Consumer Insolvency Lawyer in Toronto, Ontario

Is your debt load so great that you cannot meet your monthly payment obligations? Do you owe more than you own in assets?

If you answered “yes” to these questions, then you may be insolvent under Canadian law. Insolvency options include a consumer proposal to pay a percentage of what is owed over a specified period of time, or a bankruptcy filing to eliminate unsecured debt.

If you are facing insolvency in Toronto, Ontario, or nearby in Hamilton, London, or Ottawa, contact Matthew R. Harris Law P.C. Matthew R. Harris is experienced in Canadian financial law and has represented clients in many corporate and consumer insolvency cases throughout his legal career.

What Is Insolvency?

If you owe $250,000 or less in debt and can’t meet your obligations, you can file a consumer proposal to reduce the debt load and establish a monthly payment plan, which your creditors agree to, in order to eliminate the debt within five years. If you owe more than $250,000, then you must file what is called a Division 1 Proposal. Both options are governed by the Bankruptcy and Insolvency Act (BIA) of the federal government of Canada and involve the help of a Licensed Insolvency Trustee. Filing proposals allows you to retain all your assets so long as you keep making your payments.

Under the BIA, if you owe at least $1,000 in debt and are not able to meet the debt obligations as they come due, you can also resolve your insolvency through bankruptcy, though bankruptcies when the debt load is $20,000 or less usually are not the best option. It’s probably better to file a consumer proposal and avoid liquidation of your assets.

Bankruptcy in Canada

You can voluntarily file for bankruptcy, or in some cases, your creditors can force you into bankruptcy. In either case, a Licensed Insolvency Trustee (LIT) will be assigned to administer the bankruptcy. Bankruptcy covers only unsecured debt such as credit cards and personal loans. Secured debt for cars and homes are not discharged in bankruptcy. Also, student loans less than seven years after finishing your education are not covered.

Generally, a bankruptcy will require the sale of your assets to pay off, at least partially, what you owe your creditors. Some assets, however, are protected as “exemptions” to bankruptcy liquidation, as determined by provincial or territorial law. In Ontario, a car not exceeding $7,117 is exempt, as are household furnishings and appliances valued at less than $14,180. Tools and property used to earn a living are exempt up to $14,405.

Note that these values are based on as-is resale value — what they would get on the open market — not what the replacement cost would be.

Registered Retirement Savings Plans (RRSPs) are also exempt, as is all clothing you own.

Equity in your home is exempt up to $10,783. You can keep your home if the equity does not exceed that amount and you keep current on your payments. If the equity is greater than that amount, you can arrange to buy back the difference.

When filing for bankruptcy, you must submit proof of income and expenses monthly to the trustee. The trustee will then determine what is “surplus income” — above and beyond what is required for your living expenses — which will be collected as part of the bankruptcy. Tax refunds will be sent to the trustee, but any taxes you owe will be your obligation to pay.

A leased vehicle is not considered an asset, so you can keep it so long as you make the lease payments, or you can surrender the vehicle and include any shortfall debt as part of your bankruptcy discharge.

All in all, a bankruptcy proceeding will take a minimum of nine months, after which your remaining unsecured debt will be discharged. Any secured debt will be repossessed unless you make arrangements to continue making payments, including any differentials in exemption status.

Hiring a lawyer can make this experience less daunting, and your rights will be protected.

What Happens to Your Credit?

Obviously, your credit rating is going to take a hit, and the bankruptcy filing will stay on your credit record for up to seven years. After discharge, some credit card companies will extend offers to you that will include higher interest rates and annual fees. Auto dealers may also work with you on purchases, but again, at steeper interest rates and stricter terms. Most creditors will demand that their loans be secured by real assets. It’s a fresh start, but it may be a rough ride for a while.