Personal Debt Solutions

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If you have debt that is unmanageable and you can’t reasonably pay it back, there are solutions. Sometimes, lacking basic money management skills paired with easy access to credit can quickly lead to an unmanageable situation.

Some common circumstances that could lead to having unmanageable debt include loss of income, low income or lack of steady income, separation or divorce, illness and high medical expenses, unexpected vehicle or housing expenses or business failure.

Let us help you.

Call us at 506.638.9220 or send us a message so that we can contact you.

Explore Your Options

Powell Associates Ltd. is a Licensed Insolvency Trustee. That means that we are licensed and regulated by the federal government to help individuals understand the practical options they have for resolving unmanageable debt.

We have extensive training and experience to quickly assess your individual situation, explain the options and confidently answer your questions.

While a consumer proposal or personal bankruptcy are often the most efficient and effective options to resolve unmanageable debt, they are not the only options. We will cover every relevant option available to you such as budgeting, debt consolidation, debt management plans, and more.

The Powell Commitment

  1. We will not pressure you to file anything … it’s your choice when and if to file. During the initial consultation, we learn the basics of your situation and outline practical options. Dealing with debt is a serious matter and it is important to us that you fully understand your options before you do anything.

  2. We will not charge you any fees for a consultation which we can do in person, by video or over the phone - it’s your choice. In fact, for the vast majority of our consumer files, no payments whatsoever are made until after you have been fully educated on practical options, have chosen a path and actually filed.

  3. We will explain all practical options with you and make sure you understand the pros and cons of any non-legislated processes that you may be considering.

9 Reasons to File a Consumer Proposal instead of Personal Bankruptcy

9 Reasons to File a Consumer Proposal instead of Personal Bankruptcy

9 Reasons to File a Consumer Proposal instead of Personal Bankruptcy Filing a consumer proposal can have significant advantages compared...
Reset and Restart: Personal Bankruptcy and the Relief from the Stress of Unmanageable Debt in Canada

Reset and Restart: Personal Bankruptcy and the Relief from the Stress of Unmanageable Debt in Canada

Bankruptcy is usually the last choice for most individuals.  It is good that this process is available because, without it,...

“Good to know! All Powell Licensed Insolvency Trustees are members of the Canadian Association of Insolvency and Restructuring Practitioners (CAIRP), a professional body providing additional education, professional standards and disciplinary processes for its members.”

Consumer Proposal Versus Personal Bankruptcy

One of the main purposes of the Bankruptcy and Insolvency Act is to provide an orderly and equitable way for individuals, unincorporated businesses and corporations to deal with unmanageable debts.

The Bankruptcy and Insolvency Act is federal legislation that is applicable in all provinces and territories and it provides for “bankruptcy” and debt settlement processes called a “proposal” or a “consumer proposal”. Bankruptcies and proposals must be filed with a Licensed Insolvency Trustee who is licensed by the federal government under the Bankruptcy and Insolvency Act and is highly regulated.

A Licensed Insolvency Trustee is an officer of the Court and has responsibilities to all stakeholders in the bankruptcy and proposal processes including you (as the debtor), your creditors, the Court and the Office of the Superintendent of Bankruptcy.

Personal bankruptcy and proposal processes are designed to relieve you of the burden of debts that you cannot realistically repay. The processes also include rehabilitative counselling and guidance so that you can avoid or manage the situations and circumstances that led you to have an unmanageable amount of debt.

However, it is understood that not all such circumstances are reasonably within your control. Some of the common circumstances leading to an unmanageable debt-level are loss or lack of steady employment, separation, divorce, illness, high medical expenses, low income, unexpected vehicle or housing expenses, and business failure. These circumstances, combined with a lack of basic money management skills and easy access to credit, can quickly lead to an unmanageable situation.

Often, the options to resolve unmanageable personal debt include a consumer proposal or personal bankruptcy and we have provided the following list of topics to help you understand the similarities and differences between them. This information is general and we urge you to take advantage of our free initial consultation so that you can discuss your specific situation and understand the practical options available to resolve your debts.

