Most people aren’t aware of how Consumer Proposals or personal bankruptcy work – so it’s no surprise that as Licensed Insolvency Trustees we get asked a lot of questions each and every day. We’ve asked some of our knowledgeable staff to answer the top 10 questions we hear – if you missed last week’s Top FAQs, click here to catch up!
Can I make a Consumer Proposal on my own?
An individual cannot file a Consumer Proposal on their own. A Licensed Insolvency Trustee (“LIT”) is the only person qualified to assist a person in filing a Consumer Proposal.
Because a Consumer Proposal is a binding legal agreement under Canadian laws, you are provided with legal protection so that your creditors cannot collect on their debt.
Dana Timko, Estate Manager (Sands & Associates Langley office)
How long do a Consumer Proposal and Bankruptcy each take?
It’s typical that many Consumer Proposals are written for a period of 24 to 36 months, but they could be for as little as one month, or as many as 60 months, (this is the maximum amount of time that the proposal can stretched). There is no penalty for paying out a Consumer Proposal sooner than the stated terms. An important component is that we are able to keep payments at a reasonable level, which means individuals are most likely to successfully complete their proposal. Once the terms of the proposal have been fulfilled (i.e., all payments made), the proposal is complete – even if it is earlier than the originally stated duration!
Generally speaking, a bankruptcy takes either 9 or 21 months, depending on your income level. If your income is below a low-income cutoff (this number changes according to family size) the bankruptcy is 9 months. If your income is above the amount then the bankruptcy is 21 months. If you have been bankrupt before these durations change to 24 and 36 months respectively. Relief from creditor harassment, and the creditor’s payment obligations take effect immediately however, regardless of the length of the bankruptcy.
Stephanie Munsie, Estate Manager (Sands & Associates Vancouver Island offices)
What happens to my Canada Revenue Agency debts?
Filing either a Consumer Proposal or Bankruptcy under the Bankruptcy and Insolvency Act is the only method of eliminating Canada Revenue Agency debts. Outstanding government debts such as personal income tax, GST, and director’s liability for corporate and/or government debts are dissolved in a Consumer Proposal and/or Bankruptcy.
Student loans are another government debt that can be resolved with a Consumer Proposal or Bankruptcy. The current legislation states that if the student loan is more than 7 years old from the last day you attended school, the student loans will be extinguished in a Consumer Proposal and/or Bankruptcy.
Julie Medeiros, Estate Manager (Sands & Associates Port Coquitlam office)
What if I’ve filed for bankruptcy before?
If you have been bankrupt before, it is possible to file for Bankruptcy a second or even a third time. Filing any subsequent bankruptcies will require that you remain in bankruptcy for a longer period of time and will have more lasting impacts on your credit rating.
If you wish to avoid filing multiple bankruptcies, a Consumer Proposal may be an alternative available to you. Depending on your household income and your ability to make regular monthly payments, a Consumer Proposal can be a great alternative to Bankruptcy in order to settle your debts.
Laura Kehtler, Licensed Insolvency Trustee (Sands & Associates New Westminster office)
What are the effects of a Consumer Proposal on my credit history?
A Consumer Proposal is noted on a credit report for three years from the date of your final payment, or six years from the date you started the Consumer Proposal – whichever comes first.
These timelines do not mean that a person cannot obtain credit, only that the information is noted on the report for future creditors to consider. It is up to the bank whether they want to grant credit and at what rate of interest.
The time-frame that the Consumer Proposal is noted on the credit report is actually the best time to rebuild and re-establish credit, so that by the time the negative information disappears, a person could be well on their way to achieving a good credit rating again.
Darlene Mullen, Estate Manager (Sands & Associates Vancouver office)