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Debt consolidation

1) Make sure that all the debts you are consolidating have an interest rate that is higher than that of your consolidation loan (12%). The goal is to reduce your interest costs, not increase them.

2) Make sure that you can afford the financial institution’s monthly payment. There is no use consolidating if you experience the same financial difficulties after the consolidation as before.

3) Make sure the financial institution does not require a co-signer (guarantor). According to our experience, a missed payment on your part almost always results in a lack of ability, not a lack of will. Therefore, despite your best intentions, you risk causing trouble to a friend or family member if repayment problems occur. Furthermore, a guaranteed loan is considered a loan in favour of the guarantor and it will reduce his/her ability to borrow in the future.

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Firstly, by paying your creditors, the financial institution assumes, alone, the risk that each of your creditor had in regards to their individual debt. Therefore, they would be the only one to lose if, by unfortunate circumstances, you became unable to pay.

Secondly, they fear that you might be tempted to incur new debt after your consolidation loan. In fact, once repaid, your former creditors will not hesitate to solicit your business again. New debt on your part would add to your monthly consolidation payments and increase the risk of financial difficulties.

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Our role and ethical obligation is to analyse your financial situation, explain pertinent options and advise you in a competent, professional and impartial manner. You will not be left on your own in this process and you can count on our qualified advisors’ experience.

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The two questions that we must ask ourselves are:

  1. Is my credit rating already affected? 
  2. Would I be able to obtain a loan today if I wanted?

All solutions to debt problems have advantages and disadvantages. For example, debt consolidation will not affect your credit rating, but you must be eligible for this type of loan and you will have to pay interest (average of 12%), which will significantly increase your monthly payment. A consumer proposal and a bankruptcy, on the other hand, will have an impact on your credit rating, but are sometimes the only alternatives that will allow you to balance your budget and quickly regain control of your finances by considerably reducing your debts. In certain circumstances, it is preferable to take these measures to get oneself out of debt, once and for all.

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Consumer proposal

Yes! The first step to take when encountering financial difficulties is to prepare a budget and consider cutting certain expenses in order to create a monthly budget surplus which will allow you to respect, or better yet accelerate the reimbursement of your debts.

If this turns out to be impossible, you can consider making arrangements with each of your creditors (if they are not too numerous). The goal is to reduce the monthly payments and ideally reduce either the interest rate, or the amount of the debt, or even both. Creditors normally appreciate if a reasonable effort is made to find a solution. They will prefer that to the risk of losing everything in the event that you declare bankruptcy.

Another alternative to be considered is a debt consolidation which is a loan from a bank, a credit union or a family member large enough to reimburse the smaller creditors and propose a plan to reimburse the major loan over a longer period of time. This has the advantage of maintaining a good credit rating, regrouping all your various payments into one and it normally reduces the interest rate. Moreover, opting for the debt consolidation, you will avoid declaring bankruptcy, and you will keep your house, your car and maintain a good credit rating score.

If none of these options are possible, you can consider the possibility of filing a consumer proposal which is an effective tool to regroup your payments and to reduce it to one that corresponds to your financial capacity. As soon as you file, all interest on the debts are reduced to zero. The favourable vote of the majority of your creditors binds all creditors. Once you have respected the terms of your proposal, you will obtain a waiver of your debts (except those provided for by the law) while keeping all of your assets.

Finally, there exists the voluntary deposit, although considered somewhat archaic. Under this system, you must deposit at your local courthouse a portion of your wages (30% before income taxes, less some minor deductions) which will be distributed amongst your creditors. The yearly interest rate is reduced to 5%.

Only bankruptcies and consumer proposals must to be done through a trustee. All the other options may be done without the intervention of a professional.

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If you stop paying the mortgage on your home, you will be in default of your obligations. The financial institution will then have two choices :

  1. To sell the building under judicial authority: In such a case, you will be responsible for any losses that the Bank may suffer as a result of the sale.
  2. To sell the building by “Prise en paiement” or “Giving in payment” : In such a case, it will erase your debt to the financial institution. This second choice is always more advantageous, because you are released from any obligation to your financial institution.

