes, diligent administration of benefits, and rigorous enforcement of tax laws. Additionally, they extend their services to taxpayers by disseminating pertinent information and offering assistance to ensure that Canadians have accurate comprehension and adherence to tax obligations.
Upholding the utmost integrity of Canada’s tax system while fostering voluntary compliance through educational outreach and enforcement measures remains at the forefront of the agency’s priorities. Backed by a devoted team of professionals and leveraging cutting-edge technology, the CRA is steadfastly committed to delivering superlative and exemplary services to the Canadian populace.
Types of debt owed to the CRA
Unpaid taxes result in individuals or businesses facing substantial CRA debt financial obligations. It is important to understand the ramifications associated with such indebtedness, given that it can give rise to severe repercussions including wage garnishment, bank account freezing, or legal repercussions. To mitigate the weight of this debt and avert penalties, it is always highly recommended to stay current in your obligations to CRA.
The Canada Revenue Agency (CRA) collects a range of debts from both individuals and businesses. Among these debts, the most prevalent is income tax owed, which represents the unpaid tax on an individual’s or business’s income. Another significant debt includes the Harmonized Sales Tax (HST) or, in provinces without sales tax, the Goods and Services Tax (GST) owed. These taxes apply to most goods and services supplied within Canada. CRA may also assess the individual Directors for GST/HST and employee source deductions not remitted by the corporation.
Furthermore, individuals and businesses may also encounter debts such as payroll remittance, excise tax, and penalties or interest charges resulting from late or erroneous filings. To ensure compliance and avoid further penalties or potential legal consequences, individuals and businesses must promptly and accurately address these debts on time.
Consequences of CRA debt
Noncompliance with the CRA and the resulting indebtedness can lead to serious problems for both individuals and businesses. Failing to pay your tax obligations to the CRA results in penalties, interest charges, and legal repercussions. These ramifications extend beyond mere financial burdens, encompassing wage garnishments, bank account seizures, seizure of amounts owing to the taxpayer from third parties, and property liens.
The CRA can freeze your assets and conduct audits to recover outstanding debts. The detrimental consequences of indebtedness to the CRA can have far-reaching implications, impairing credit ratings and impeding access to loans or mortgages. It is of utmost importance for individuals and businesses to expeditiously address and resolve any outstanding debt owed to the CRA to avert these severe consequences. Retaining a tax professional to assist in dealing with CRA is always advisable.
Bankruptcy and CRA Debt: Exploring CRA Debt Solutions in Canada
Informal Debt Settlements
When you seek an informal debt settlement option with CRA, absent formal insolvency proceedings, you will be disappointed. Without an insolvency proceeding, the CRA representative has no authority to accept anything other than 100 cents on the dollar – payment in full of the assessed tax, penalty and interest.
You can apply for a fairness hearing to see if you can get all or a portion of the penalty and interest eliminated, but the CRA person you speak to can only talk about the full amount that shows up on their computer screen.
Debt Repayment Plans
CRA will enter into a debt repayment plan, but depending on your situation, again, you may be disappointed. Normally, CRA will only agree to have you pay the full tax debt balance, plus penalty and interest, in 12 monthly instalments over the 1 year. That means that you need to repay the full amount in one year.
If you default on even one payment, then the whole deal is off and CRA will pursue you for the full amount to be immediately repaid. For some, this may be just the breathing room they need and they will be able to repay the full amount of the CRA debt over 12 equal monthly payments. But what if you cannot afford to do that?
Bankruptcy as a Debt Relief Option
Bankruptcy presents a potential solution for individuals or businesses grappling with substantial financial difficulties, especially those brought on by owing a substantial amount to CRA. By discharging most unsecured debts and providing a shield against creditors, it offers a pathway to financial renewal.
Nonetheless, it is crucial to approach bankruptcy as a final option due to its enduring impacts on credit rating, employment in areas that require bonding, and today to a much lesser extent, personal standing. Before making a decision, it is advisable to seek guidance from a qualified licensed insolvency trustee to gain a comprehensive understanding of the ramifications and to evaluate alternative strategies such as debt consolidation, a consumer proposal or corporate financial restructuring.
bankruptcy and cra debt
Bankruptcy and CRA Debt: The Bankruptcy Process in Canada
The bankruptcy process involves a diverse array of stakeholders, each playing a crucial role. Among the key participants are:
The insolvent individual or company, referred to as the debtor, has undergone financial failure and is now also known as the bankrupt.
The licensed insolvency trustee, formerly known as a trustee in bankruptcy, is responsible for managing the bankruptcy proceedings.
The creditors are owed financial obligations by the debtor.
The Office of the Superintendent of Bankruptcy (OSB), holds the mandate to regulate and oversee all administrations governed by the BIA within Canada.
Preparing for Bankruptcy
To prepare for bankruptcy, the debtor, being either the individual or the Director of the company, must make full disclosure to the licensed insolvency trustee about all assets and liabilities and all other information requested by the Trustee. This allows the Trustee to provide the debtor with advice on the realistic available options for the debtor to overcome their debt challenges and hopefully find a solution other than bankruptcy.
The Trustee will want to ensure that the debtor has filed all overdue income tax returns. That way, the debtor, the Trustee and CRA will have a good estimate of all the tax the person owes, subject to review and assessment by CRA of course. At least there will not be any outstanding filings as this can slow down an insolvency process. CRA will want a pause in the insolvency proceedings until they are certain they understand the full amount owed.
If it is decided that an insolvency process is required, such as bankruptcy, then the information also allows the Trustee to prepare all the necessary filing documents.
Filing for Bankruptcy
Filing for bankruptcy is a legal process that allows individuals or businesses to seek relief from overwhelming financial obligations, including CRA debt. It involves filing an assignment in bankruptcy document which is prepared by the Trustee, and reviewed and signed by the debtor. The bankruptcy filing discloses all assets, liabilities, and income and expenses.
Personal bankruptcy can be a complex and emotional decision, but it can provide both a shield against CRA debt collection activities and seizures and simultaneously a fresh start for those individuals struggling with overwhelming debt.
It is crucial to seek the guidance of a licensed insolvency trustee to get the advice necessary to ensure a smooth and successful filing. Bankruptcy is not a decision to be taken lightly, but it can offer a solution to individuals and companies facing insurmountable financial challenges.
Duties and Responsibilities during Bankruptcy
The focus of the BIA in personal bankruptcy is for the honest but unfortunate debtor to a society free of his or her debts. The premise is that the bankrupt, or the officer of the bankrupt corporation, will fulfill their duties with integrity and honesty. The duties are outlined in the OSB’s Directive No. 26. If you are interested, you can read them HERE.
But what if they don’t? What if the individual bankrupt does not fulfill all of their duties and essentially absences themself from the process once they have filed their assignment in bankruptcy? In that case, the Trustee must oppose the bankrupt’s application for discharge and bring the matter to court. With CRA debt, there are times when CRA will automatically oppose a person’s discharge from bankruptcy.
Bankruptcy and CRA Debt Discharge Considerations
Corporations do not receive a bankruptcy discharge; individuals do. When it comes to CRA debt, there are times when CRA automatically opposes a person’s discharge or when a Trustee must.
If an individual filing for bankruptcy has personal income tax debt exceeding $200,000 and if the personal income tax debt accounts for 75% or more of the total unsecured proven claims, they are not eligible for automatic discharge under section 172.1 of the BIA. GST/HST payable is not factored into the determination for high-tax debtors, but taxes on additional income resulting from shareholder loans, draws, or dividends are included in their assessment.
For high-tax debtors seeking discharge, the licensed insolvency trustee will present the bankrupt’s discharge application to the court for a hearing, which the individual must attend. The court’s considerations and the type of discharge order granted for high-tax debtors differ from those in cases of bankruptcy filed by non-high-tax debtors. To avoid this scenario, a high-tax debtor should consider filing an alternative to bankruptcy, such as a restructuring proposal.
Dealing with Bankruptcy and CRA Debt
Outstanding Tax Returns
Unremitted Canadian tax filings mean tax returns that are either outstanding or incomplete within the specified filing deadlines for Canadian taxpayers. Such delinquent filings will incur penalties and interest charges, requiring individuals and companies to prioritize their tax responsibilities with utmost care. It becomes the duty of each taxpayer to ensure the prompt and accurate submission of their tax returns, to avoid negative repercussions.
Tax accountants and lawyers help their clients in fulfilling their tax obligations. Timely resolution of outstanding Canadian tax returns is essential to sustain compliance and avert any future complexities.
As stated above, any person or company contemplating either trying to reach an accommodation from CRA or invoking an insolvency process to deal with their CRA debt must bring all their filings up to date.
Bankruptcy and CRA Debt: Discharge in Bankruptcy
I discussed the issues for an individual high-tax debtor trying to get their discharge from bankruptcy. The Trustee must bring the application to court. At the discharge hearing, subject to any other problematic issues with the debtor’s conduct before or during the bankruptcy administration, CRA will send a lawyer from the Department of Justice to the discharge hearing to request a condition be placed on the bankrupt before they can obtain their discharge.