Areas of the insolvency process where Consumer Proposal compare to Personal Bankruptcy:

How your proposal is affected by...

Income Tax Refunds

In a consumer proposal, income tax refunds are paid to you and not to your Licensed Insolvency Trustee or Administrator. CRA can still apply refunds for periods up to the date of filing to amounts that you owe in your personal bankruptcy to the federal or provincial governments including income tax debts, student loans, EI overpayments, etc. If there is still a refund due, it will be paid to you.  

In personal bankruptcy, there are two income tax returns filed for the year in which you filed bankruptcy. The “pre-bankruptcy income tax return” covers from January 1st to the date of your personal bankruptcy filing. The “post-bankruptcy income tax return” covers the balance of the year to December 31st. 

All income tax refunds that you are entitled to for the year in which you filed for personal bankruptcy (and for any prior years) are assets of the bankruptcy estate. CRA can apply any refunds for periods before the date of bankruptcy to amounts that you owe in your bankruptcy to the Federal or Provincial Governments including income tax debts, student loans, EI overpayments, etc. If there is a refund owing to you, it must be paid to the Licensed Insolvency Trustee for distribution to your creditors. 

Income tax refunds for taxation years after the year in which you filed for personal bankruptcy are not assets of the bankruptcy estate.

Income Tax Debt

It is important to understand that amounts owing to CRA for income tax do not have any special status in a consumer proposal or personal bankruptcy. Income tax debts are unsecured debts and are treated the same as an unsecured credit card debt or unsecured line-of-credit from your bank.

The treatment of income tax debt in a consumer proposal is the same as in a bankruptcy. Debts owing for income tax up to the date of filing your consumer proposal will be settled by the completion of your consumer proposal. You file your income tax return for the entire year in which you filed as you normally would file your income tax return. Generally, the income tax debt will be allocated on a pro-rata basis. 

For example, if you filed your consumer proposal on March 31st, 25% of your income tax debt would be included in consumer bankruptcy (for 3 of 12 months) and the balance would be a post-proposal debt that you would have to pay. Sometimes a pro-rata split is not used and the Licensed Insolvency Trustee will discuss this with you if necessary.

In personal bankruptcy, the debt will be split into pre- and post-filing periods as well. The main difference here is that there are two income tax returns filed for the year in which you filed and they are filed by the Licensed Insolvency Trustee based on information that you provide. The “pre-bankruptcy income tax return” covers from January 1st to the date of your personal bankruptcy filing. The “post-bankruptcy income tax return” covers the balance of the year to December 31st. 

The income tax debt you owe up to the date of your bankruptcy filing will be extinguished by the completion of your bankruptcy. Any debts you owe to CRA for income earned after the date of your bankruptcy must be paid by you.

Inheritances, Winnings and Other Windfalls

A “windfall” is a piece of unexpected good fortune that typically involves the receipt of a large amount of money or other valuable property. The most common types of windfalls are inheritances and lottery winnings.

If you become entitled to a windfall after your consumer proposal has been accepted by creditors and approved by the Court then it has no impact on the consumer proposal. You must still complete the terms of the consumer proposal but, the windfall may assist you in completing the consumer proposal earlier than originally anticipated. 

If you become entitled to a windfall at any time up to the date of Court approval of your consumer proposal, this fact needs to be immediately reported to your Administrator and will likely require you to amend the terms of your consumer proposal to reflect the windfall.

In personal bankruptcy, you must report all material changes in your financial circumstances to your Licensed Insolvency Trustee. 

Becoming entitled to a windfall would be one of the circumstances that would have to be reported and you will have to pay or transfer the windfall to the Licensed Insolvency Trustee for distribution to your creditors. This duty to report ends when you have completed the bankruptcy process and obtained a discharge from bankruptcy. It the windfall is big enough to pay all of your creditors in-full, the Licensed Insolvency Trustee will pay the surplus funds to you.

Credit Report Implications

It is important to understand that a Licensed Insolvency Trustee does not directly report anything to the Credit Bureaus and is not required to do so. The Credit Bureaus obtain information on consumer proposal and personal bankruptcy filings directly from the Office of the Superintendent of Bankruptcy and directly from the creditors who have been impacted by your consumer proposal or personal bankruptcy filing.