The intention of the Bank to proceed with either of these options must be indicated in the notice that will delivered by a bailiff and which is entitled “Préavis d’exercice d’un droit hypothécaire” / “Notice of exercise of a right of mortgage.” The notice gives details of the default and gives you sixty (60) days to remedy the situation, failing which, the Bank or mortgage holder may submit an application to the Court in order to avail itself of the option chosen.

 

Please note, that in either case, due the default of your obligations, your credit rating will be R-9.

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It goes without saying that if, just prior to your declaring bankruptcy, you used your credit cards and made purchases knowing full well that the charges would not be paid back, such actions are not acceptable under the Act. In such cases, the Act provides that the creditors may oppose your discharge, or they may ask the court to have you pay additional amounts to the trustee or to have the debt declared non-dischargeable. This last recourse would mean that the debt would have to be paid back after your discharge from your bankruptcy, with interest. This type of behaviour is not recommended.
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If you declare bankruptcy, you are required to turn in all of your credit cards, whether or not amounts are owed. On the other hand, although you are not required to turn in your credit cards if you file a proposal, the issuer will likely cancel said card if there is an amount owed or if the issuer is otherwise informed of your proposal.
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The only requirement is that a business, whose sole proprietor is in bankruptcy, must give notice to those with whom he deals that he is in personal bankruptcy. On the other hand, you no longer can be an administrator of an incorporated company so long as you are not discharged from your bankruptcy.
Read more

Under the Act, you have the right to have or open a personal bank account even if:

  • You are unemployed;
  • You do not have money to deposit in it immediately;
  • You have declared bankruptcy.

However, the Bank is entitled to refuse to open an account if:

  • It believes that you will use the account in an illegal or fraudulent manner;
  • You have ever engaged in illegal or fraudulent activity at a bank over the past seven years;
  • You have provided it with misleading information;
  • You do not agree that it verify the information described above;
  • You are unable to present proper identification.

If you are dissatisfied with any decision or action taken by a financial institution, you can complain to the Ombudsman for the bank. His role is to analyze the situation objectively and make corrections when necessary. Here’s how to reach them:

CIBC Bank : 1-800-308-6859

Bank of Montreal : 1-800-371-2541

Laurentian Bank : 1-800-479-1244

National Bank : 1-888-300-9004

Royal Bank : 1-800-769-2542

Scotia Bank : 1-800-785-8772

TD Bank : 1-888-361-0319

Desjardins Group : 514-281-7434

Ombudsman of the Canadian Bankers Association : 1-888-451-4519

Financial Consumer Agency of Canada (FCAC) : 1-866-461-2232

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Your credit rating score will be an R-9 during the period of your proposal and an R-7 for a period of three (3) years after the end of your proposal. Whereas in the case of a bankruptcy, your credit rating score will be an R-9 for six (6) years following your discharge from the bankruptcy. Most people refer to the time period as seven (7) from the date you declare bankruptcy.
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Yes. One of the primary goals of the consumer proposal is to allow the debtor to keep all its assets. However, the more assets you have, the more your proposal will have to offer in order for it to be interesting for the creditors.
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The discharge from bankruptcy will erase all debts, except those listed in Section 178 of the Act which reads as follows:

  • Any fine or penalty imposed by a court in respect of an offence, or any debt arising out a recognizance or bail;
  • Any award of damages by a court in respect of bodily harm intentionally inflicted, or sexual assault, or wrongful death resulting therefrom;
  • Any debt or liability for alimony;
  • Any debt or liability under an order for the maintenance and support of a spouse or child living apart from the bankrupt;
  • Any debt or liability arising out of fraud, embezzlement, misappropriation while acting in a fiduciary capacity;
  • Any debt or liability for obtaining property by false pretences or fraudulent misrepresentation;
  • Any liability for the dividend that a creditor would have been entitled to receive on any provable claim not disclosed to the trustee;
  • Any debt or obligation in respect of a student loan guaranteed by the government where the date of bankruptcy occurred before the date on which the bankrupt ceased to be a student or within 7 years after the date on which the bankrupt ceased to be student;
  • Any debt for interest owed on any of the above noted non-dischargeable debts.
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In declaring bankruptcy or filing a consumer proposal, you place yourself under the “protection of the law”. All seizures or judicial proceedings are stopped except for three exceptions:

  • A secured creditor may continue his proceedings (ex. a mortgage creditor), but the proceedings are limited to the repossession the assets subject to a lien (ex. mortgage, conditional sales contract);
  • A garnishment of wages for alimony or child support payments;
  • A creditor who has obtained a judgement of the Court. This is an extremely rare exception and usually involves fraud.
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Bankruptcy

The time limits under the new Act that are applicable to bankruptcies filed after September 18, 2009 are as follows:

1) 1st bankruptcy (automatic discharge in the absence of opposition)

  • No surplus income* = 9 months
  • With surplus income* = 21 months

2) 2nd bankruptcy (automatic discharge in the absence of opposition)

  • No surplus income* = 24 months
  • With surplus income* = 36 months

3) 3rd bankruptcy or more, 12 months after the date of bankruptcy

  • Mandatory Court hearing in the 12th month
  • It is possible that the Court extends the bankruptcy

4) Bankruptcies with significant tax debts ($ 200,000 or more representing at least 75% of total debt)

  • Mandatory Court hearing
  • Varying Conditions of release shall be imposed by the Court according to the circumstances in each case.

Important
The new Act provides that if you have surplus income at any time during your bankruptcy, the duration of your bankruptcy will be extended by the number of months mentioned above. For example, it may be that at the time when you go into bankruptcy, the expected duration may be 9 months (for a first bankruptcy without surplus income) or 24 months for a second bankruptcy, but that during your bankruptcy, following an increase in salary, a bonus or a change in your family situation, the average of your income becomes surplus income. In this event, your bankruptcy would then be extended for the time mentioned above, or for a further twelve months for a total of 21 months.

Conversely, if you started your bankruptcy with surplus income and then your income diminished during the first 6 months, or the first 21 months for a second bankruptcy, so that you no longer have surplus income, the duration of your bankruptcy will be reduced from 21 months to 9 months (for a first) and from 36 months to 24 months (for a second).

Finally, note that the trustee has the obligation to require that you show proof of your income once at the beginning of your application and again two months before your release.

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If you declare bankruptcy, you are required to turn in all of your credit cards, whether or not amounts are owed. On the other hand, although you are not required to turn in your credit cards if you file a proposal, the issuer will likely cancel said card if there is an amount owed or if the issuer is otherwise informed of your proposal.
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The costs vary from case to case. At the start of a file, a budget is prepared with the help of a qualified administrator for monthly payments to be made during the period of the bankruptcy (normally nine (9) payments in the case of a first bankruptcy) are established based on your financial capacity. Our office does not require any initial deposit or fees to open a file for a (first and second time) bankruptcy and we have a policy of monthly deposits at 160 $ per month and 125 $ per month for 24 months for a second bankruptcy (if no surplus income or asset purchase).
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The new Bankruptcy and Insolvency Act makes an important distinction between an individual in financial difficulty who has little or no income, and one who has a medium size or higher income. As such, the duration of the bankruptcy will be longer if you are in the second category (see “Duration of Bankruptcy” for more information). The objective of the new law is to encourage the Consumer Proposal, should the income of the individual permit such a choice. To determine if you have surplus income, the calculation will depend on your personal circumstances and is therefore difficult to explain in detail herein. This will be discussed with the administrator that you will meet at your first information session. In fact, this step is extremely important because the having or not having of surplus income will affect the duration of your bankruptcy and the monthly payments that you may have to make. The criteria that are taken into account include : the number of dependents, future taxes to be paid, day care expenses, alimony or child support, expenses related to a medical condition, and work related expenses.
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The minimum amount of debt required by the Act before you can declare bankruptcy is $1,000. On the other hand, it stands to reason that with a debt of only $1,000, you should not consider bankruptcy as an immediate solution. Moreover, according to the Act, your must also be insolvent, in other words, you cannot honour your financial obligations as they generally become due. In actual practice, the first piece of advice that we give people in financial difficulty is to prepare a budget. The budget will help you to determine the monthly surplus that may be available to pay your monthly debt obligations. If you find that your expenses are greater than your income, you will have to cut out the expenses that you consider less important in order to balance your budget. To help you prepare your budget, please refer to the section – Budget under the heading Financial Health.
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Yes. Often times, people with financial problems are out of work, and nothing can prevent them from declaring bankruptcy. Nevertheless, you will have to make monthly payments, to the Trustee, during the nine month period of the bankruptcy. (Please refer to the question What is the duration of a bankruptcy?
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No, only the court can annul a bankruptcy at the request of a creditor. This procedure is exceptional rare and hardly ever seen. However, in certain circumstances, creditors may oppose your discharge from bankruptcy for the following reasons: if the creditors can prove that, prior to your bankruptcy, you acted irresponsibly to their detriment, that you sold, disposed of, or hid some of your assets, or if you continued to increase your debts knowing that you would be declaring bankruptcy. In such cases, the court can suspend your discharge from bankruptcy and / or demand that additional amounts be paid to the bankruptcy as a condition of your discharge. These oppositions by the creditors are rare but still possible.
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No. If you declare bankruptcy, you do so for all of your debts. However, if for any reason, moral or otherwise, you wish to repay a debt to a family member or close friend, although your are not obliged to do so, you may repay such a debt after your discharge from bankruptcy.
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The discharge from bankruptcy will erase all debts, except those listed in Section 178 of the Act which reads as follows:

