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) Γ 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 |