The bankruptcy filing process is very strict and highly regulated in Canada to ensure that both the debtor and their creditors are given fair treatment. The Bankruptcy and Insolvency Act governs the rules and processes that trustees must adhere to during the bankruptcy process.
Under normal circumstances, all bankruptcy and consumer proposal filings are done in person. The filing party would be required to meet with a Licensed Insolvency Trustee to disclose their financial position and to attend any mandated examinations or credit counselling.
However, due to social distancing policies as a result of COVID-19, the Office of the Superintendent of Bankruptcy (OSB) has announced measures for certain processes to be available virtually. Some of these new measures include the use of phone calls, online video conferencing, and electronic signatures to reduce unnecessary in-person meetings.
Maintaining The Integrity Of Canada’s Insolvency System
The Bankruptcy and Insolvency Act, BIA for short, has largely encouraged a “fresh start” policy. Particularly for, indebted consumers and small businesses who are facing financial hardship as a result of poor financial choices, unfavourable economic conditions, or misfortunes beyond their control. Key objectives of the BIA are to pursue an equitable distribution of the debtor’s assets to minimize the impact on all stakeholders and to provide an opportunity for the debtor to start over.
In the event of a bankruptcy, the insolvency trustee liquidates the bankrupt individual’s non-exempt assets and uses those proceeds to repay creditors in a fair and structured manner. There are fixed costs associated with declaring bankruptcy, $1,800 for a first-time bankruptcy filing which is payable across nine monthly installments. This fee is applied toward the administrative costs of filing such as government fees and the trustee’s time in administering the bankruptcy.
Additionally, surplus income payments may be required depending on the bankrupt individual’s income. The concept behind surplus income payments is that the more a bankrupt individual earns over the given income thresholds for their household, the more they pay. Upon completion of duties by the bankrupt, debts are discharged after a minimum period of nine months. The record of bankruptcy is removed from credit reports seven years after the discharge.
Bankruptcy Alternative: Consumer Proposals
As an alternative to bankruptcy, consumers may opt to negotiate an agreement with their creditors to reorganize their financial affairs and schedule a new payment plan. This is referred to as a consumer proposal which is a legally binding agreement administered by a Licensed Insolvency Trustee. Typically, the trustee will negotiate a proposal with the creditors to reduce the amount owed or to extend the repayment period in order for the debtor to sustainably manage more affordable payments.
Under a consumer proposal, the creditors would likely recover a higher percentage of the debt owed to them then they would if the individual filed for bankruptcy. Consumer proposals can feature repayment periods of up to five years and the individual retains control of their assets. Once the debt is cleared, a Certificate of Completion is provided and any record of the consumer proposal will be removed from credit reports three years after completion.
|Duties Under a Bankruptcy||Duties Under a Consumer Proposal|
|Make payments for fixed costs and applicable surpluses||Make fixed payments|
|Surrender assets to the trustee for liquidation||Attend credit counselling sessions, as required|
|Submit tax information to the trustee||Meet with creditors, as required|
|Attend credit counselling sessions, as required|
|Meet with creditors, as required|
The OSB has issued updated guidelines as a response to the COVID-19 pandemic and social distancing regulations. Temporary guidance is as follows:
- Assessments. A new measure to support assessments conducted by Licensed Insolvency Trustees is that they are now permitted to conduct assessments using methods other than in-person meetings. For example, assessments may be conducted over video conferencing or a combination of a telephone discussion and email correspondence.
- Counselling. Trustees and their registered insolvency counsellors may now conduct counselling via teleconference or over the phone.
- Meeting of Creditors. The OSB encourages creditors and their representatives to make every reasonable effort to limit in-person meetings and they are urged to hold meetings either digitally, with representations by meeting attendees to confirm identification.
- Electronic Signatures. Licensed Insolvency Trustees are now encouraged to exchange documents that require signatures over email, and to provide support and explanations for the documents to debtors using videoconferencing or telecommunications. Trustees should still have measures in place to witness signatures and swearing of oaths while verifying identity.
How Long Will These New Measures Last?
The above temporary guidance was issued by the OSB on March 13, 2020, and an exact date for how long these measures will be in place was not provided. For any extra information or to have your questions answered, you should contact the OSB directly.