I can’t pay my debts but I don’t want to declare bankruptcy. What other options might be available? There are a number of options available to deal with your creditors. Some of these are formal options legislated under the Bankruptcy and Insolvency Act and some are informal.

Informal Options can include:

   1.  Informal proposal to Creditors: This option works best if you have a smaller amount of debt and just a few creditors to deal with. You would be dealing them on an individual basis and all of the creditors would have to agree to make this option work.

   2.  Consolidation Loan through a bank or finance company: This option will be available only if you can qualify for a loan to consolidate. This can group a number of debts together into one loan with one monthly payment. More detailed information about these informal options can be found in the Alternative Methods for Dealing with Creditors section.

Formal Options include:

   1.  Orderly Payment of Debt (OPD): This is done through the Provincial mediation Board. You will pay back your debt in full with an OPD. An arrangement is made with your creditors that can possibly help to reduce the amount of interest being paid. This option works best if you have available income in your budget to make a monthly payment and a smaller amount of debt. For more information on OPD you can visit: http://www.saskjustice.gov.sk.ca/provmediation/

   2.  Consumer Proposal: In order to qualify for a consumer proposal you must owe less than $250,000 (including all debt other than the mortgage on your principal residence). A proposal to your creditors would typically be for a portion of the debt owing. More detailed information on consumer proposals can be found in the Bankruptcy/Proposal Section under Consumer Proposals.

   3.  Division I Proposal: An individual who does not qualify for a Consumer Proposal (because their debt is more than $250,000) would be eligible to file a Division I Proposal. More detailed information on Division I proposals can be found in the Bankruptcy/Proposal Section under Commercial Proposals.

   4.  Bankruptcy: A bankruptcy is generally the last option that is considered. In some cases it is not realistic to use any of the other options. For example if you do not have room available in your budget to make payments to your creditors over an extended period of time, if you have a very large amount of debt, if your income is unstable, etd. Prior to selecting a bankruptcy as the option we will review all other options, discuss the benefits and consequences of each option and provide you with the information you will need to make an informed decision. More detailed information on Bankruptcy can be found in the Bankruptcy/Proposal Section under Consumer Bankruptcy.

Whatever option is selected you should feel comfortable with the decision that is made. Before you make any decision you should feel that all of your questions have been answered. If you file a bankruptcy or proposal you will be working with your Trustee over an extended period of time. You should feel that you are being treated with respect and can ask questions throughout the process.

An income tax refund for the year prior to the bankruptcy or for the current year up to the date of the bankruptcy would be considered part of a bankruptcy. It would be sent directly to the bankruptcy Trustee from CRA for the benefit of the creditors. In some cases a tax refund can be applied towards the bankruptcy fee. This must be clarified prior to the filing of the bankruptcy. In some cases we will apply tax refunds to the payment agreement. We are not able to apply tax refunds if you have Surplus Income, or are repurchasing assets from the bankruptcy. This should be discussed prior to the signing of the bankruptcy so it can be written on the payment agreement if tax refunds will be applied.

The quarterly amount sent out to individuals as GST Credit is not classified as an asset that belongs to the bankruptcy. However, the GST credit will be sent directly to your bankruptcy Trustee while you are in bankruptcy. We will always apply GST credit to your payments. This includes situations where there is Surplus Income or assets being repurchased. Any GST that we receive that is not applied towards your payments will be returned to you once the administration of your bankruptcy is complete. We are able to do this because GST is not considered property of the bankruptcy estate. Therefore we can apply it to the repurchase of assets.

Child tax credit is not affected by a bankruptcy or a proposal. It will continue to be mailed directly to you by CRA.

You will not lose your house as the result of the filing of a bankruptcy or a proposal. If you have a mortgage on your house you would continue to make your regular mortgage payments directly to the bank (or finance company). If your payments are in arrears or foreclosure action has been started you would need to deal directly with your bank. A bankruptcy or proposal can not stop a foreclosure.

There is an exemption for equity in your principal residence. In Saskatchewan you are allowed to have up to $32,000 of equity in your home before there would be an issue in a bankruptcy. If you are a joint owner this equity would be allowed for each registered owner. For example if you jointly owned your house with your spouse you would be eligible for an exemption of $64,000.

