As appealing as the concept sounds, when someone declares bankruptcy in Ontario, he is not suddenly released from his financial obligations without cost . There are fees and payments associated with personal bankruptcy — and varying degrees of discharge-delaying penalties if they do not make these payments. The same happens in a consumer proposal. You agreed to make payments and if you miss those payments, there are consequences. We will look at both bankruptcy and proposals since how missed payments are treated in each differs.
Missed Bankruptcy Payments
Bankruptcy-related charges include a base cost, surplus income instalments if they apply, and possibly payments earmarked for the repurchase of assets. You typically make your payments monthly, weekly or bi-weekly or as agreed with your bankruptcy trustee.
You MUST make all payments by the end of your bankruptcy. So if you are eligible for an automatic discharge in 9 months, failing to make payments will jeopardize your bankruptcy discharge.
It is true that how much you must pay in a bankruptcy is basically determined by your assets and your income. However you might disagree with the payment calculation. If you do, whether you stop making payments or not, you have two options:
- an application to the Court.
Mediation is the best bet. Here, the mediator — who may be an employee of the Office of the Superintendent of Bankruptcy or a professional mediator approved by the Superintendent — oversees a negotiation among the attending parties (the OSB, the bankruptcy trustee and the bankrupt). The process is considered a success when everyone agrees upon a solution and signs a mediation settlement agreement.
If the debtor opts to sidestep mediation and apply directly to the Court for discharge, the judge will demand an explanation for why he didn’t honour his financial commitments. Depending on the response, the judge may:
- grant an absolute order of discharge anyway;
- refuse the discharge outright;
- suspend the discharge date;
- introduce new financial conditions that must be met by the bankrupt before a discharge can be conceded.
Missed Payments in A Consumer Proposal
A consumer proposal has its own set of payment requirements that must be respected to avoid default and legal action. The law allows for the rescheduling of two proposal payments without penalty. If you miss a third, the rules are clear: your proposal is annulled. This means your proposal will be automatically cancelled and you will go back to owing your creditors the full debt, plus any interest accrued since filing.
If you can’t keep up with your proposal payments, perhaps because your circumstances have changed and you can no longer afford your proposal payments as agreed upon, you still have options. It is possible to amend the terms of your proposal. An Amendment to a Consumer Proposal will require the approval of your creditors again.
Believe it or not, you can also decide to file an assignment in bankruptcy during a proposal. This will allow you to continue to receive protection from your creditors, but under the terms of a bankruptcy rather than a consumer proposal.
At the end of the day, if you miss a bankruptcy or proposal payment, or your personal situation changes in such a way that threatens your missing more, it’s a good idea to get in touch with your trustee sooner rather than later. Arrangements can be made to get your numbers caught up before wading further into the missed-payment murk. In the case of a bankruptcy, you must be caught up before you are eligible for discharge. In the case of a proposal, you can only miss 2 payments. On the third missed payments the above consequences kick in.
You may be understandable worried about keeping up with your bankruptcy or consumer proposal payments because you have already been struggling with managing large debt payments. The truth is, bankruptcy and proposal payments are usually significantly less than they are before filing either option.
For a free consultation, contact a bankruptcy trustee today.
Hello…at time of bankruptcy the trustee viewed my budget and agreed that there was no available income for surplus payments. The bankruptcy was filed and through the course I asked for mediation and gave updated budget amendments that showed no surplus income based on my rent/vehicle payments etc. the trustee agreed that none of my bills could be decreased.
Now he has requested mediation for 16000.00 in arrears of surplus payments. The surplus payment required was actually the amount of my child support payment for my son.
Will I have to pay back the entire amount before receiving a discharge?
Hi Louise. I’m not sure what your rent or vehicle payments have to do with surplus income, since surplus income is based on your income, not your daily living expenses.
If I understand your question correctly, the trustee did not factor in your child support into your income, and that additional income has given rise to surplus income. In order to receive your discharge, all payments must be made. You have a few options:
First, your trustee can extend your bankruptcy period by up to a year to give you an opportunity to make the required payments, so no court hearing is required and you can still receive your discharge.
Second, if that’s not possible, the trustee will request a court discharge hearing and you, the trustee and the bankruptcy judge can create a payment plan, perhaps for over a year if required.
Third, even though you are bankrupt you could file a consumer proposal, and offer to pay the creditors an acceptable amount over a period of up to five years, which may result in lower monthly payments.
I would suggest that you discuss this in detail with your trustee so that you can formulate an appropriate plan.
What are my options if the bankruptcy trustee has taken much more than the original agreed upon amount to be repaid? The original amount was 18000. I have repaid 14000 and also gave them an insurance settlement of 16000. They told me several months ago that I was done paying, however just called me recently and told me they had made a mistake and I must keep paying the 500$ per month. None of this seems right. Please help. I need to know my options. Can I just quit paying them? Thank you.
Hi Jen. You have two options.
First, you should meet with the trustee and ask them to explain how they are calculating what you owe.
Second, if they can’t explain it to you, or you do think something is not legit, you can contact the Office of the Superintendent of Bankruptcy, who regulates all trustees, and they can intervene: http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/home
My income is lowered can my bankruptcy payments be lowered?
Hi Robin. In most bankruptcies you make a minimum monthly contribution, so if you are already paying the minimum your payment will not go down. However, if you are making surplus income payments, surplus income payments are based on your average income, so if your average income drops, your payment may drop. NOTE: A change in income for one month may not make a big difference to your average. If your income is permanently lowered you should discuss it with your trustee (who will know, because you are submitting monthly statements of your income and expenses).
I am one year into my 3rd bankruptcy. I have been informed that I have a surplus and that my monthly payments will need to increase by $400. I may be coming into money that exceeds what my debits are. I would like to take this money and apply it to my debits and have the remaining money available to use for myself. I have been told that the funds wil go to the trustee and only after my bankruptcy is discharged will I be able to access the leftover money. Is there not a way to pay off the creditors faster?
Certainly – one option is to file a consumer proposal offering to repay the debts in full (you can use the same trustee or a different one if you want to). The proposal will annul (cancel) the bankruptcy and quickly deal with your debts. Option 2 – have the deceased person’s estate pay off you debts in full and then apply to the Court to have your bankruptcy annulled. Third option – ask your trustee to pay-off your debts in full as soon as they receive the inheritance money then ask them to apply to have your bankruptcy annulled. If you haven’t done so already, speak to your trustee about your options. If they are the ones that told you they have to seize all of the money and didn’t give you any other options then maybe you should speak to a new different trustee. Regardless what you do, there is not much point in you making any more monthly payments if you are sure the inheritance will cover your debts – what would be the point?