The condition that the CRA will request is that the debtor pay 25% of the total proven CRA debt to obtain their bankruptcy discharge. Even if the person is not a high-tax debtor, there may be other reasons why CRA will oppose the person’s discharge from bankruptcy. If the CRA file is replete with instances of failed promises, ignoring the CRA representative requests over some time and general “trouble-making” by the taxpayer, the CRA will oppose the discharge.
These are all considerations that a person must discuss with the licensed insolvency trustee up front to end up using a process that is most advantageous to the taxpayer in eliminating their CRA debt.
Rebuilding Your Finances After a Canadian Bankruptcy Discharge
Reestablishing your financial standing following a Canadian bankruptcy discharge may seem like a challenging endeavour. However, with strategic planning and commitment, it is feasible to recover from financial setbacks. The initial step involves developing a budget and adhering to it meticulously, guaranteeing that essential expenses are met while unnecessary spending is curtailed.
Next, it is important to start rebuilding credit in a few different ways:
Obtain a secured credit card. Not the drug store variety, but the kind where you put down a cash security deposit and then you are given a credit card limit equal to your cash deposit. When you make your credit card payments, it gets reported to the credit bureaus. If you make your payments when due, over time, this will increase your credit score.
Take out a small 1 year RRSP loan and pay it off on time. This will also improve your credit score on your credit report.
The two Canadian credit bureaus, Equifax and TransUnion, are now beginning to track residential rent payments. If you are a renter and you make your rent payments on time, this too will increase your credit score.
It is also recommended to seek guidance from a financial advisor or credit counsellor to develop a solid financial plan. With patience and discipline, it is possible to rebuild your finances and secure a brighter financial future.
bankruptcy and cra debt
Bankruptcy and CRA Debt FAQs
Here are the most frequently asked questions and the answers regarding bankruptcy and CRA debt:
Is it possible to file for bankruptcy solely for CRA debt?
When initiating bankruptcy proceedings, it is imperative to include all debts owed. Notably, CRA debt related to income taxes and Director liabilities is treated comparably to other unsecured debts within the scope of bankruptcy proceedings.
What happens to my CRA debt in bankruptcy?
In bankruptcy, CRA debt is included as part of your unsecured debts (the exception being a proprietorship or partnership debt for unremitted HST or employee source deductions). Keep in mind that the CRA may oppose your discharge and the court may make a condition of you paying a portion of the CRA debt to obtain your discharge from bankruptcy.
How does bankruptcy affect my tax refunds?
Tax refunds may be affected in bankruptcy. It’s important to consult with a professional to understand the specific impact on your tax refunds.
Can I include tax debt in a consumer proposal?
Yes, tax debt can be included in a consumer proposal. A consumer proposal offers a structured repayment plan to creditors, including the CRA. It can be a more favourable option than bankruptcy for negotiating repayment terms with the CRA.
What if my tax debt exceeds $200,000 and makes up over 75% of my unsecured debt?
Individuals with personal tax debt exceeding $200,000, constituting over 75% of their total unsecured debts, may not qualify for automatic discharge in bankruptcy proceedings. In such instances, a bankruptcy court hearing will be convened, and potential conditions for discharge may be mandated, such as contributing a specified amount to the bankruptcy estate.
Bankruptcy and CRA Debt Conclusion
I hope you have enjoyed this bankruptcy and CRA debtBrandon’s Blog. Hopefully, you have better insight now into the ways of dealing with CRA debt and what some viable options are.
Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.
You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.
The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a plan, we know that we can help you.
We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.
That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
Are you drowning in credit card debt, tax debt or any other debt and feeling overwhelmed by mounting interest charges? Are you behind in some or all of your debt payments? Is there a collection agency hounding you? It’s a common struggle, especially with the recent increases in interest rates. But fear not, there are debt relief options available to help you regain control of your finances. Two popular choices are a debt management program and bankruptcy, but there are key differences to consider.
In this Brandon’s Blog post, we will explore the differences between these two options and guide you on how to choose the right one for your unique financial situation. Read on to discover the path to financial freedom.
Understanding a Debt Management Program
A debt management program offers a way to pay off high-interest credit card balances without resorting to bankruptcy. However, it’s important to note that a debt management program may not be the best solution for everyone. It is most effective when your debt amount is manageable and you have assets you want to protect.
If you find yourself in this situation, a debt management plan can help you lower your overall payment to a more affordable amount, without the need for legal filings or interventions. This means you can keep your valuable possessions, such as homes, cars, and other assets. Additionally, debt relief allows for a more gradual approach, giving you the flexibility to regain your financial footing over time.
Is a debt management program right for you?
When you find yourself overwhelmed by debt, exploring debt management program options may provide a much-needed solution. However, determining whether a debt management plan is ideal for your situation requires careful consideration.
Debt Amount Consideration
A debt management program tends to be most effective when your debt amount is manageable. While the specific threshold varies depending on individual circumstances, having a debt level that you can realistically work to pay off over time is typically more conducive to successful debt management program outcomes.
You also need to separate secured debt from unsecured debt. Secured debt is what its name sounds like. The debt is secured against one or more of your assets, such as an auto loan. If you need the asset and its value is greater than the amount of debt against it, the secured lender will not be motivated to amend the amount you owe.
No Legal Filings Required
One of the key advantages of a debt management program is that it generally does not necessitate any legal filings or interventions. This streamlines the process and makes it more accessible to individuals seeking relief from their financial burdens. By avoiding legal procedures, a debt management program can offer a more straightforward and efficient path to debt resolution.
Use of Credit and Affordability
A debt management program allows you to continue using credit while you work towards repaying your debts. This can be particularly beneficial for maintaining essential expenses and managing unexpected costs during the debt management program process. Additionally, a debt repayment program often offers an affordable and gradual approach to debt repayment, making it suitable for individuals looking to regain financial stability without experiencing overwhelming financial strain or having the negative impact on your credit score that happens with bankruptcy.
Overall, the decision to pursue a debt management program should be based on a comprehensive evaluation of your financial situation and goals. By considering factors such as the amount of debt you owe, the convenience of the process, and the affordability of the options available, you can determine whether a debt management program aligns with your needs and priorities.
Debt Management Program: Considering Bankruptcy
A bankruptcy filing, on the other hand, provides a more immediate solution for those facing crushing debt loads. It can be the right choice when you owe significant amounts of credit card debt, unsecured personal loans, or other unsecured debts that far exceed your means. The bankruptcy process offers unparalleled debt elimination, but it comes with serious trade-offs.
Your credit score may be negatively impacted for a period of seven to ten years, making it a less favourable option if you have good or marginal credit and owe only a few thousand dollars. However, if your credit is already severely impaired, filing bankruptcy may be a quicker and more efficient way to resolve your debt burdens.
Is bankruptcy right for you?
Bankruptcy is a difficult financial decision that many individuals may consider when they find themselves overwhelmed by debt and unable to manage their financial obligations. While bankruptcy is a serious process under the Bankruptcy and Insolvency Act (Canada) with long-term consequences, it can also provide a fresh start for those in dire financial circumstances.
Relief from Crushing Debt Load
One of the primary reasons individuals opt for bankruptcy is the overwhelming burden of debt they carry. When debts become unmanageable, it can lead to constant stress, sleepless nights, and strained relationships. Filing for bankruptcy can provide relief by allowing individuals to eliminate or restructure their debts to a more manageable level.
By working with a Licensed Insolvency Trustee (LIT), individuals can develop a repayment plan or proceed with liquidating assets to pay off debts. This process can help individuals regain control of their finances and start anew with a more sustainable financial future.
Solution for Badly Damaged Credit
For individuals with severely damaged credit, bankruptcy can offer a way to address their financial challenges and start rebuilding their credit history. While bankruptcy harms credit scores initially, it also provides an opportunity for a fresh start.
By discharging debts through bankruptcy, individuals can eliminate the burden of overdue payments and past defaults that have been dragging down their credit rating. With a clean slate, individuals can gradually rebuild their credit by managing new credit responsibly and demonstrating improved financial habits.
Quick Resolution and Legal Protections
Unlike otherdebt management program options, bankruptcy offers a relatively quick resolution to financial problems. Depending on the type of bankruptcy filed, individuals can receive a discharge of their debts within less than 1 year to a few years, depending on the circumstances. This allows them to move forward without the weight of excessive debts.
Keep in mind that your discharge of debt does not take place until you are discharged from your bankruptcy. A few kinds of debt cannot be discharged through bankruptcy, but most people get their entire debt discharged.
Additionally, bankruptcy provides legal protections against creditors, wage garnishment, and foreclosure. Once an individual files for personal bankruptcy, an automatic stay goes into effect, preventing creditors from taking collection actions such as wage garnishment or repossession of assets.
This legal protection can provide individuals with much-needed relief and breathing room to address their financial situation. The downside of bankruptcy of course is that your non-exempt assets must be turned over to the Trustee to be sold.
