Canadians are seeking financial freedom and continuing to struggle. COVID came when personal debt was already at an all-time high. Shockingly, insolvencies went down over 25 percent during the first year of COVID. The stimulus is behind us now, and many are facing financial struggles once more.
It’s scary, unfamiliar territory for many!
However, help is available…
Licensed insolvency trustees work on your side to find the best solution. Their job is to look out for your best interests. The first step is to go through the consultation procedure outlined in Directive No. 6R3 of the Bankruptcy and Insolvency Act.
This consultation process is the ‘Assessment of an Individual Debtor’.
Key Terms
Act refers to Canada’s Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3).
Administrator refers to a licensed insolvency trustee. Or, an individual designated by the Superintendent.
Assessment refers to the consultation phase that comes before filing the proposal. The Administrator will execute this process while respecting the Directive’s rules.
Directive refers to Directive 6R3 under the Bankruptcy and Insolvency Act.
Registered individual refers to a person registered with the Designated Senior Bankruptcy Analyst. These professionals work with the trustee and can handle assessment duties.
Purpose of the Directive
Directive No. 6R3 exists to safeguard debtors from poor financial decisions. Filing a consumer proposal or bankruptcy claim should be a last resort. Insolvency candidates should first consider ulterior means of repaying any amounts owed.
This Directive ensures that all bankruptcy administrators follow the same protocol. By law, the administrator must perform a “financial appraisal interview”. He or she will explain all statutory and non-statutory options. Many debtors find that credit counselling works better than consumer proposals in the long term.
Policy and Standards
The Directive includes a section called ‘Policy’. Here, it shows who can take on what responsibilities. The trustee or administrator handles most of the work. Yet, the trustee can delegate certain tasks (as listed in Paragraph 7) to a registered individual.
Paragraph 2 of Appendix B states that the registered individual must meet two requirements. First, an employee/agent relationship must exist with the trustee. Second, the individual must have enough “character, ability, integrity, knowledge, experience and skills” to perform the assessment.
The administrator will interview the debtor to go over his or her financial status. Some variables to consider here include assets, liabilities and monthly incomes and expenditures.
The administrator will discuss his or her perspective on the debtor’s financial climate. Both parties will talk about the potential paths toward a debt-free future. The trustee will explain every option to the debtor and list the pros and cons for each.
The options to go over include:
- Non-legislative debt-settlement arrangements,
- Orderly Payment of Debts (consolidation order),
- Consumer proposal,
- Division I proposal and
- Assignment in bankruptcy.
“Viable Proposals” – What Does It Mean?
The administrator must determine whether the debtor has a “viable proposal”. The trustee decides by assessing multiple factors. Some of these eligibility factors include your debts, creditors and other personal finances.
The Debtor
How much is in your bank account? Do you have enough assets to cover your liabilities? Do you have property you can liquidate to cover the amounts owed?
The numbers have to be severely out of favour to push for bankruptcy. Further, a consumer proposal is not viable if the debtor can afford to continue making payments. As per Directive No. 11R2, “Surplus Income” may also go toward paying off any amounts owed.
The Creditors
How much do you owe to unsecured creditors? 100 percent of this debt will classify as a liability. These debts are the last receive payment under the consumer proposal. How much do you owe to secured creditors?
These creditors receive payment first. How much do you owe to preferred creditors? Any assets sold will go toward repaying these debts.
Will your creditors accept your proposal or possibly reject it? Filing a consumer proposal awards more to creditors than assigning bankruptcy. Therefore, most creditors will accept your initial offer.
Other Personal Finances
Are you married? Do you have a pending settlement? Did you just start a new job?
Your personal finances will come down to more than just assets versus liabilities. Even business relationships can play a role in determining the eligibility of your proposal. The specific variables at play will depend on your personal situation.
Assessment Certificate
An Assessment Certificate gets filled out after completing consultation and confirming proposal viability. The form for this certificate asks what type of proposal you wish to follow. One other question is on the form which asks whether you paid for financial advice in the past six months.
This certificate provides acknowledgment of filing either a consumer proposal, Division I proposal, or an assignment in bankruptcy. Upon receipt, the first step of fixing your damaged financial situation is complete. The next process involves planning, negotiating and repaying in accordance with your proposal.
Receipt of an Assessment Certificate does not guarantee a successful outcome. The trustee has 10 days to submit the required documents to the OSB. Meanwhile, he or she will send all creditors a copy of the proposal and outline of the debtor’s financial capabilities.
The creditors must then vote on the consumer proposal and decide whether to accept the offer. The proposal is a success if no objections occur within 45 days.
What Are Some Exceptions?
A trustee or an administrator will typically conduct the assessment in person. An exception exists for this rule if the individual meets certain conditions. Specifically, a registered individual may take responsibility if no trustee is available in the designated area. With such an exception, the debtor may complete the assessment through phone or video interviews.
Conclusion
It is important to know all your options when filing a consumer proposal or assignment in bankruptcy. The laws and regulations governing bankruptcy and insolvency in Canada give you an even playing field. Now you know what’s possible and what’s not.
Is your debt rough enough? Go for the ‘Assessment of an Individual Debtor.’ You can search for a licensed insolvency trustee through the Government of Canada website.
Not sure what to do yet? Evaluate all Debt Relief Options before going further.
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