When You Might Need Insolvency Help
| Warning Sign | Details |
|---|---|
| Can’t make minimum payments | Cash flow crisis |
| Using credit for essentials | Food, utilities on credit |
| Creditors threatening legal action | Lawsuits, garnishment |
| Total debt exceeds annual income | 100%+ debt-to-income |
| No end in sight | Can’t see paying off debt |
Insolvency Options Overview
| Option | Debt Repaid | Timeline | Credit Impact | Best For |
|---|---|---|---|---|
| Debt Management Plan | 100% | 3-5 years | R7 | Lower debt, can afford payments |
| Consumer Proposal | 20-50% | Up to 5 years | R7 | Moderate debt, some income |
| Bankruptcy | Little to none | 9-21+ months | R9 | Overwhelming debt, limited income |
Consumer Proposal
How It Works
| Step | What Happens |
|---|---|
| 1. Consult LIT | Free consultation with Licensed Insolvency Trustee |
| 2. Make an offer | Propose to pay portion of debt |
| 3. Creditors vote | Must be accepted by majority |
| 4. Make payments | Monthly payments to LIT |
| 5. Complete | After final payment, balance forgiven |
Typical Terms
| Factor | Details |
|---|---|
| Amount repaid | 20-50% of debt (varies) |
| Payment term | Up to 60 months |
| Assets | Keep all assets |
| Interest | 0% during proposal |
Example Consumer Proposal
| Debt | Amount |
|---|---|
| Credit cards | $30,000 |
| Personal loan | $10,000 |
| CRA debt | $5,000 |
| Total | $45,000 |
| Proposal | Details |
|---|---|
| Offer | $18,000 (40%) |
| Monthly payment | $300 |
| Duration | 60 months |
| Savings | $27,000 |
Eligibility
| Requirement | Details |
|---|---|
| Debt amount | Less than $250,000 (excluding mortgage) |
| Must have income | To make payments |
| Canadian resident | Or property/business in Canada |
| Not a corporation | Must be individual or sole proprietor |
Bankruptcy
How It Works
| Step | What Happens |
|---|---|
| 1. Meet with LIT | Free consultation |
| 2. File bankruptcy | LIT files paperwork |
| 3. Surrender assets | Non-exempt assets |
| 4. Duties | Counselling, surplus income |
| 5. Discharge | Debts eliminated |
Timeline
| Type | First-Time | Second-Time |
|---|---|---|
| No surplus income | 9 months | 24 months |
| Surplus income | 21 months | 36 months |
Surplus Income
| Single Person | Amount |
|---|---|
| Threshold | ~$2,654/month (2024) |
| Over threshold | 50% of excess goes to estate |
If you earn $3,654/month: ($3,654 - $2,654) × 50% = $500/month to bankruptcy estate.
Exempt Assets (Ontario Example)
| Asset | Exempt Amount |
|---|---|
| Equity in home | $10,783 |
| Vehicle | $7,117 |
| Household goods | $14,180 |
| Tools of trade | $14,405 |
| RRSPs/RRIFs | Mostly exempt |
| Pensions | Exempt |
Exemptions vary by province.
What Debts Are NOT Discharged
| Debt Type | Reason |
|---|---|
| Student loans (under 7 years) | Must be 7+ years since end of studies |
| Child/spousal support | Court-ordered, never discharged |
| Fines/penalties (court-ordered) | Criminal fines, parking tickets |
| Fraud-related debt | Dishonesty in obtaining |
| Secured debts | Must relinquish collateral or reaffirm |
Consumer Proposal vs Bankruptcy
| Factor | Consumer Proposal | Bankruptcy |
|---|---|---|
| Amount repaid | 20-50% typically | Usually nothing |
| Keep assets | Yes | Exempt assets only |
| Duration | Up to 5 years | 9-21+ months |
| Surplus income | N/A | May extend duration |
| Credit rating | R7 | R9 |
| Credit report | 3 years after completion | 6-7 years after discharge |
| Public record | Yes | Yes |
| Court involvement | Only if issues | Minimal |
Finding a Licensed Insolvency Trustee (LIT)
What to Look For
| Factor | Why |
|---|---|
| Licensed by OSB | Legally required |
| Free consultation | Standard practice |
| Explains all options | Not just pushing one solution |
| Clear fees | No hidden costs |
| Good reviews | Check Google, trustee directories |
Where to Find
| Resource | Details |
|---|---|
| OSB (Office of Superintendent of Bankruptcy) | Official directory |
| Canadian Association of Insolvency Professionals | Member directory |
| Referral from credit counselling | Often have relationships |
Credit Impact and Rebuilding
During Insolvency
| Action | Allowed |
|---|---|
| Keep existing accounts | Usually closed by creditors |
| Get new credit | Very difficult |
| Secured credit card | Possible with deposit |
After Completion
| Timeline | Action |
|---|---|
| Immediately | Get secured credit card |
| 6-12 months | Apply for credit builder loan |
| 1-2 years | May qualify for regular credit card |
| 3-7 years | Insolvency removed from credit report |