The only Debt Management Program Approved By The Canadian Government
There is only one debt management program approved by the Canadian Government and it is an excellent option for those with a steady income. This government-approved form of debt relief is called a consumer proposal. It is the only government-approved debt settlement plan available in Canada and is an alternative to a liquidation bankruptcy. It is not as drastic as personal bankruptcy but has most of the bankruptcy protection elements making it more potent than in a debt management program.
A consumer proposal is a legal process also under the BIA designed to help individuals settle their debts with creditors in a manageable way. It provides a structured framework for debt repayment while offering protection from creditors’ collection actions. Let’s delve deeper into the key aspects of a consumer proposal.
Legal Process to Settle Debts with Creditors
When an individual is struggling with overwhelming debt and is unable to keep up with payments, a consumer proposal can be a viable solution. This process involves working with a LIT to create a formal proposal to creditors outlining a revised payment plan. The proposal typically includes an offer to repay a portion of the total debt over a set period, based on the individual’s financial situation.
Once the consumer proposal is submitted to the creditors, they have the opportunity to review and vote on the proposal. If the majority of creditors accept the terms of the proposal, it becomes a legally binding agreement, and the individual is bound to fulfill the revised payment plan.
Allows Debtor to Make a Formal Proposal to Creditors
One of the key benefits of a consumer proposal is that it allows debtors to take an active role in addressing their financial difficulties. Instead of facing aggressive collection actions from creditors or considering bankruptcy as the only option, individuals can work with a LIT to craft a proposal that is fair and feasible for both parties.
By making a formal proposal to creditors through a consumer proposal, debtors have the opportunity to demonstrate their commitment to repaying their debts in a structured manner. This not only helps in resolving financial issues but also allows individuals to regain a sense of control over their financial future.
Provides Protection from Creditors’ Collection Actions
Like bankruptcy, one of the significant advantages of opting for a consumer proposal is the protection it offers from creditors’ collection actions. Once the proposal is filed, an automatic stay of proceedings is initiated, which prevents creditors from pursuing legal actions, such as wage garnishments or asset seizures, against the debtor.
This protection provides individuals with relief from the constant stress and pressure of dealing with aggressive collection attempts. It allows them to focus on adhering to the terms of the consumer proposal and working towards becoming debt-free without the fear of immediate consequences from creditors.
In conclusion, a consumer proposal is a valuable tool for individuals facing overwhelming debt and seeking a structured way to settle their obligations with creditors. By understanding the legal process, the opportunity it provides to make a formal proposal, and the protection it offers from debt collectors’ collection efforts and legal actions, individuals can make informed decisions to improve their financial situation and work towards a debt-free future.
Meeting with a nonprofit credit counsellor to assess your financial situation
Consider credit counseling sessions with a certified nonprofit credit counsellor for expert recommendations. If you’re unsure about the best course of action to take regarding your debt, seeking advice from a certified nonprofit credit counselor can provide invaluable insights. These professionals working at a nonprofit credit counseling agency can assess your financial situation, provide personalized recommendations, and guide you toward effective debt management strategies.
WARNING: Stay away from for-profit debt settlement companies. A nonprofit credit counselor or a bankruptcy trustee can provide you with the same advice at no charge.
Choose between a debt management program or bankruptcy based on your specific circumstances
When deciding between a debt management program and bankruptcy, several factors should be taken into account. First, carefully assess your full financial situation and long-term goals. Consider the amount of debt you owe, your ability to make payments, and the impact on your credit score.
If you have assets you want to protect and prefer a more affordable and gradual approach, a debt management program might be the better option. On the other hand, if you are facing wage garnishment, or foreclosure, or need a quicker resolution, bankruptcy may be the right debt solution choice for you.
A consumer proposal or bankruptcy can be a viable option for individuals facing insurmountable debt, damaged credit, and the threat of financial instability. While it is a significant decision with long-lasting consequences, bankruptcy offers a path to financial relief, a fresh start, and legal protections against creditor actions.
It is essential for individuals considering bankruptcy to seek the advice of a financial advisor or bankruptcy professional to fully understand their options and make an informed decision about their financial future.
Debt Management Program: The bottom line
When it comes to managing debt, making informed decisions is crucial. Here are some key takeaways to help you navigate this challenging situation:
Carefully assess your financial situation and long-term goals.
Before taking any steps toward resolving your debt problems, it’s essential to have a clear understanding of the current financial position of your assets and all your outstanding debts.
Take stock of your monthly income and living expenses, so that you can create an accurate monthly budget to see where your money is being spent. Don’t forget to deduct from your monthly income your actual income taxes deducted from your monthly pay.
Debt Management Program: Conclusion
Assess your finances and goals, seek advice from a nonprofit credit counselor, and decide between a debt management program, consumer proposal or bankruptcy based on your specific circumstances. You can also have a no-cost consultation with a LIT to get personalized advice and find out how a consumer proposal or bankruptcy would work in your specific situation.
Dealing with overwhelming debt is no easy task, but there is hope. By understanding the differences between a debt management program, consumer proposal and bankruptcy, you can choose the right option for your financial situation. A debt management program offers a manageable and gradual approach, protecting your assets while you work towards becoming debt-free.
Bankruptcy, on the other hand, provides a quicker resolution and is best suited for those with significant debt loads and impaired credit. Remember to carefully evaluate your circumstances and consult with an expert if needed. With the right choice and determination, you can pave the way to a brighter financial future. Don’t let debt hold you back any longer – take control today and improve your financial health and your life.
I hope you enjoyed this debt management program Brandon’s Blog. Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.
Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns and more associated with your company debt are obviously on your mind.
The Ira Smith Team understands these financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore.
The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now! We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.
The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, to begin your debt-free life, Starting Over, Starting Now.
Are you feeling overwhelmed by unmanageable debt? Then bankruptcy might be the perfect solution for you. Bankruptcy can be defined as a legal process that can help people and businesses get out of their financial binds.
Though the thought of filing for bankruptcy may be daunting, it can be the best option when you’re facing unexpected expenses or other emergency situations.
To make sure you’re making the right decision, it’s important to understand when to file bankruptcy and what you can expect. Bankruptcy allows a person to get back on top of their finances and start fresh. Weighing the pros and cons of filing for bankruptcy can be an alarming task, but it can ultimately be the best when your back is against the wall with debt. This Brandon’s Blog lets you find out when to file bankruptcy, what you should expect and what the bankruptcy alternatives are.
What is Bankruptcy and How Does it Work?
Bankruptcy in Canada is a liberating process for those who have found themselves under a burden of debt. The Bankruptcy and Insolvency Act (Canada) (BIA) provides debtors with a discharge from most debts, allowing them to have a fresh start in their financial lives. The process is designed to help those who cannot pay their bills as they come due, and have no way of paying back their debt load. By taking advantage of the bankruptcy discharge, individuals can find themselves free from the chains of debt and start anew. On the other hand, unlike a person, a company that files for bankruptcy will not survive in the long run, and thus, there is no discharge process for a company.
when to file bankruptcy
When to File Bankruptcy?
Don’t let debt take the life out of you! Bankruptcy law can give you the fresh start you need. Although not to be taken lightly, a bankruptcy filing can be an absolute lifesaver when the debt becomes too much to bear.
Filing for bankruptcy is no small decision and has the potential to drastically alter your financial future. It’s essential to be informed on when to file bankruptcy and the process involved to ensure that your credit and ability to access money in the future are not adversely affected.
Start the legal process off right by filing for bankruptcy with the help of a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT or Trustee). The LIT will submit all the documents at once and get the ball rolling.
When an individual has too much consumer debt and files for bankruptcy, the LIT takes possession of their property and assets (subject to provincial government exemptions). The Trustee is the appointed authority in charge of liquidating the assets and depositing the proceeds into a trust account that will eventually be distributed among the creditors in the priority laid out in the BIA.
It is crucial to understand when to file bankruptcy and the process involved to make informed decisions about one’s financial future.
When to file bankruptcy: Identifying signs of financial distress
Here are 5 common signs of financial distress:
Consistent inability to pay bills – Consistent inability to pay bills can be a difficult and stressful situation for individuals and companies. There are various options for managing late bill payments, however, missing bill payments can have negative financial impacts. It is important to be proactive in finding a solution, as missing bill payments may result in consequences such as eviction, cutting off of necessary supplies and financial penalties. Options for managing late bill payments vary, depending on the type of bill, such as rent or mortgages as opposed to suppliers of goods or services.
Increased collection activity and legal threats – Balances in collections are the result of outstanding debts that have not been paid. The collection process and the behaviour of debt collection agencies and debt collectors are stressful. Provincial law dictates the rights of consumers when it comes to debt collection and debt collectors.The statute of limitations to collect a debt is also a matter of provincial jurisdiction. Debts are statute-barred after the period prescribed by the law for bringing legal action against the consumer to collect a debt. A debt is considered time-barred if the applicable statute of limitations has expired.
Are you buried in debt and feeling overwhelmed? A hefty burden of financial obligations without a plan of attack can lead to a seemingly never-ending cycle of debt, with high-interest payments and a lack of hope. Alternatively, an overly ambitious plan can leave you feeling like freedom from debt is unattainable. The stress of debt can have a major toll on your mental health. It’s time to take control and devise a sensible debt repayment strategy to ultimately become debt-free and reduce the interest you pay.
