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.