A Licensed Insolvency Trustee (LIT) is licensed by the Office of the Superintendent of Bankruptcy to help people who are struggling to pay their debts. LITS are debt-solutions experts who work 1:1 with their clients to find the best path forward for their unique financial situation.
Remember: LITs are also the only federally regulated debt advisors in Canada. Their fees are set by the Office of the Superintendent of Bankruptcy and they operate within the Bankruptcy and Insolvency Act of Canada to protect the rights of both debtors and creditors.
Finding the right LIT is different for everyone, but there are some non-negotiables that you can take to ensure that you are finding the right partnership for you, including:
Most LITs throughout Canada offer their initial consultation for free. There is no commitment when it comes to a consultation. The purpose of the meeting is to meet you, assess your situation, and talk about options.
There are several differences between a LIT and an unlicensed debt consultant. These include:
Insolvency is a term from bankruptcy law. If you are insolvent, it means your liabilities or debts exceed the value of your assets. You would also be considered insolvent if you are unable to pay your debts on time.
The primary difference lies in the presence or absence of collateral. Collateral is valuable because it serves as security for the repayment of a loan.
Our sole purpose is to help you, and you can rest assured that we are free of judgement. We understand how you’re feeling and remain steadfast in ensuring we can help lift that burden off your shoulders, empowering you to live a life free of financial worries.
Unfortunately, you cannot use a consumer proposal to reduce your mortgage or car loan debt obligations. These are considered secured debts, which means your creditors can repossess your home or car if you are unable to make payments.
If your car and mortgage payments are in good standing, they will not be affected by a consumer proposal. All your possessions and belongings, including your car and home, are protected from your creditors when you file a consumer proposal.
While the exact length would depend on your individual circumstances, a consumer proposal cannot last more than five years.
Once your LIT negotiates with your creditors to repay a portion of your debt, you would enter into an agreed proposal with a fixed monthly payment over a set period, usually between three and five years. You must make that same monthly payment to your LIT every month for the duration of the proposal. Your LIT will then distribute the money to your creditors as set out in the proposal.
With a consumer proposal, you only make one equal monthly payment every month. Any fees you would pay are included in the monthly payment you make to your LIT.
You and your LIT will work to make sure you are successful in hitting all your payments. If you miss three monthly payments, your consumer proposal will be cancelled. Filing an amend may be an option (before missing payments happens), but if an amended proposal is not accepted by your creditors, your debts will not be discharged. You also won’t be able to file another consumer proposal for those debts and might have to consider filing for bankruptcy.
When you file a consumer proposal, you will receive an R7 rating, which shows you have made a settlement with your creditors. This rating will stay on your credit report for three years after your proposal has been completed.
Any form of unsecured debt (debt that is not backed, or secured, by an asset you own, like how a mortgage loan is secured by your house) can be included in a consumer proposal. Types of unsecured debt include:
While both a consumer proposal and a bankruptcy can give you a fresh financial start, there are a few key differences, as follows:
Yes. Once your consumer proposal has been filled, collection agencies are not allowed to contact you.
No. When you file a consumer proposal, all your assets are protected from your unsecured creditors. If you own a home or a car, you will need to continue to make payments on your mortgage or car loan to keep them. These specific types of debts cannot be included in a consumer proposal.
If you file a consumer proposal, it will not go on your spouse’s credit report. That changes, however, if you have joint debts.
Other solutions will be considered before filing for bankruptcy. Many people can resolve their debt problems with alternative solutions, such as a consumer proposal. Your LIT will carefully review your situation and explain all available debt relief options to help find the best solution available to you.
Consumer proposals are for individuals who are able to make payments to creditors (either monthly or as a lump sum), but who also need to make a change to their current arrangement of their payments. Consumer proposals can also change the payment terms (up to a maximum term of 5 years) and the overall amount you are required to pay.
On the other hand, bankruptcy is a formal process to relieve an individual of their debts to unsecured creditors.
There are some debts that cannot included in bankruptcy, but it does not mean that bankruptcy can’t alleviate stress and make it easier for you to make these payments:
Even if you file for bankruptcy, you will still be responsible for the following debts:
Once you file for bankruptcy, you will have to give your credit cards to your LIT. Your LIT will also explain credit rebuilding strategies and programs for you. The good news is that you can apply for a credit card after you’re discharged from bankruptcy, although it will likely be with a secured credit card, where you would pay a deposit to guarantee your credit limit.