Tempted to use a credit card for all your needs? Be careful; it can be easy to go overboard and put yourself into financial hardship. When you use credit cards, you risk overspending, inflating your credit utilization ratio, and even opening yourself up to identity theft and credit card fraud. Don’t take the chance – think twice before swiping!
Increasingly relying on personal loans from friends and family – The dangers of relying on loans from friends and family include broken promises or agreements. There may be confused assumptions about the loan, which can lead to misunderstandings.Additionally, not setting up clear and defined terms for repayment could lead to problematic personal relationships. A loan from friends and family could also provide tax problems depending on how it is set up and how interest payments, principal repayments and/or loan forgiveness are treated on tax returns, or not, as the case may be.
when to file bankruptcy
When to file bankruptcy: The process of filing for bankruptcy
The process of filing for bankruptcy in Canada is handled by a Trustee under the supervision of the Office of the Superintendent of Bankruptcy Canada (OSB) under the BIA. The time to complete the bankruptcy process for a 1st time bankrupt with no surplus income, where neither the Trustee nor any creditor opposes the individual bankrupt’s discharge is 9 months. If a first-time bankrupt gets a discharge at the 9-month point, then they have received an automatic discharge from the LIT. During bankruptcy, the creditors can no longer harass the bankrupt person or carry out legal proceedings or wage garnishments.
The LIT provides an information form for the person to complete, and uses that information to prepare and then file the bankruptcy paperwork. The LIT needs personal information (name, address, birth date), a list of creditors and a list of assets. The LIT then files the bankruptcy documents electronically with the OSB and then they will issue a Certificate confirming the acceptance of the bankruptcy filing. It is the day and time of the issuance of the OSB’s certificate that marks the beginning of the bankruptcy process.
When to file bankruptcy: What is the impact of filing for bankruptcy?
Once your bankruptcy is filed, there is an immediate stay of proceedings. This means that unsecured creditors cannot begin or continue lawsuits, wage garnishees, or even contact you to request payment. Within five days of the bankruptcy starting, the LIT will send a copy of the bankruptcy paperwork to creditors so they can file a claim.
Overview of the bankruptcy process
Can I keep my assets when I file for bankruptcy? In most cases, yes. However, the trustee may sell some assets to pay off your creditors. The assets you can keep will depend on your province’s exemptions. The Trustee’s job is to manage the sale of the bankrupt’s assets and place the proceeds into a trust, safeguarding them for the creditors. In other words, the Trustee is a guardian of funds, making sure everything is handled properly.
Are you worried that filing for bankruptcy will destroy your credit? Don’t fret – while bankruptcy will certainly leave its mark on your credit report, it’s far from a death sentence. Once your bankruptcy is approved, you can start taking steps toward restoring your financial health. A fresh start is waiting – be smart and make decisions that will get you back on the right track!
Wondering just how long you’ll be in bankruptcy? That all depends! If it’s your first-time bankruptcy filing with no surplus income, it should only last nine months. But if you’ve filed for bankruptcy more than once and don’t have surplus income, it will take 21 months. For those who have surplus income, this process will take longer.
2 financial counselling sessions. In a consumer restructuring or bankruptcy administration under the BIA, the debtor is required to go through two financial counselling sessions with the LIT. The reason is that one of the objectives of the BIA is financial rehabilitation. Financial education and teaching financial literacy tips are important parts of that rehabilitation.
Requirements for filing bankruptcy
To be eligible to file for bankruptcy in Canada, you must meet certain requirements. You must owe at least $1,000 in unsecured debt and be unable to pay your debts as they come due. You must also be insolvent, meaning you owe more than the value of the assets you own. Additionally, you must either reside, do business or have property in Canada. There are other acts of bankruptcy contained in the BIA, but the normal requirement is as I just described.
Role of Trustees in the bankruptcy process
The role of a LIT in Canada is to assist individuals or companies in the bankruptcy process as laid out by the BIA. They help to explain to the debtor the various options in dealing with their debt and provide advice on the best course of action. The Trustee also prepares the necessary paperwork, including reviewing the debt and completes the process from start to finish. One of the key responsibilities of the Trustee is to take possession of the property not exempt under provincial law, or subject to a trust or secured claim. The LIT then does this by selling the available assets and depositing the funds in trust for the creditors in the bankruptcy administration.
when to file bankruptcy
When to file bankruptcy: Alternatives to Bankruptcy
There are several alternative solutions that a LIT can recommend to a debtor in solving their debt problems. Bankruptcy is always the last resort and is to be avoided if at all possible. The main alternative solutions are:
Debt consolidation and debt management plans
In Canada, consolidation loans are available to assist individuals in reducing their high-cost debt payments. If you qualify for such a loan, it is an advantageous solution. These debts may include credit cards, payday loans, and unpaid tax obligations. By consolidating higher-interest-rate debts into one lower-interest-rate loan, it is possible to make affordable monthly payments and work toward eliminating debt.
If you’re in need of financial help, a Debt Management Plan (DMP) may be the answer. A DMP is an effective way to repay credit card debt, and with the help of a non-profit, no-cost credit counselling agency, you can get the support to make it work. The agency will assess your situation to ensure that a DMP is the best option for you. Put your debt worries to rest and take the first step towards a sound financial future with a DMP.
Both debt consolidation and debt management plans aim to help individuals in Canada manage their debt effectively.
Credit counselling and financial planning
Credit counselling and financial planning can help someone who has many debts. The services are provided by accredited credit counsellors working for non-profit credit counselling organizations. A credit counsellor will assess the financial situation of an individual and provide tips on dealing with debt. Financial planning and budgeting will be an important part of the process.
If the individual decides to sign up for a DMP, the counsellor will contact creditors on their behalf to request reducing or eliminating the interest rate or fees on their debts. In some cases, the creditors may agree to these requests.
Debt settlement, restructuring and negotiation with creditors
Debt restructuring, also known as debt negotiation, is the process of negotiating the terms and conditions of debt repayment with creditors. This process can be carried out by the consumer or company themselves seeking alternative repayment options. The goal is to reach a mutually agreed-upon arrangement that is more manageable for the consumer or company to repay their debt. It can involve the forgiveness of interest, stopping the interest clock and even the forgiveness of principal. If the company or consumer handles the discussions themselves, or with the help of their accountant, it is called an informal restructuring.
When a consumer or company restructures their debt with the help of a LIT under the BIA, they would file either a consumer proposal or a Division I proposal restructuring. A large company could also restructure under the Companies’ Creditors Arrangement Act.
When to file bankruptcy: Conclusion
Personal bankruptcy or corporate bankruptcy, and when to file bankruptcy, is a big decision, but it can be the right one when you’re overwhelmed with debt. You can make an informed decision by understanding the basics of bankruptcy, including when to file and what to expect. If you’re struggling with debt and considering bankruptcy, it’s important to speak with a professional who can help you assess your options. Bankruptcy can be a fresh start for your financial future, but it’s important to understand the consequences and work with a professional to determine if it’s the right choice for you.
I hope you enjoyed this when to file bankruptcy Brandon’s Blog.
Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.
The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.
It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.
We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.
We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.
We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.
Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.
Consumer proposal calculator: When should you think about a consumer proposal?
Debt can be a heavy burden, and it seems like there’s no end in sight. If you’re having a hard time making ends meet and debt is taking over your life, you may be asking yourself if a consumer proposal is right for you.
If you’re finding it impossible to pay off your financial debt, a consumer proposal could be a perfect choice for you. As soon as approved by your creditors and also authorized by the court, a consumer proposal is an enforceable deal between you and your creditors. You only need to pay off a part of your financial debt and in return, they write off the balance. This is an excellent method to pay off your debt as well as get your life back on course.
There are 2 main points to keep in mind when thinking of a consumer proposal. First, just an insolvency trustee (Trustee) can carry out a consumer proposal. They will first evaluate your situation and determine if this is the very best choice for you.
Secondly, you need to be able to make the promised payments to the Trustee. If you cannot, then a consumer proposal may not be right for you. There are also several non-insolvency debt relief options for people when looking at their unsecured debt and I describe them below.
Knowing how much you may need to pay in a consumer proposal in order to extinguish all of your unsecured debt is an important part of the decision-making. That is why I created this consumer proposal calculator located down below in this Brandon’s Blog.
Consumer proposal calculator: Option 1 – Pay off your debt on your own
If you have adequate savings and are in a financial situation to pay your financial obligations in a timely manner, excellent. Yet that is not every person’s circumstance. It’s not unusual for individuals to find themselves in a state where they have financial obligations coming due for payment, but, they do not have the cash. If you’re in this situation, you might be unsure about exactly how you can repay the money you owe but do not have.
There are a couple of things you ought to remember if you’re seeking to pay off the financial debt by yourself. First, you need to ensure you have a clear plan for exactly how you’re likely to pay off the money. This means establishing a budget plan and staying with it.
Second, you ought to keep communication open with the individual or company you owe the money. By doing this, they’ll understand what you’re doing to pay back the debt and can provide support if needed.
