Bankruptcy Kitchener Blog by Scott Schaefer

As of September 18, 2009, the new amendments to the Bankruptcy and Insolvency Act are now in effect. Under these new laws, many individuals will be facing 21 months of personal bankruptcy instead of 9 months. What this means is that personal bankruptcy has become longer and more expensive for many people.

A consumer proposal is an alternative to personal bankruptcy. With the current amendments, it is now more attractive than ever before for many people in financial difficulty. The debt limit for a consumer proposal is now $250,000 (up from $75,000). This limit is based on total debts excluding the mortgage on the debtor’s home.

A consumer proposal is an option pursuant to the Bankruptcy and Insolvency Act that allows a consumer debtor to make an offer to the unsecured creditors as a group. For example, if a person owes $80,000 in credit cards, lines of credits as well as some income taxes and is at a point where they can no longer pay in full, they could meet with a trustee (referred to as an “administrator” in a consumer proposal) and work out an affordable monthly amount to offer to the creditors. In this case, the debtor could offer a consumer proposal that the creditors with terms of $500 for 60 months = $30,000. Each unsecured creditor would receive a pro rata share of the amount offered. The maximum length of a consumer proposal is 60 months (5 years). This is just an example, and each case has to be considered separated based on person’s situation.

A consumer proposal is automatically accepted by the creditors after 45 days unless the creditor(s) ask for something different. In that case, the consumer debtor can accept the creditors counter offer. Each creditor receives one vote for each dollar they are owed. The majority vote decides.

In general, a consumer proposal is a fair and reasonable offer between the debtor and the creditors. The creditors receive more than in a personal bankruptcy and the debtor is able to protect his/her assets and make one manageable monthly payment. As for the costs to file a consumer proposal, they come out of the amount offered to the creditors and are not paid in addition to the proposal terms. The government has legislated the amount of fees involved and cannot be changed by the trustee.

To discuss the option of a consumer proposal, call me at 519-747-0660 or send me an e-mail.

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I am hearing on the news that we are getting out of this recession that we have been in. They say that we are to be seeing improvements. I am not sure how they calculate their statistics, but people in Kitchener-Waterloo are still feeling the impacts of the recession and financial crisis.

In our Kitchener office in August 2009, we opened more personal bankruptcy and consumer proposal files than any other month in our firm history. There are several reasons for this fact, but it can primarily linked to the impact of economy.

My personal feeling is that residents of Kitchener-Waterloo will continue to feel a financial squeeze for several months. Coming out of a recession sounds good on paper, but the reality is that people have to rebuild their personal financial situation. Changes in employment, reduced income, increase credit, playing catch-up, banks not as helpful, etc are all areas one must now deal with.

To complicate the situation, in August the government announced that they are implementing the new bankruptcy laws on September 18, 2009. People will still have the options of consumer proposals and personal bankruptcy but there will be changes from how they were in the past.

If you are still feeling the impact of the recession and want to discuss you options, call our Kitchener office at 519-747-0660 or e-mail us.

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