The fact that you filed a consumer proposal or personal bankruptcy will be reflected on your credit report. The two Credit Bureaus in Canada are Equifax and TransUnion. Reporting agencies such as Credit Karma and Borrowell are not actual Credit Bureaus; they get their information from Equifax and TransUnion.

It is the responsibility of your creditors to accurately report the debts that you owe to them to the Credit Bureaus and to indicate whether or not the debt has been included in your consumer proposal or personal bankruptcy filing. Unfortunately, it is important to recognize the fact that there are many errors in the Credit Bureaus and such errors are mostly related to incorrect reporting by your creditors. 

This is not something the Licensed Insolvency Trustee can correct and the Licensed Insolvency Trustee has no obligation to work to correct information that is factually incorrect on your credit report. 

If information is not correct in your credit report, you need to file a dispute or investigation request with the Credit Bureau and they will address the matter with the creditor and come back to you with a response. If the matter is not resolved by the response, that is the time to discuss the situation with your Licensed Insolvency Trustee or Administrator to see what, if anything, can be done.

For up-to-date specifics about how long individual items are reported on the Credit Bureaus, you need to go to their websites. In general terms, the following is true:

  1. A consumer proposal is reported from the date of filing until 3 years after it has been fully completed. This is the same regardless of whether you have previously been bankrupt or previously filed a consumer proposal.

  2. A first-time bankruptcy is reported from the date of filing until 7 years after you have been discharged from bankruptcy. If you have not been discharged, it is reported for 7 years after the date of filing.

  3. A second (or more) time bankruptcy is reported for 14 years after the date of discharge from the bankruptcy.

  4. Payment defaults, write-offs, etc. are reported for 6 years from the last report date.

Debts that Survive Personal Bankruptcy or a Consumer Proposal

It is important to understand that not all debts are settled in personal bankruptcy or consumer proposal. The federal government has determined that the following debts are specifically excluded from being settled:

(a) fines, penalties and restitution orders imposed by Court; 

(b) Court awarded damages for intentionally inflicted bodily harm, sexual assault or wrongful death; 

(c) debts arising out of fraud, embezzlement, misappropriation, defalcation or resulting from obtaining property or services by false pretences or fraudulent misrepresentation. This includes most EI overpayments;

(d) debts or liabilities for alimony, maintenance, spousal support or child support; and

(e) student loans where I have been a full or part-time student at any time in the 7 years before filing. 

In addition to these debts, you will have to keep paying any debts secured by assets that you have elected to retain. For example, if you are keeping your house in personal bankruptcy or a consumer proposal, you will have to keep paying the mortgage and any other debts secured by the house. Similarly, if you are keeping a leased or purchase-financed vehicle, you will have to keep paying the lessor or finance company.

Fees

As noted previously, all personal bankruptcies and consumer proposals must be filed with a Licensed Insolvency Trustee (the “LIT”) who is licensed by the federal government and is highly regulated. One of the regulated matters is fees.

In personal bankruptcy, the LIT's fees are either fixed by a formula in the legislation or must be approved by the Court. In either case, the fees are paid from assets in the bankruptcy estate including surplus income payments, equity in assets sold by the LIT, or equity paid by you in retained assets.

In some cases, there will be no surplus income payments or other assets paid into the bankruptcy estate, and, in these cases, the LIT will require you to make a contribution to cover the costs of your bankruptcy. This contribution is usually made in monthly payments that are manageable for you.

In a consumer proposal, the LIT's fees are fixed by a formula in the legislation and are paid out of the funds that you pay into the proposal. So, the payment agreed upon in your proposal covers the settlement with your creditors and the fees of the LIT for administering the consumer proposal.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of significant financial stress;

  • You won't be stuck in an assembly line process.

  • You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.

  • We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.

  • We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free consultation.

We offer free consultations to review your financial situation and practical debt resolution options.  Contact us to discuss your situation over the phone, a video chat, or in-person in Saint JohnMonctonFrederictonCharlottetownDartmouth, or Miramichi.