Credit cards are excellent ways to rebuild your credit score and to show you are a responsible borrower. If you obtain a secured credit card, use it to charge a few reasonable amounts, and pay off the balance in full and on time each month.
We understand, rightfully so, that worrying about your home and your family is a common fear when discussing bankruptcy. Most provinces have exemptions that allow you to keep some of the equity in your home when you file for bankruptcy, however, if you’ve already paid off a large portion of your mortgage and have equity in your home, filing for bankruptcy might not be the best solution for you.
Bankruptcy law requires you to use that equity to pay off some of the money you owe to your creditors.
To keep your home when filing for bankruptcy, you would need to pay your LIT the amount of equity you have in your home, minus any provincial exemptions. Home equity is calculated by subtracting the remaining amount of your mortgage, along with any outstanding taxes you owe, from what your house is currently worth on the market.
Once you have filed for bankruptcy, it is a legally binding agreement that will stop all harassing phone calls and threats of legal action from debt collectors. On your behalf, your LIT will address this with all your creditors and inform them that they are no longer allowed to contact you.
In most provinces, an individual filing for bankruptcy is entitled to keep one vehicle worth up to a certain amount. Leased or financed vehicles are not included in your bankruptcy unless they have significant equity value over the loan amount. If you have multiple vehicles or other assets that you would like to keep, talk to your LIT about what options might be best for you.
You likely already have a poor credit score if you are considering filing for bankruptcy. Filing for bankruptcy will still impact your credit score, giving you an R9 rating, which will stay on your file for approximately seven years. However, bankruptcy can offer you a fresh start, and help you to rebuild your credit faster than some other debt relief solutions.
Absolutely not. Losing everything is one of the most common misconceptions about bankruptcy. Each province and territory has exemptions to the bankruptcy law that allows you to keep some of your belongings.
While bankruptcies are in the public record, someone would usually have to pay a fee to access that information, which does not commonly occur. This means that, in most cases, no one is aware that you have filed for bankruptcy. The vast majority of personal (non-business) bankruptcy filings are not advertised in the newspaper.
If you file for bankruptcy, it will not go on your spouse’s credit report or affect their credit rating. However, if you have co-signed any loan agreements with your spouse (or anyone else), that person will then assume full responsibility for repaying the loan if you file for bankruptcy. In these circumstances, it is best for you and your co-signor to speak with your LIT at the same time, to make sure both of your needs are addressed.
A mortgage is a secured loan. Only unsecured debts can be eliminated in a bankruptcy. If you are not behind on your payments your mortgage lender cannot cancel your mortgage or foreclose on your home because you file for bankruptcy. Also, if you are up to date on your mortgage payments most lenders will renew your mortgage even if you are bankrupt or in a consumer proposal.
A Division 1 Proposal is often described as a “compromise” made between debtors and their unsecured creditors. The proposal’s purpose is to lower the total amount of debts owed, making it easier for the debtor to repay their creditors. The proposal also helps unsecured creditors because it promises that they will receive payment.
A Division 1 Proposal is designed for individuals that owe more than $250,000 in debt, excluding the mortgage for their primary residence. The proposal specifically covers unsecured debt like debt from payday loans, credit cards, money owed to the Canada Revenue Agency, and more. To be eligible for the proposal, an individual should be insolvent — in other words, unable to manage and repay their debts using their current income.
The Division I Proposal process in Canada is complex and varies from case to case. For most businesses and some individuals, it will include:
You may qualify for a consumer proposal.
A consumer proposal builds a bridge between the borrow and their unsecured creditors to lower the total amount of money owed. It’s designed to make the repayment process easier for the debtor and give the creditors more repayments than if they filed for bankruptcy.
These two proposals share the same purpose, however, Division 1 Proposals are available for individuals and businesses, but consumer proposals are only available for individuals. This is why businesses have no minimum debt total to qualify for a Division 1 Proposal in Canada.
Additionally, a consumer proposal has a cap for an applicant’s total debt. An applicant must have $250,000 (not including a mortgage) or less in debt to qualify. Anyone who reaches over that set limit is automatically disqualified and must look for another debt-relief strategy. Process and time limits are also differentiators.
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