  • Any fine or penalty imposed by a court in respect of an offence, or any debt arising out a recognizance or bail;
  • Any award of damages by a court in respect of bodily harm intentionally inflicted, or sexual assault, or wrongful death resulting therefrom;
  • Any debt or liability for alimony;
  • Any debt or liability under an order for the maintenance and support of a spouse or child living apart from the bankrupt;
  • Any debt or liability arising out of fraud, embezzlement, misappropriation while acting in a fiduciary capacity;
  • Any debt or liability for obtaining property by false pretences or fraudulent misrepresentation;
  • Any liability for the dividend that a creditor would have been entitled to receive on any provable claim not disclosed to the trustee;
  • Any debt or obligation in respect of a student loan guaranteed by the government where the date of bankruptcy occurred before the date on which the bankrupt ceased to be a student or within 7 years after the date on which the bankrupt ceased to be student;
  • Any debt for interest owed on any of the above noted non-dischargeable debts.
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Since June 18th 1998, student loans are no longer discharged if the bankruptcy or consumer proposal proceedings are initiated less than 7 years following the end of your studies. The end of your studies is considered by the ministry as the date at which the teaching establishment declares that you have stopped studying. If you choose to, or have no choice but, to file a bankruptcy or a Consumer Proposal within seven (7) after the end of your studies, you may, after five (5) years, submit an application to the Court, asking to be discharged from the debt. Based on certain criteria, the Court may, at its sole discretion, discharge you. Should you satisfy the criteria and the court sees fit your application, a judgement may be rendered and your debt may be discharged.
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Yes! The first step to take when encountering financial difficulties is to prepare a budget and consider cutting certain expenses in order to create a monthly budget surplus which will allow you to respect, or better yet accelerate the reimbursement of your debts.

If this turns out to be impossible, you can consider making arrangements with each of your creditors (if they are not too numerous). The goal is to reduce the monthly payments and ideally reduce either the interest rate, or the amount of the debt, or even both. Creditors normally appreciate if a reasonable effort is made to find a solution. They will prefer that to the risk of losing everything in the event that you declare bankruptcy.

Another alternative to be considered is a debt consolidation which is a loan from a bank, a credit union or a family member large enough to reimburse the smaller creditors and propose a plan to reimburse the major loan over a longer period of time. This has the advantage of maintaining a good credit rating, regrouping all your various payments into one and it normally reduces the interest rate. Moreover, opting for the debt consolidation, you will avoid declaring bankruptcy, and you will keep your house, your car and maintain a good credit rating score.