Equity is calculated by taking the fair market value of your house and subtracting anything owed against it. For example if your house was worth $125,000 and you had a $100,000 mortgage you would have $25,000 equity. In Saskatchewan you are eligible for an exemption of $32,000 which would mean that you would not have any surplus (extra) equity that would be affected by a bankruptcy.

RRSP’s and pension’s are exempt in Saskatchewan. This means that your RRSP’s or pension would not be part of a bankruptcy. You would retain control of them.

The first question to ask is whether the vehicle is free and clear (meaning you do not owe any money on it). If your vehicle does not qualify as exempt and it is free and clear there are a few options to deal with this. Depending on the value of your vehicle it is possible to purchase it back from the bankruptcy estate. If the value of your vehicle is too much to repurchase in a nine month period it is possible to have your bankruptcy extended for a longer period of time to make the payments. A proposal may also be a good option in this circumstance. In a proposal your assets do not vest/transfer to the Trustee. You may be able to come up with a proposal to your creditors that would allow you to keep your vehicle.

If your vehicle is financed or leased you would be responsible to continue making payments directly to the company or bank that financed it. If a Creditor has your vehicle for collateral they are classified as a Secured Creditor. A secured creditor who financed the purchase of your vehicle is entitled to either the payments on your vehicle or the vehicle back. You would have to make an arrangement directly with the secured creditor to keep your vehicle in this situation.

A vehicle can only be claimed as exempt in certain circumstances in Saskatchewan. If you require your vehicle for employment purposes (ie. you use your vehicle for the performance of your job and you receive compensation from your employer for the use of your vehicle) it can be claimed as exempt. This does not include traveling to and from work. If you are self employed and use your vehicle to perform your work it can also be claimed as exempt.

If your vehicle is financed or leased you would be responsible to continue making payments directly to the company or bank that financed it. If a Creditor has your vehicle for collateral they are classified as a Secured Creditor. A secured creditor who financed the purchase of your vehicle is entitled to either the payments on your vehicle or the vehicle back. You would have to make an arrangement directly with the secured creditor to keep your vehicle in this situation.

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As soon as a bankruptcy or a proposal is filed you have immediate protection from your creditors. This means they will not be able to continue to contact you, or try to collect on the debts you owed. Sometimes it takes a little bit of time for the information to be recorded in the Creditor’s system or if it is a collection agency that is acting on behalf of the creditor they may not be notified at all (ex. the creditor may not notify the collection agency or the Trustee may not be aware that a collection agency has the account). If you receive a phone call after the bankruptcy or proposal has been filed you would just have to tell the creditor/collection agent to contact the trustee or contact the trustee and give the name and phone number of the person calling and the trustee will contact them. This should immediately stop any further calls from the creditor.

We do not contact your employer to advise them of the bankruptcy unless your wages are being garnisheed and we need to contact the employer to stop the garnishee, or you owe money to your employer.

Unsecured Debts
A bankruptcy or proposal would deal primarily with unsecured debts. These are debts where there is no collateral for the loan or account. Examples of unsecured debts that can be included would be credit cards, line of credit, overdrafts, bank loans finance company loans (ie. Citifinancial, Wells Fargo, HSBC Finance), income tax debt, GST debt, amounts owing for old bills (for accounts that are no longer active) or large balances owing on current accounts (regular utility bills would need to be paid but if you have significant arrears on an account it is possible to include this. You would likely be charged a deposit from the utility company and a cosigner may be required or restrictions may be placed on the account if you need to continue the service.).

Secured Debts
If a Creditor has an asset for collateral for a debt you have with them they are classified as a secured creditor. A Secured Creditor who financed the purchase of an asset is entitled to either the payments for the asset or the asset to be returned to them. You would have to make an arrangement directly with the secured creditor to keep an asset in this situation.

It is sometimes possible to deal with secured debts in proposals. For example, if you have a consolidation loan in the amount of $20,000 and your vehicle (worth $5,000) has been given as collateral it may be possible to propose to the secured creditor payments to cover the value of the vehicle. You might get an appraisal done on the vehicle to support the value being offered to the creditor and then offer the amount that the vehicle is worth ($5,000) plus interest as a payment to the secured creditor. The remaining balance of the loan ($15,000) would then be unsecured and become part of the proposal to the Unsecured Creditors. The secured creditor would have the option of accepting this offer or having the vehicle returned to them.