Finally, it is very important to be patient. Settling a financial debt can take time, however as long as you’re sticking to your strategy and seeing progress, you’ll ultimately get there to financial freedom.
Combining your financial obligations, such as the total debt on all your credit cards, into one new debt consolidation loan can aid you to become debt-free faster and get your funds back on the right track. It can help you to repay your financial debts a lot faster and also right-size your finances. Before consolidating your financial debts and making debt consolidation payments, there are a couple of things you need to understand:
Prior to you trying to settle your financial debts through debt consolidation, it’s important to recognize just how debt consolidation loan payments work as well as what type of impact it can have on your credit rating.
See to it that you recognize what you’re getting into. Consolidating your financial debts through new loan funding to settle your existing financial obligations, ensure you recognize the terms of the new financing, including the rate of interest and how much the regular monthly payment will be.
Search for the very best deal available. There are a variety of companies that provide financial debt consolidation funding. Shop around to find the best rates of interest as well as terms.
Combining your debts will lead to a lower single monthly payment. Make sure it fits into your budget.
Making your new loan monthly payments on time will work to improve your credit rating.
If you’re struggling with credit card debt, you’re not alone. It’s one of the most common types of debt in Canada. But there’s help available. Credit counselling can help you get your debts under control and develop a plan for you.
Credit counselling can be a very therapeutic process that assists people to address their debt obstacles as well as enhance their total financial health and wellness. Your best choice is to go for credit counselling offered by a nonprofit credit counselling agency.
Credit counselling commonly involves working with a credit counsellor to develop a spending plan, understand your economic alternatives, and produce a plan to settle your financial debts. More often than not the credit counsellor can get your creditors to agree to allow you to pay off the principal amount of your debt without adding any more interest charges.
Credit counselling can aid you to get out of debt, improve your credit score, and also teach you how to make better financial decisions in the future. If you’re seriously thinking about credit counselling as an option for you, it is very important to pick a reputable firm to deal with in order to produce a personalized plan to address your unique financial situation.
If you’re struggling to make your financial debt settlements and are dealing with economic difficulty, financial debt settlement may be a great choice for you. This is where you work out with your creditors to resolve your debt for less than the amount of the individual debt amounts you owe.
There are a couple of points to remember if you’re thinking about financial debt settlement: Your credit score will take a hit.
Your creditors might send your debt to their lawyer to take legal action against you or they might send your debt to a collection agency to plague you with collection calls as soon as you divulge that you cannot settle them in full.
If you’re looking at this kind of financial debt negotiation, it is very important to evaluate the pros and cons and speak with a professional advisor to see if it’s the right option for you.
WARNING:
A for-profit debt settlement company charges fees, just like any other business. Before any of your money is used to settle your personal debts, you must pay their fees upfront. No fees are charged by the non-profit credit counsellor.
When you cannot pay anymore, the for-profit debt settlement company walks you over to their friendly Trustee for you to file either a consumer proposal or an assignment in bankruptcy.
Please stay away from for-profit debt settlement companies. I do not recommend for-profit debt settlement arrangements or debt settlement programs. These types of debt counsellors are not the debt-help professionals you should go to see.
Consumer proposal calculator: Option 5 – About consumer proposals
If you’re battling with a mountain of debt, do not worry, there is help and it avoids bankruptcy. A consumer proposal is a legal process that is the only federally-approved debt settlement process. A consumer proposal can only be carried out by a Trustee.
If you’re thinking about a consumer proposal, it is very important to understand just how the process works and also what it will indicate for your financial future. I have actually written several of Brandon’s Blogs giving a comprehensive on what consumer proposals are and how they work.
If you’re insolvent and owe $250,000 or less to your creditors (excluding any secured creditor debt like mortgages or lines of credit that are secured by registration against your personal residence), you can qualify for this government-sanctioned debt settlement plan.
This could be a good option for people who are employed and can budget their money to make the required monthly payments under this plan to the Trustee. It helps to avoid personal bankruptcy, and not have to deal with collection calls from agencies anymore. This is the best alternative to bankruptcy.
For more information, check out either one of the following Brandon’s Blogs:
Consumer Proposal Calculator: What will my monthly payments be in a consumer proposal?
Here is how a debt calculator calculates your total debt and estimates what your monthly payments will be in a consumer proposal debt management plan. Below you will be asked for all your unsecured debts, including any government debt or income tax debts.
Consumer proposal calculator
$
What is the total of your credit card debt?
What is your income tax debt?
What is the total of any online loan?
How much is your other government debt?
Total of other unsecured debt?
What is your payday loan debt?
Total unsecured personal loan debt?
Your total unsecured debt
# of months you wish to take to pay (max 60 months)
60
Monthly payment = (Your total unsecured debt
divided by # of months) X20%
Use this consumer proposal calculator method to compare what a monthly payment would be for you under a consumer proposal as compared to what your monthly debt payments are now. Keep in mind that in a consumer proposal, you are getting rid of all your debt if successfully completed. Right now, you may only be paying the interest charges and not making any dent in the principal reduction.
To figure out your exact monthly payment, give us a call.
Consumer Proposal Calculator: We can help you with a consumer proposal
I hope you enjoyed this consumer proposal calculator on Brandon’s Blog.
Income and cash flow shortages are critical issues facing Canadians, be they employees, entrepreneurs or companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.
The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.
It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.
We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.
We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.
We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.
Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.
Debt consolidation loans in Canada can be an excellent means to conserve money and get your funds in order. By combining several financial obligations into an affordable single loan, you can frequently get a lower rate of interest and also reduced month-to-month payments. This can assist you to get out of debt quicker as well as save cash over time.
Prior to getting debt consolidation loans in Canada, it is very important to understand the terms of the financing and also to make sure you can afford the monthly payments. It’s also a good idea to look around and compare rates of interest and also loan terms from various financial institutions.
In this Brandon’s Blog, I discuss the concept of debt consolidation loans in Canada and a sort of new potential lender offering personal loans in Canada. I will also share another debt settlement and debt consolidation option that may be beneficial for people and companies who want to repair their financial situation.
Advantages as well as downsides of consolidation loans in Canada
Upsides
Debt consolidation loans in Canada can offer many benefits over making regular monthly payments on many different loans and debts with different interest rates. Interest rates on some debts, like credit card debt, can be categorized as high-interest debts, making it difficult to make a dent in the balance owing. if all you ever do is make the monthly minimum payment.
Consolidation loans supply a number of advantages, such as:
Reduced interest rates – Lenders normally give consumers reduced rates of interest on individual personal loans allowing them to repay their high-interest-rate credit card debt. Consolidation loans in Canada can be an excellent method to obtain a lower rate of interest and come to be debt-free quicker.
Reduce your monthly payments – Banks and credit unions usually offer debt consolidation loans in Canada with terms of up to 5 years. This, along with the lower interest rate, can help you save a lot of money in the long run and give you a lower monthly payment than the sum of the monthly payments required under your many debts.
A single payment instead of multiple payments – One of the best things about debt consolidation loans in Canada is that you only have to make one monthly payment. This makes it much easier to budget and stick to your plan. Instead of having to remember to pay six different bills each month, you only have to worry about one.
Potentially improved credit scores – Your credit report is a number that banks make use of to determine your creditworthiness. A high credit rating suggests you are a low-risk borrower, which is excellent. A bad credit rating indicates you are high-risk, which is bad.
By obtaining a debt consolidation loan, making on-time payments and paying it off on time without a payment schedule default or late payments, you are restoring your bad credit score in 2 ways. First, you have revealed that you had the ability to fully settle all of your other financial debts. Second, you are repairing your credit score by making the consolidation loan payments on time. It is not instant, yet in time, paying off debt consolidation loans in Canada will certainly improve your credit rating. Over time, you will see your credit score and credit report improve.
Downsides
There are a few downsides to debt consolidation loans in Canada, including:
Debt consolidation loans in Canada are often referred to as “easy money.” But they aren’t always easy. Even though many consumers think they qualify for a loan based solely on their disposable income, there are certain circumstances where Canadian banks will not see your monthly income in as good a light as you do. You will need collateral such as real estate, cars, boats, etc.
If you do not have these things, you may be at a disadvantage. Most banks will not lend money to someone with a low credit score unless they have some form of security, such as a car or house with enough equity. This makes sense because the lender knows that it is a debt consolidation loan you are applying for and by definition, you cannot pay off your credit card balances without their loan. They will want to protect themselves against the chance you may default on the loan.
When choosing a bank, you’ll want to compare fees, interest rates and prepayment penalties to ensure you’re getting the best deal. Keep in mind that the lowest fees don’t always mean the best overall value, so be sure to compare all aspects of the loan before making a decision. You might even consider getting one of the types of secured loans by raising money against your home through a home equity line of credit or a second mortgage. So compare your offers of secured loans and unsecured debt consolidation loans in Canada very carefully to consider all factors in deciding which is best for you.
WARNING: Stay away from private lenders, payday lenders and most alternative lenders who may provide loans just as expensive as payday loans. Their fees and high-interest loans will never be in your favour.