If none of these options are possible, you can consider the possibility of filing a consumer proposal which is an effective tool to regroup your payments and to reduce it to one that corresponds to your financial capacity. As soon as you file, all interest on the debts are reduced to zero. The favourable vote of the majority of your creditors binds all creditors. Once you have respected the terms of your proposal, you will obtain a waiver of your debts (except those provided for by the law) while keeping all of your assets.

Finally, there exists the voluntary deposit, although considered somewhat archaic. Under this system, you must deposit at your local courthouse a portion of your wages (30% before income taxes, less some minor deductions) which will be distributed amongst your creditors. The yearly interest rate is reduced to 5%.

Only bankruptcies and consumer proposals must to be done through a trustee. All the other options may be done without the intervention of a professional.

Read more

If you stop paying the mortgage on your home, you will be in default of your obligations. The financial institution will then have two choices :

  1. To sell the building under judicial authority: In such a case, you will be responsible for any losses that the Bank may suffer as a result of the sale.
  2. To sell the building by “Prise en paiement” or “Giving in payment” : In such a case, it will erase your debt to the financial institution. This second choice is always more advantageous, because you are released from any obligation to your financial institution.

The intention of the Bank to proceed with either of these options must be indicated in the notice that will delivered by a bailiff and which is entitled “Préavis d’exercice d’un droit hypothécaire” / “Notice of exercise of a right of mortgage.” The notice gives details of the default and gives you sixty (60) days to remedy the situation, failing which, the Bank or mortgage holder may submit an application to the Court in order to avail itself of the option chosen.

 

Please note, that in either case, due the default of your obligations, your credit rating will be R-9.

Read more

If you decide to declare bankruptcy, the federal tax refunds of the previous years, as well as the current year in which you declare bankruptcy, will be considered as an asset of the bankruptcy and will therefore be deposited into the bankruptcy estate.

The same holds true for GST refunds which would belong to the creditors, with certain exceptions, until the trustee closes your bankruptcy file. The Provincial sales tax refunds, on the other hand, will continue to be forwarded directly to you. The provincial income tax refund will also be sent directly to you, unless you have a debt with the provincial government.

As for your income tax returns for the year of your bankruptcy, the trustee may undertake to file them on your behalf. There will be a pre-bankruptcy tax return for the period starting from the 1st of January to the date prior to the date of your bankruptcy, and a post-bankruptcy tax return from the date of your bankruptcy to the 31st of December of the bankruptcy year.

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There are many types of RRSP’s available to the consumer, and to answer the question, the individual contracts must be closely analyzed by the trustee. One must be aware, however, that the majority of RRSP’s can be seized with the exception of those mentioned below:

For all cases filed from July 7, 2008, all types of RRSPs are non-seizable. Only the contributions made during the 12 months prior to your bankruptcy may be seized, and only if they were made in RRSP plans that would have been seizable in the absence of a bankruptcy or proposal.

For any more accurate assessment, we would have to review all documentation related to your RRSP.

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Property that you may keep and that cannot be seized are provided for in articles 694 to 701 of the New Code of civil procedure and, in general, include primarily the following items, which is not all inclusive:

  • The moveable property which furnishes the main residence, used by and necessary for the life of the household, up to a market value of $7,000.
  • The food and clothing.
  • The tools and instruments needed for the personal exercise of a professional activity (ex. Mechanic’s tools).
  • The personal documents and family portraits.
  • The alimony and child support paid to you.
  • The equipment necessary for a handicapped person to get around. All goods received in an inheritance (provide that the last will contains the appropriate covenant).
  • CSST and invalidity indemnities.
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It goes without saying that if, just prior to your declaring bankruptcy, you used your credit cards and made purchases knowing full well that the charges would not be paid back, such actions are not acceptable under the Act. In such cases, the Act provides that the creditors may oppose your discharge, or they may ask the court to have you pay additional amounts to the trustee or to have the debt declared non-dischargeable. This last recourse would mean that the debt would have to be paid back after your discharge from your bankruptcy, with interest. This type of behaviour is not recommended.
Read more
If you declare bankruptcy, you are required to turn in all of your credit cards, whether or not amounts are owed. On the other hand, although you are not required to turn in your credit cards if you file a proposal, the issuer will likely cancel said card if there is an amount owed or if the issuer is otherwise informed of your proposal.
Read more

The only requirement is that a business, whose sole proprietor is in bankruptcy, must give notice to those with whom he deals that he is in personal bankruptcy. On the other hand, you no longer can be an administrator of an incorporated company so long as you are not discharged from your bankruptcy.

