Consumer Proposals and Bankruptcy Deciphered; The Top 6 Phrases You Should Understand
Words like “bankruptcy” and “creditor” have made their way into our daily speech, but we still tend to misuse them. Even if you’ve never sought professional advice to deal with your financial troubles, you should know exactly what these phrases mean. The following glossary can help clarify a few familiar but confusing terms.
Bankruptcy
A legal process administered by a Trustee in Bankruptcy where all your unsecured debts are extinguished. When you file for bankruptcy all your assets are assigned to a Trustee in bankruptcy who may liquidated them (subject to exemptions) and distributes the proceeds to your creditors. A portion of your income may also be taken and distributed to your creditors. Process usually lasts for 9 to 21 months for a first time bankrupt, 24 to 36 if a debtor has been bankrupt before.
- Consumer Proposal
Under the Bankruptcy and Insolvency Act a consumer proposal is the alternative to filing for bankruptcy. Unlike bankruptcy in a consumer proposal all your assets are fully protected from the creditors. In a consumer proposal an offer is made to pay off a portion of your unsecured debt interest free over a period of up to 5 years. The remaining debt owing is forgiven by the creditors. In Canada, only a Trustee in Bankruptcy can file consumer proposals and bankruptcies.
- Bankruptcy Trustee
An officer of the court the Trustee in Bankruptcy administers and mediates bankruptcies and consumer proposals. Under the Bankruptcy and Insolvency Act the Trustee in Bankruptcy has a fiduciary duty to represent the creditors.
- Initial Assessment
Before you file your consumer proposal or bankruptcy, a Trustee in Bankruptcy will assess your financial situation to determine the best course of action. The decision will depend on a number of different factors that are unique to your situation. This includes what kind of debt you have and how much is owing, your income, assets and family size.
- Exempt Assets
These are assets that cannot be taken if you file for Bankruptcy. For example in the Lower Mainland a car worth less than $5000 is exempt and cannot be taken as is the case for furniture worth less than $4000, pension funds and the first $12,000 of equity in your property after subtracting mortgages and selling fees.
- Surplus Income
The stipulated minimum monthly income in the Bankruptcy and Insolvency Act is required to maintain a reasonable living standard. Anything more than this is your surplus income. In a bankruptcy half of this surplus income is taken by the Trustee in Bankruptcy and paid to your creditors.
This article only touches the surface of this topic
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Gurinder Dhaliwal, 4 Pillars Burnaby