Changes to the Bankruptcy and Insolvency Act that came into effect on July 7, 2008 reduced the time frames for dealing with student loan debt.  

Under the new legislation, if you have been out of school for more than seven years at the time of filing a proposal or bankruptcy the student loan debts will automatically be discharged (upon receiving a discharge from bankruptcy or full performance in a proposal). The end of study date (the last date that you are in school either with loans or without) is the date that starts the seven year time period. Student loans can provide you with this date if you contact them. It is important to know what date they have listed as your end of study date so it is a good idea to contact them to find out.

If a student loan is less than seven years old at the time of the filing of either a bankruptcy or proposal it will not be discharged upon completion of the bankruptcy or proposal. What this means is that while you are in bankruptcy or completing your proposal you will be protected from collection action (ie. student loans or their collection agents will not be able to call you, ask for payments, garnishee tax refunds or wages etc). However, once the proposal or bankruptcy is completed the debt will still exist (plus interest). They will be able to resume collection action at this point.

Once you have been out of school for more than five years an application can be made to the court to have the student loan debts discharged. This does not require the filing of a new bankruptcy or proposal. If the court approves the application the debts will be discharged based on the bankruptcy or proposal that has already been completed. 

If you have a student loan that is less than seven years old and you are having difficulty making payments or are having trouble with collection agents phoning and demanding payments there are ways to deal with it. A long term proposal (up to 5 years) can be made to help you get to the five year mark to be eligible to make a Court Application. If you are fairly close to the five year point a bankruptcy can give you protection for the remainder of the time period. After you reach the five year period (and the proposal or bankruptcy is completed) you can then make an application to the Court to have the debt completely discharged.

You do not have to pay for the bankruptcy all at once if you file. You would typically make a small deposit at the time of filing (usually $100) and the remainder of the payments would be divided into eight payments. You would be given a payment agreement at the time of signing the bankruptcy that would outline the dates the payments were due and the amounts to be paid.

The credit bureaus use a scale of 1-9 to rate your accounts. A rating of 1 is a perfect rating. It means you are current in your payments and have had no late payments for that specific account. A rating of 9 is given if something has gone to collections, has been classified as a bad debt or if a bankruptcy has been filed. A rating of 7 is given if you have filed a proposal.

The R or the I in front of the number indicates the type of credit account that is being rated. An R stands for revolving credit. Examples of revolving credit would be a credit card or a line of credit where the credit fluctuates as you use it. There is often no defined payment schedule with this type of credit (other than minimum payments or interest payments). An I stands for installment. Examples of installment credit would be loans (like car loans, mortgages, RRSP loans etc.) where you have defined payments. This type of credit is where money is advanced and a payment schedule is set up with regular payments being made to pay the entire amount back in a specific period of time.

There are two major credit bureaus in Canada, Equifax and Transunion.

Equifax keeps information about a first time bankruptcy on their files for the period of six years after the bankruptcy is discharged. This is the standard cycle they use for purging information from their records. Regular information is also kept on the bureau report for six years from the date of last reporting. A second time bankruptcy will be kept on record for fourteen years with Equifax. A proposal will be taken off the report three years from the date it is completed.

For Saskatchewan residents, Transunion keeps information about a bankruptcy on their files for the period of fourteen years after the bankruptcy is discharged. This is the standard cycle they use for purging information from their records.

For more information about either of the credit bureaus you can visit their websites.
Equifax:
http://www.equifax.com/EFX_Canada/consumer_information_centre/overview_e.html

Transunion:
http://www.tuc.ca/TUCorp/home.asp

A first time bankruptcy is at minimum a nine month process. If there is no Surplus Income a first time bankrupt would be eligible for discharge nine months plus one day from the date the bankruptcy was filed. In order to receive your automatic discharge you must complete the requirements of the bankruptcy and no Creditor can oppose your discharge. If you do not complete the requirements of the bankruptcy you would remain in bankruptcy indefinitely until the requirements were completed.