Consolidation loans in Canada: Can you consolidate student loan debt?
Students and recent graduates who find themselves buried under student loan debt often look for help. They want to consolidate their debts into one manageable monthly payment, but this can be difficult to obtain because there are few debt consolidation loans specifically designed for them.
Many recent graduates lack the credit history or income to qualify for a consolidation loan. They also generally do not have any free assets to qualify for a single secured debt consolidation loan to pay out over a longer period of time at a lower interest rate.
Unsecured loans to young people with a little credit history will be more expensive than one to an individual with a long-established credit history. That assumes that they can even qualify for this type of loan.
For these reasons, other than perhaps for a recent graduate from either medicine or dentistry who perhaps can roll their student debt into a professional loan, it will be very difficult to get consolidation loans in Canada to consolidate student debt.
Consolidation loans in Canada: Can going postal help you reach your financial goals?
Here is a potential new source for debt consolidation loans in Canada. Although it was not set up specifically for consolidation loans, there is no reason why you cannot use the money for that purpose if you are approved.
There is a new loan program offered by Canada Post which is designed to help people who are struggling financially, especially in rural areas where access to banking institutions is limited. It is called the Canada Post MyMoney™ Loan product. The idea is that you get a loan that’s based on how much you can afford to pay back, what you need the money for, and how likely you are to repay it.
The initiative is part of Canada Post’s commitment to helping Canadians manage their finances better. Their goal is to provide easy access to financial services and products that can help people save time and money.
To have your loan application considered, you have to be either a Canadian citizen or a Permanent Resident. You must be no younger than 18 years of age and you need to have annual earnings of a minimum of $1,000. Additionally, you need to not have been bankrupt within the 2 years before applying for the loan or had any of your financial debts handed off to a collection agency within the year before applying. They will of course also do a credit check on you.
In order to receive your loan proceeds, you must have a chequing or interest-bearing account with a Canadian financial institution in your own name. Borrowers of MyMoney™ loans are not required to offer any security against assets, in contrast to secured loans from banks and credit unions. Instead, applicants need only provide proof of identity, employment history and income. Both variable and fixed-rate installment loans are offered. The actual lender is TD Bank.
Consolidation loans in Canada: Other financial debt loan consolidation choices
You may not want to take on more debt to pay off your current debt. I don’t blame you and I get it. Or you may have been denied a debt consolidation loan. Here are some other options for consolidating your debt:
Balance Transfer Credit Cards
A balance transfer is simply when you move the balance of one credit card over to another credit card. For example, if you have a balance of $5,000 on your Mastercard, you can transfer that balance to a new Visa account that offers you 0% interest for 1 year on all balance transfers.
When you switch, you won’t have to pay interest charges for 12 months. After that, you’ll need to pay off the balance in full or start making payments on the balance transferred. Of course, you’ll still accrue interest after the interest-free period on the remaining balance.
Consolidation loans in Canada: Credit counselling
Credit counselling is a service that helps individuals to manage their finances and improve their financial situation. It can be done with a range of techniques, including budgeting, negotiating with creditors, setting up a plan to repay debt and monitoring actual behaviour vs. the plan.
Credit counselling can be an excellent way for individuals to take control of their financial obligations. It can help them create a plan to settle their debt, and provide them with the tools and knowledge they need to maintain financial literacy in the future.
There are many different credit counselling services available to choose from. You should select a community-based service to avoid being charged any fees. Be sure to stay away from any counselling service that charges fees, as this will only add to your expenses when trying to reduce debt.
Consolidation loans in Canada: Debt help is available with a financial restructuring program
Financial restructuring is a complicated and difficult procedure, however, it likewise provides individuals as well as businesses with a new beginning and a brand-new lease on life. Selecting to reorganize your finances with the help of a licensed insolvency trustee will certainly have temporary challenges, but can ultimately provide you with financial relief and a fresh start.
If you are considering financial restructuring, we urge you to consult with a licensed insolvency trustee to discuss your options. We can help you understand all of your options and work with you to develop a plan that is in your best interests.
Trustees are experienced in all aspects of financial restructuring and can supply you with the information and assistance you require to make the very best decision for your situation.
The most well-known financial restructuring tool for individuals is the consumer proposal. For mid-size companies and individuals with larger debt, it is a Division I proposal. For companies with debts greater than $5 million, restructuring is accomplished through the use of the Companies’ Creditors Arrangement Act.
Here is the best part. You should consider financial restructuring as getting an interest-free loan to pay off all your debts for a fraction of what you owe. I am qualified and experienced in all forms of financial restructuring, can explain this concept to you and am always available to answer any of your questions.
Consolidation loans in Canada: Before making a decision on your financial life needs – Call me
I hope that you found this consolidation loans in Canada Brandon’s Blog informative. If you’re sick and tired of carrying the burden of debt and ready to live a much better life, we can assist. We know exactly how it really feels to be in debt as well as feel like you’re never going to get ahead. We have actually helped lots of people and businesses that were in your position reach financial stability, so we understand it’s feasible for you to prosper in your objective of ending up being debt-free. Nevertheless, it will certainly require some work on your part. We’ll be right here to assist you with every action necessary.
The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too many personal unsecured debts,Credit card debt, income tax debt liability, unsecured loans or personal obligations from the running of your company or from being a business owner. These are all types of debt we can help you eliminate. We are aware of your financial difficulties and understand your concerns. Filing bankruptcy is the last option we explore only after we have exhausted all other options to avoid bankruptcy, such as financial restructuring through a debt repayment plan.
It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to give you the best management advice to get you out of your outstanding debt troubles while avoiding bankruptcy. We can get you debt relief freedom.
The stress placed upon you is huge. We understand your pain points. We are sympathetic to the financial difficulties you are experiencing and would like to help alleviate your concerns. We want to lighten your load by coming up with a debt settlement plan crafted just for you.
We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.
Call or email us. We would be happy to give you a no-cost initial consultation. We can find you the perfect solution to tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. We provide a full range of services to people and companies. If any of this sounds familiar to you and you’re serious about finding a solution, let us know. We will get you back to living a happy life, whether or not there is an economic recession in Canada.
What are the implications of discharge from bankruptcy Canada?
If you are experiencing financial troubles and can’t pay your debts, you can file for bankruptcy in Canada. This legal process lets you off the hook for your debts and start fresh. Once you’re discharged from bankruptcy, you’re no longer responsible for those debts (other than for a few exceptions noted below). Filing for bankruptcy is stressful. We understand how difficult and stressful the bankruptcy process can be, so we hope that this will be a helpful resource for you.
Once the Trustee has completed their duties under the Bankruptcy and Insolvency Act (Canada) with respect to the administration of your property and the bankruptcy estate, the next step in the bankruptcy process is they must apply for a discharge. This will occur after the Trustee has applied for your discharge from bankruptcy Canada, even if you did not get an absolute discharge.
This Brandon’s Blog is for people who have made a bankruptcy filing but have not yet been discharged. If your Licensed Insolvency Trustee has been discharged or is otherwise unable to help you with a second discharge application, this blog will provide you with the information you need to get through the process on your own.
Discharge from bankruptcy Canada: What are the implications if you are not discharged from bankruptcy?
If your previous application for discharge was unsuccessful, you remain an undischarged bankrupt and your Trustee is not obliged to make another application on your behalf. However, you should check with your Trustee first as they may or may not be prepared to do so.
We often receive calls from individuals who claim that their Trustee has been discharged, but they have not been. They express confusion as to why their Licensed Insolvency Trustee will not make an application for their discharge from bankruptcy. A quick search reveals that in these cases, the individual received a conditional discharge, but has not yet fulfilled all of their conditions to get a bankruptcy discharge. That is why their conditional discharge has not yet been converted into an absolute discharge.
If you filed an assignment in bankruptcy and are still an undischarged bankrupt, you may be able to apply for discharge from bankruptcy. An insolvency Trustee only needs to make one application on your behalf. Once the Trustee obtains their discharge, they do not need to make your application for discharge on your behalf again.
The Licensed Trustee cannot be discharged until all bankruptcy administration requirements have been met, including making the first discharge application on behalf of the bankrupt person.
discharge from bankruptcy canada
Discharge from bankruptcy Canada: How do you obtain a bankruptcy discharge in Canada?
Automatic discharge from bankruptcy is typically granted unless there are exceptional circumstances. If there is opposition to the automatic discharge, the discharge application must be brought before the court for a hearing.
If you did not complete all of your bankruptcy duties as the bankrupt person, such as providing income and expense statements, attending required financial counselling sessions, and/or paying surplus income, your Trustee had reasons to oppose your automatic discharge and scheduled a hearing with the court.
The Report of Trustee on Bankrupt’s Application for Discharge sets out the reasons for the insolvency Trustee’s opposition to a bankrupt’s application for discharge. This document is on file with the court.
If a bankrupt does not receive a discharge at the time of the court application, it is usually because they have not yet done what is required. The associate justice/registrar who heard the application at court may have therefore adjourned the application (i.e. stated it was to be heard at a later date, which may or may not have been set).