 

Read more

Under the Act, you have the right to have or open a personal bank account even if:

  • You are unemployed;
  • You do not have money to deposit in it immediately;
  • You have declared bankruptcy.

However, the Bank is entitled to refuse to open an account if:

  • It believes that you will use the account in an illegal or fraudulent manner;
  • You have ever engaged in illegal or fraudulent activity at a bank over the past seven years;
  • You have provided it with misleading information;
  • You do not agree that it verify the information described above;
  • You are unable to present proper identification.

If you are dissatisfied with any decision or action taken by a financial institution, you can complain to the Ombudsman for the bank. His role is to analyze the situation objectively and make corrections when necessary. Here’s how to reach them:

CIBC Bank : 1-800-308-6859

Bank of Montreal : 1-800-371-2541

Laurentian Bank : 1-800-479-1244

National Bank : 1-888-300-9004

Royal Bank : 1-800-769-2542

Scotia Bank : 1-800-785-8772

TD Bank : 1-888-361-0319

Desjardins Group : 514-281-7434

Ombudsman of the Canadian Bankers Association : 1-888-451-4519

Financial Consumer Agency of Canada (FCAC) : 1-866-461-2232

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The fact that your spouse declares bankruptcy does not necessarily mean that you must also declare bankruptcy. Should the question arise, the trustee will verify whether or not you are jointly responsible for any of your spouse’s debts or obligations. In the event that you are jointly responsible for an unpaid debt or obligation, the creditors may demand, from you, full payment of the debt or obligation, unless you also file a proposal or bankrucpty.
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If your former spouse declares bankruptcy, it does not release you in any way from continuing to pay alimony, child support, or any arrears. As well, if you owe your former spouse alimony, or child support payments, you could have your wages garnished notwithstanding the bankruptcy. Alimony, child support and arrears are very well protected and these debts will live on after the bankruptcy.
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If your former spouse declares bankruptcy, it does not release you in any way from continuing to pay alimony, child support, or any arrears. As well, if you owe your former spouse alimony, or child support payments, you could have your wages garnished notwithstanding the bankruptcy. Alimony, child support and arrears are very well protected and these debts will live on after the bankruptcy.
Read more

In declaring bankruptcy or filing a consumer proposal, you place yourself under the “protection of the law”. All seizures or judicial proceedings are stopped except for three exceptions:

  • A secured creditor may continue his proceedings (ex. a mortgage creditor), but the proceedings are limited to the repossession the assets subject to a lien (ex. mortgage, conditional sales contract);
  • A garnishment of wages for alimony or child support payments;
  • A creditor who has obtained a judgement of the Court. This is an extremely rare exception and usually involves fraud.
Read more

Provincial: The Provincial income tax refunds are not seizable by the Trustee, which means that you may keep the refunds despite the fact that you filed a Bankruptcy. However, you should be aware that if there is an amount owing to the Agence du revenu du Québec (the “ARQ”) for a period prior to the date of the Bankruptcy, the ARQ may apply your income tax refunds against any amount owing for a period prior to the Bankruptcy, but not for any period subsequent to the Bankruptcy.

Federal: The Federal income tax refunds for the periods prior to the Bankruptcy, as well as for the calendar year of the Bankruptcy, will be seized for the benefit of your creditors. The Federal income tax refunds for the years subsequent to the Bankruptcy may not be seized by the Trustee.

The filing of your income tax returns: In the event that you file a Bankruptcy, you may consider this a fresh start, and you will be entitled to include any income tax debt owing up to the date of the Bankruptcy. As such, there will be two (2) income tax returns to be filed, the first for the period from the 1 st of January to the day prior to the date of the Bankruptcy, and the second, for the period from the date of the Bankruptcy to December 31. The Trustee will prepare the income tax returns, free of charge, (exceptions may apply).

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Please use this form if you have any questions for us.



 

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