Bankruptcy does require than you make monthly payments which are part of the cost of declaring bankruptcy in Ontario. You will make arrangements with your bankruptcy trustee about how often you will make these payments (monthly, bi-weekly etc.) so that it fits in your budget. In a consumer proposal your payments will be determined by the agreement you make with your creditors.
Different trustees use different payment methods however in general you make your payments during the term of your bankruptcy or proposal like you would any other bill payment. You may send post-dated cheques or make other automated payment arrangements.
What happens however if you stop paying?
Missing Payments in A Personal Bankruptcy
Generally speaking if you have just missed a bankruptcy payment, your first step should be to contact your bankruptcy trustee. They will usually make arrangements for you to catch up this payment and continue forward.
If a bankrupt person continues to miss payments, the trustee has the power to apply to court for a garnishee of the bankrupt person’s wages, but will only do so in extreme circumstances where the bankrupt person refuses to co-operate in making the payments that are required.
A garnishee is just one of the many tools a trustee has available to ensure the bankrupt person is meeting his or her payment obligations to be discharged from bankruptcy.
One of the required payments in a bankruptcy is called surplus income. If surplus income payments cannot be completed for valid financial reasons, the government can “mediate” to allow for more time to pay this surplus income. If a mediation agreement can’t be reached, the courts can further provide for a conditional order of discharge for the payments to be completed over time. The means, the person is not discharged from bankruptcy until the payments are complete.
Missed Payments in A Consumer Proposal
A consumer proposal typically lasts a lot longer than a bankruptcy and so it is not unusual for circumstances to change or for you to run short a particular period and find you are having difficulty keeping up with your monthly consumer proposal payments.
Under consumer proposal legislation you are permitted to miss, or defer, a maximum of two payments. You will still have to make up these payments however there is no implications for falling behind or rescheduling two proposal payments. Miss more than two however and you are looking at significant consequences.
If you miss a third payment, on the day after the third payment becomes due, your consumer proposal is automatically annulled. Technically they call it ‘deemed annullment’ but the effect is that your consumer proposal is cancelled. You no longer have a deal with your creditors and you lose the protection of the Bankruptcy and Insolvency Act.
If you find your financial situation has deteriorated during your proposal term, you should contact your trustee immediately. You should talk to them about what options you have including:
- reschedule your two missed payments and then get back on track. You can even add the two missed payments to the end of your term which can give you the temporary relief you need.
- file an Amendment to your proposal with the help of your trustee. In effect you go back to your creditors to renegotiate your payment terms. Your creditors will have to agree but given the alternative they often do.
- you can choose to file bankruptcy while in a consumer proposal which will allow you to continue to receive protection from creditor actions.
- you could choose to miss your third payment, allow the proposal to be annulled. You then can deal with your creditors on their terms. You are restricted from filing a second consumer proposal on these debts.
In short, if you think you are ever going to miss a payment, either in a bankruptcy or consumer proposal, your best option is to discuss your situation with your bankruptcy trustee.