The court may have adjourned your discharge application or imposed conditions that must be met before you are entitled to a discharge. The disposition sheet from the hearing will state what the court decided in this regard.
Discharge from bankruptcy Canada: What are the steps to clear my bankruptcy?
It’s not unusual for people who didn’t do what they were supposed to at first to try and get back on track and do what’s required to get their discharge. You must comply with your duties during bankruptcy to the best of your ability and be prepared to explain to the court any deficiency in doing so.
For example, to get your discharge, you must be able to provide details and evidence of your income and expenses during bankruptcy. You probably recall that you were required to provide the Trustee with your monthly income and expense reports. If you’re unable to provide the court with those details, the court may want to review your income tax returns for that period. If you want the court to rescind or vary the conditions imposed, you must show that you complied with the conditions to the best of your ability.
There are many examples of trying your best to meet the conditions but maybe not perfectly. If the court orders you to pay a certain sum of money to the Trustee by a certain date, you can make the court-ordered additional payment but not by the specified date. If you were required to make surplus income monthly payments but didn’t make them all, that’s one reason there were conditions attached to your discharge. You can apply to the court to change the date and get your discharge.
Another one is that you didn’t finish all your required credit counselling sessions. You could finish them and then provide proof of completion to the court.
discharge from bankruptcy canada
Completing your own application for discharge from bankruptcy Canada
Making your own application to be discharged from bankruptcy can be a bit daunting, but don’t worry—just follow a few simple steps and you’ll be all set. Here are some tips to help you get your application ready and submitted without the help of a bankruptcy trustee or a bankruptcy lawyer.
To begin, you’ll want to locate your bankruptcy file at the court office. Once you have your file, be sure to look through it thoroughly to find:
your bankruptcy court file number;
the Report of Trustee on the Bankrupt’s Application for Discharge under section 170 of the BIA;
any order issued by the bankruptcy court at the original discharge hearing; and
the court’s disposition sheet from any previous discharge hearing identifies what the court previously ordered or decided.
You will need copies of these documents. You can ask the court office to make copies for you. They will charge you a fee for photocopying. You should check the Report of the Trustee, the court’s disposition sheet, and any court order to see what you failed to do and what conditions the court has imposed. Also, it is not a bad idea to find out who attended your last application for discharge.
You should check the Report of the Trustee, the court’s disposition sheet, and any court order(s) in the file to see what you didn’t do and what conditions (if any) the court has imposed. Lastly, you need to schedule a date for your discharge hearing with the bankruptcy court.
You will be required to prepare the following documents and file them with the court:
a notice of hearing for a bankrupt person’s application for discharge;
your affidavit explaining why you believe you are entitled to the discharge order sought;
an affidavit of service; and
a draft of the order sought.
The Associate Justice/Registrar in Bankruptcy hearing your application for discharge may make any order he or she sees fit. If the order you are seeking is made, he or she may accept and sign it in court on the day you appear, which may save you a period of time later on.
Requisition – Notice of hearing for bankrupt’s discharge from bankruptcy Canada hearing for discharge
The first step in obtaining a discharge in bankruptcy is to file a Notice of Hearing for Bankrupt’s Application for Discharge with the court. That document would have first been filed by the Trustee when the Application for discharge is first scheduled. If you have a copy of it, it will be a good precedent for you to follow.
A requisition must be filed again by you in order to have the matter brought back before the court.
discharge from bankruptcy canada
Discharge from bankruptcy Canada:The Affidavit
An affidavit is a formal, written statement that provides key information in your legal case. Any evidence you want the court to consider in your application must be submitted in an affidavit. Your affidavit should describe the events leading up to your bankruptcy, and your current financial situation.
You must swear or affirm your affidavit before a notary public or commissioner of oaths. Make sure that your affidavit only includes evidence that is relevant to your application for discharge.
The court is familiar with a standard form of affidavit for discharge applications. You should familiarize yourself with that normal format. You should also include:
additional information about why you did not seek a bankruptcy discharge earlier;
is this a 1st-time bankruptcy, 2nd-time bankruptcy or more;
why you have not been able to comply with the bankrupt’s duties or the requirements of an earlier court order; and
state the reasons you are wanting to be discharged now.
You will need to attach any relevant documents to your affidavit in support of your application, including a statement of your current income, expenses, assets, liabilities and any previous bankruptcy information.
Discharge from bankruptcy Canada:Affidavit of Service
To serve documents, you must provide a written copy to the party to be served. You need to obtain a signature or other confirmation, such as an email, to confirm that the document was properly served. You will need to serve the filed Requisition and all filed Affidavits and documents on:
any creditor filed an opposition to your discharge;
creditors who attended an earlier discharge hearing;
These parties may attend your hearing and make submissions.
In order to provide proper service within the required time period before your discharge hearing, you must familiarize yourself with the rules. You must also provide proof of service at the hearing, especially if no one else attends. This proof of service can be the signature of everyone served to show the date they were served.
An Affidavit of Service can also be filed with the court. This Affidavit of Service is separate from the Affidavit filed with the court regarding your reasons for entitlement to anabsolute bankruptcy discharge certificate.
discharge from bankruptcy canada
At the discharge from bankruptcy Canada hearing
When you appear in court for your discharge hearing, you will be able to present your case to either an Associate Justice or Registrar in Bankruptcy. If your application is being opposed, the creditors opposing your discharge need to file a notice of opposition. In this case, the hearing will be in front of a bankruptcy Judge. This is the normal process followed:
You explain why you believe you are entitled to the order you are seeking, for example, an absolute discharge from bankruptcy.
Anyone opposing your application explains his or her position.
The Judge or Registrar may ask questions relating to the affidavits and documents you have filed and make suggestions or give directions.
When presenting your position at the hearing, remember to:
Clearly state what order you are seeking from the Registrar in Bankruptcy or Judge.
Outline the facts supporting your application in a concise manner.
Explain the law on the subject and how it applies to the facts of your case.
Your conduct before and during bankruptcy will be taken into consideration when making a decision on your application for discharge. The Trustee’s report will provide information on your conduct before and during bankruptcy, which will be taken into account. if you did not attend the required financial counselling sessions, did not file required statements of income and expense, and/or did not make the required surplus income payments to the Trustee for the benefit of your creditors.
The court will consider the relevant factors and make the appropriate order, or it may adjourn the hearing for further information or conditions to be met. Some of the types of orders the court may make are:
An order of discharge that is absolute and therefore you are immediately discharged from bankruptcy.
A conditional discharge may be granted. Examples of conditions are:
if the debtor pays any unpaid surplus income,
the debtor pays the outstanding balance for any asset that was agreed to be paid for; or
if the debtor pays a sum of money to the Trustee toward their debt obligations, as decided by the court.
The court may refuse to issue a discharge order if it is not satisfied that you have made full and adequate disclosure, or if there are issues with your conduct.
Discharge from bankruptcy Canada: Order for discharge
The Judge or Registrar in Bankruptcy will grant a discharge order at the end of the hearing. The type of discharge will be one of the kinds indicated above. If you prepared a draft order and the Registrar in Bankruptcy or Judge finds it acceptable, they will sign it and you can then have it filed with the court. However, if your application was opposed, keep in mind that one of the opposing parties may choose to appeal the discharge order.
If you have not prepared your order before the hearing, you should do so after the hearing and submit the order in duplicate to the court. The court office will then send the order to the Registrar in Bankruptcy or Judge who heard your application for signing. Once you receive your copy of the signed order, your discharge will be official.
When you receive a copy of the signed order, you must provide a copy to the Office of the Superintendent of Bankruptcy. They will in turn notify the credit bureaus and Canada Revenue Agency of your discharge.
When you have received your absolute discharge, you are no longer legally responsible for repaying debts that you incurred before your assignment in bankruptcy. You will get rid of debt with some exceptions set out in Section 178 of the Bankruptcy and Insolvency Act. They are:
payment of child support or alimony;
student loans, if you have not been a full-time or part-time student for less than 7 years;
a fine or penalty imposed by the court; or
debt resulting from fraud.
discharge from bankruptcy canada
Discharge from bankruptcy Canada: Are you tired of being in debt?
Bankruptcy law and the bankruptcy process can be complex, so it may be worth retaining a bankruptcy lawyer to help you apply for your discharge. Ultimately, it is up to you, but hopefully, this guide to discharge from bankruptcy Canada will lay out the steps you need to take if you wish to apply for a discharge yourself.
I hope that you found this discharge from bankruptcy Canada Brandon’s Blog informative. If you’re sick and tired of carrying the burden of debt and ready to live a much better life, we can assist. We know exactly how it really feels to be in debt as well as feel like you’re never going to get ahead. We have actually helped lots of people and businesses that were in your position reach financial stability, so we understand it’s feasible for you to prosper in your objective of ending up being debt-free. Nevertheless, it will certainly require some work on your part. We’ll be right here to assist you with every action necessary.
The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too many personal unsecured debts,Credit card debt, income tax debt liability, unsecured loans or personal obligations from the running of your company or from being a business owner. These are all types of debt we can help you eliminate. We are aware of your financial difficulties and understand your concerns. Filing bankruptcy is the last option we explore only after we have exhausted all other options to avoid bankruptcy, such as financial restructuring through a debt repayment plan.
