Bankruptcy Exemptions & Consumer Proposals in Canada

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Bankruptcy exemptions in Canada

The idea of filing for bankruptcy may strike fear into the hearts of individuals who are struggling to cope with their debt. However, take comfort in the fact that there is an abundance of debt relief solutions for Canadians out there. Bankruptcy isn’t as scary as you think when you have a federally regulated specialist to guide you through it.

Bankruptcy also doesn’t mean that you will lose everything. In fact, there are a number of assets that are exempt in bankruptcy and each province in Canada will have a specific list of exemptions that are protected from creditors.

Bankruptcy in Canada abides by legislation set out in the Bankruptcy and Insolvency Act but specific provinces set out varying criteria for bankruptcy exemptions.

Harris & Partners is a specialist Licensed Insolvency Trustee with offices based across Canada, providing debt relief solutions to individuals and businesses struggling to manage their debt.

Contact us today for a free consultation and we’ll help you get yourself back on track.

How does a consumer proposal work in Canada?

A step by step guide to consumer proposals in Canada

  • Contact a Licensed Insolvency Trustee

Consumer proposals must be administered by a licensed insolvency trustee. At Harris & Partners, our licensed trustees are federally regulated and authorised by the Office of the Superintendent of Bankruptcy to provide debt relief services. We are also responsible for administering bankruptcy and consumer proposal proceedings.

If you are in a difficult financial situation and your credit rating is taking a hit, get in touch with our team today and we can help you understand all the options available to you to get your finances back on track.

  • Your trustee will work with creditors to set the terms of your proposal

If the consumer proposal is deemed to be the best option for you, your trustee will review your financial situation in order to calculate how much you can reasonably afford to pay back.

Your trustee will also draft up the length of your proposal (as in how long you will be contracted into payments on a monthly basis). The maximum term for a proposal is 5 years.

  • Your trustee will send the proposal to creditors for approval

After your consumer proposal has been drafted up, it will be sent to creditors for approval. For creditors, a consumer proposal is often more beneficial for them than bankruptcy and in the majority of cases, it will be accepted.

  • Following approval, your consumer proposal becomes a public record

If your consumer proposal is approved, then it will be officially held in the Office of the Superintendent of Bankruptcy (OSB) and become a public record.

Once your consumer proposal is officially in place, debt collectors will no longer be able to take legal action against you.

  • You start making repayments on a monthly basis

You will begin making proposal payments to your trustee and this will be distributed to creditors. You must make these payments on time as if you miss three payments or do not make a payment by three months or more, your consumer proposal could be terminated.

If you are struggling to make the payments, you can speak to your trustee and they may be able to negotiate changing the payment amount.

  • You are declared debt-free at the end of your agreed payment period

Following the completion of all payments, you are released from the contract and your debts; with any outstanding debts becoming void.

What is exempt from bankruptcy in all Canadian provinces?

After declaring bankruptcy, there are certain assets that are exempt from seizure across all Canadian provinces and this includes:

  • Registered Retirement Savings Plans (RRSPs) – except contributions made in the last 12 months before the bankruptcy.
  • Nearly all pension plans and life insurance policies (you can check with your licensed trustee about this).

In general, according to federal law, the following are exempt assets that you are typically always able to keep in bankruptcy:

  • Personal items and clothing
  • Work tools needed for your occupation (valued to a certain amount specific to the province).
  • One motor vehicle valued up to a certain amount.
  • Some or the entire value of your principal residence (province dependent).
  • Household furnishings.

How can I find out more?

If you want to find out more bankruptcy exemptions and consumer proposals in Canada, please contact your local Licensed Insolvency Trustee for further information.

Frequently asked questions

Will my income be affected?

If you file for bankruptcy, your income should not be affected but this will depend on factors such as how much you earn and the number of dependents involved.

Will my car be taken if I file for bankruptcy?

After you declare bankruptcy, you are able to keep your vehicle if it is valued up to a certain amount (this figure will vary between provinces) but if you fail to make your payments, the car may be seized.

If your car is worth more than the exemption limit, there is an option to pay the difference in order to keep it and this can be arranged with your licensed trustee.

Is my house safe if I file for bankruptcy?

If you are able to keep on top of your mortgage payments, then you should be able to keep your home and your home equity should also be exempt up to a certain value (this will vary depending on the province in which you live).

Your home equity excludes debts that you owe i.e. mortgage and property taxes.

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