A first time bankrupt with surplus income will be eligible for an Automatic Discharge 21 months plus one day from the date the bankruptcy was filed. In order to receive your automatic discharge you must complete the requirements of the bankruptcy and no creditor can oppose your discharge. This includes making all of the required surplus income payments. If you do not complete the requirements of the bankruptcy you would remain in bankruptcy indefinitely until the requirements were completed. 

A second time bankrupt with no surplus income would be eligible for an automatic discharge 24 months plus one day from the date the bankruptcy was filed. In order to receive your automatic discharge you must complete the requirements of the bankruptcy and no creditor can oppose your discharge. If you do not complete the requirements of the bankruptcy you would remain in bankruptcy indefinately until the requirements were completed.

A second time bankrupt with surplus income would be eligible for an automatic discharge 36 months plus one day from the date the bankruptcy was filed. In order to receive your automatic discharge you must complete the requirements of the bankruptcy and no creditor can oppose your discharge. This includes making all of the required surplus income payments. If you do not complete the requirements of the bankruptcy you would remain in bankruptcy indefinitely until the requirements were completed. 

An application for discharge for a third time bankrupt must be made through the Court. The bankrupt would receive a suspended discharge. A third time bankrupt would likely receive a suspension of at least 3-5 years. The circumstances of the bankruptcy and the conduct of the bankrupt would determine the length of the suspension.

In order to eligible for an Automatic Discharge the following conditions must be met:

1. It must be a first or second time bankruptcy;
2. The monthly income and expense statements have been submitted during the period of the bankruptcy. These are budget sheets that must be filled out and submitted at the end of each month;
3. Two financial counselling sessions must be attended;
4. The affidavit of earnings must be filled out and signed in front of a Commissioner of Oaths. This is done approximately two months prior to the automatic discharge date. We have commissioners at our office and this can be done either by coming in to the office or with a commissioner of oaths in your local area.
5. The bankruptcy fees must be paid in full. This would include Surplus Income if required;
6. Tax information for the year prior to the bankruptcy and the for the year of the bankruptcy must be provided to the Trustee;
7. No creditors have opposed the discharge;
8. The above are the basic requirements. In some cases there may be something additional, this will be discussed with you if it applies to your situation.

Not a first or second time bankrupt

If you are not a first or second time bankrupt the above conditions (#2-#8) would still apply. The difference is that you would not be eligible for an automatic discharge after nine months.

In the case of a third time bankruptcy, an application for discharge would be made to the Court for a suspended discharge. Then length of the suspension varies based on the circumstances.

A third time bankrupt would likely receive a suspension of at least 3-5 years. The circumstances of the bankruptcy and the conduct of the bankrupt would determine the length of the suspension.

Once a proposal is accepted by the creditors and the court the requirements necessary to receive the Full Performance (complete the proposal) are:

1. The proposal payments are made in full;
2. Two financial counselling sessions are attended.
3. Any further terms that may have been written into the proposal have been completed.

The Division I proposal has similar requirements to a Consumer Proposal for completion. The main difference is that a Division I proposal does not have a requirement for two counselling sessions. Once the payments are made in full and any other additional terms have been completed the Full Performance can be issued.

A bankruptcy or a proposal can only deal with your liability for a debt. If there is a second party linked to the debt (by a guarantee, a joint application, a cosigner, a spousal or secondary card being issued on an account, etc.) they will continue to be responsible for the debt. Most debts have what is called joint and several liability. What this means is that each responsible party is responsible for 100% of the debt. The debt will not be divided in two if one party files a bankruptcy or a proposal.

You can not cancel a bankruptcy after it has been filed. A bankruptcy can only be annulled for two reasons:

1. It ought not to have been filed or was filed with the intention of defeating a specific Creditor. This can only be done by the Court. There would need to be evidence presented that proved one of these two allegations;
2. A proposal is filed to annul the bankruptcy. If your financial circumstances change significantly it is possible to file a proposal to annul your bankruptcy. For example you receive a sizable increase in your income, or you come into a lump sum of money (ie. you win the lottery or receive a large inheritance). You would then need to complete the terms of the proposal. If the proposal wasn’t completed you would be placed back into bankruptcy.

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