It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to give you the best management advice to get you out of your outstanding debt troubles while avoiding bankruptcy. We can get you debt relief freedom.
The stress placed upon you is huge. We understand your pain points. We are sympathetic to the financial difficulties you are experiencing and would like to help alleviate your concerns. We want to lighten your load by coming up with a debt settlement plan crafted just for you.
We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.
Call or email us. We would be happy to give you a no-cost initial consultation. We can find you the perfect solution to tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. We provide a full range of services to people and companies. If any of this sounds familiar to you and you’re serious about finding a solution, let us know. We will get you back to living a happy life, whether or not there is an economic recession in Canada.
The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.
What does a licensed insolvency trustee do?: What is a licensed insolvency trustee?
Frequently I am asked what does a licensed insolvency trustee do? How is it different from a bankruptcy trustee? The answer is it isn’t different. The term bankruptcy trustee is dated.
The new title is Licensed Insolvency Trustee. The Office of the Superintendent of Bankruptcy (OSB) changed it in 2015. Among the reasons for the name change were the submissions made by the Canadian Association of Insolvency and Restructuring Professionals. As the name suggests, a licensed insolvency trustee can offer a wider array of financial solutions.
This Brandon’s Blog is intended to describe what does a licensed insolvency trustee do and to provide useful information for you to help you better understand the debt relief advice that a Trustee provides to people, entrepreneurs, and their companies experiencing financial trouble.
What does a licensed insolvency trustee do?: Licensed insolvency trustees are professionals who are federally regulated
There are many terms in the insolvency field that the average person isn’t familiar with, which is why it’s important to understand what the licensed insolvency trustee does. Trustees are licensed and supervised by the federal government through the OSB to act as personal and corporate insolvency administrators. This means they act to protect the interests of all involved parties while assisting debtors, acting as a debt counselor, a restructuring advisor, and if required, overseeing the bankruptcy process.
Licensed insolvency trustees are professionals with a background in finance, law, accounting, and insolvency. They assist businesses and individuals who are struggling financially. Typically, licensed insolvency trustees meet with clients to discuss their financial situation and offer advice and recommendations to help get the client out of a financial bind.
what does a licensed insolvency trustee do
What does a licensed insolvency trustee do?: The credit counselor or a debt management program as an alternative
Financial guidance is offered by licensed insolvency trustees, credit counselors, and debt management programs. These services differ greatly from each other.
A licensed insolvency trustee can simply offer you financial advice and help you plan on how to repay your debts if that is all you need. A trustee is also the only person who can file a bankruptcy or consumer proposal for you. A Trustee will provide you with an initial no-cost confidential consultation to see if there are alternatives to bankruptcy for you. Credit counselors, credit counselling companies, and debt management businesses can give you financial advice and information. They can help you make a budget and make plans to repay your debt.
What does a licensed insolvency trustee do when you have debt but do not need to resort to one of the insolvency processes? During the free initial consultation, if a consumer proposal or bankruptcy is not right for you, the Trustee will refer you to see a community organization-based credit counselor who will be able to help you and also will not charge you a fee.
What does a licensed insolvency trustee do?: The Consumer Proposal Process
Consumer proposals to creditors are made by debtors and are legally binding agreements. You group all your debts into a consumer proposal to creditors. This is a debt solution to avoid bankruptcy. Your creditors agree to accept a reduced amount as full payment. The consumer proposal is a legal alternative to bankruptcy. Only a licensed insolvency trustee can administer it.
The only consumer insolvency restructuring proceeding regulated by the Canadian government is referred to as a consumer proposal (which is the only one of the consumer insolvency government-regulated insolvency proceedings that allow debt consolidation, debt settlement, or debt adjustment). In the end, your creditors write off the remainder of your debt, and you are released from those legal obligations.
If you owe $250,000 or less (not including any personal mortgages) and are insolvent, then you can qualify for a consumer proposal. Month-to-month payments over no more than 60 months need to be made to the Trustee. You pay just a part (generally 25%) of your total financial obligations gradually to the Trustee and when ended up, the rest of the balance owing to your unsecured creditors is written off.
what does a licensed insolvency trustee do
What does a licensed insolvency trustee do?: The bankruptcy process
Canadian bankruptcy is a process whereby a person or company can declare itself bankrupt. The bankruptcy process starts in the provincial or territorial office of the OSB where the debtor is located.
In Canada, personal bankruptcy entails a number of stages. The debtor must be insolvent, meaning that they cannot repay their debts with the assets that they own or the income they earn. With the help of the Trustee, they must file statements of affairs and a statement of current income and expenses. There are other obligations on an undischarged bankrupt but that is not the purpose of this blog.
Upon receiving their discharge from bankruptcy, that is the moment that the debtor’s debts are forgiven or discharged.
What does a licensed insolvency trustee do?: The assignment of assets
When people file assignments in bankruptcy, what does a licensed insolvency trustee do with the assets? Any assets not charged by a secured creditor are available for the Trustee to take possession of. Those assets are usually things like real estate, cash, and vehicles. When assets are seized in bankruptcy the proceedings usually lead to them being sold and the proceeds are shared with creditors.
This is the main difference between a consumer proposal and bankruptcy. In a consumer proposal, there is no assignment of assets to the Trustee like in a bankruptcy. The debtor in a consumer proposal keeps their assets and makes monthly payments. It is the total of the monthly payments that the Trustee distributes to the creditors in a consumer proposal. In a bankruptcy, it is the proceeds of the asset sales.
what does a licensed insolvency trustee do
What does a licensed insolvency trustee do?: Opting for a consumer proposal
Many people I deal with have significant debt problems. However, a consumer proposal may not be the best option for everyone. Opting for a consumer proposal means not only do you qualify under Canadian insolvency legislation to use one. It also means that it is a better alternative for you than personal bankruptcy. It means that you are able to restructure and not need bankruptcy services from a licensed insolvency trustee.
A consumer proposal is a way to get out of debt without declaring bankruptcy. If you are having trouble paying back credit card bills, medical bills, rent payments, and you don’t want to declare bankruptcy, a consumer proposal might be right for you.
Before opting for a consumer proposal, you must meet the following requirements:
Total liabilities of $250,000 or less.
Monthly payments can be made to your creditors, but not 100% of the total amount due.
You cannot repay all of your debts with the money you have.
If you work and are able to budget, you can pay your budgeted monthly expenses and have money left over for regular monthly payments to the Trustee. Under a debt management plan, your creditors will agree to write off a portion of your debt if you pay a fraction of what you owe.
You may also be lucky enough to have a relative willing to put up a lump sum of money that represents a fraction of what you owe so that your unsecured creditors will accept it instead of all that you owe. This means that you can be in and out of your consumer proposal fairly quickly if you are in this fortunate position.
To summarize, consumer proposals are best suited to people with a sufficient disposable income. Consumer proposals offer the best way of restructuring, eliminating your unsecured debts, and avoiding bankruptcy.
There are restructuring provisions in the Bankruptcy and Insolvency Act (Canada) for people who owe more than they can discharge in a consumer proposal or in business insolvency. Despite some differences in the rules, the overall theme of restructuring remains the same.
What does a licensed insolvency trustee do?: Going the bankruptcy route
Given the above, what can a person do to eliminate their unsecured debt if they cannot qualify for filing a consumer proposal as an alternative to bankruptcy? Going the bankruptcy route will probably make the most sense.
Bankruptcy is when a person cannot pay their bills. They file Canadian personal bankruptcy to get a fresh start. Filing a consumer bankruptcy must be your last resort after exhausting all other options to avoid bankruptcy. Bankruptcy means debts are written off when the person receives their absolute discharge from bankruptcy. The bankruptcy law in Canada protects people from dishonest, unfair, or abusive practices by creditors.
However, in return for getting the relief of eliminating debts through bankruptcy, an undischarged bankrupt also has certain responsibilities.
These include:
Making full disclosure to the Trustee.
With the assistance of the Trustee, preparing the sworn Statement of Affairs and Statement of Income and Expenses.
Delivering all assets and properties to the Trustee to be sold (other than for certain provincial exemptions).
Attending the First Meeting of Creditors if one needs to be held.
Attending two financial counselling sessions with the Trustee or a member of the Trustee’s staff. Attendance at credit counseling sessions is also the case in a consumer proposal.
Providing monthly statements of income and expenses while an undischarged bankrupt.
Generally providing any assistance requested by the Trustee.
In providing debt-relief options, the Canadian bankruptcy system is designed to provide fairness to both debtors and creditors while allowing the person to financially rehabilitate themselves.
what does a licensed insolvency trustee do
What does a licensed insolvency trustee do?: Final thoughts
What does a licensed insolvency trustee do? Licensed insolvency trustees are insolvency practitioners. They are debt professionals who deal with and provide services to individuals and businesses with debt problems that are experiencing financial issues that can only be resolved through an insolvency process. Licensed insolvency trustees are professionals, offering affordable solutions to financial struggles.
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