Limitations Act | Is it true that debts over 2 years old disappear?
Short answer: No.
The Ontario Limitations Act, in lay-terms, basically says that for most debt, a creditor must start legal proceedings to recover amounts owing within two years of default (within two years of the last payment made).
If a creditor fails to take legal steps (sue) within this time period, then the debt is referred to as being “statute-barred”.
In Ontario, statute-barred debts do not disappear. They remain as outstanding and the creditor can take steps to try to recover whatever is owing.
They can make collection calls well beyond the two year period.
And the creditor can even try to sue in court to recover the debt. But the defense that the debt is statute barred would result in the creditor being unsuccessful in court.
The debt can continue to be reported to the credit bureaus well beyond two years as well.
Some people prefer to simply deal with statute-barred debt through a bankruptcy or proposal to finally bring a halt to collection calls and to re-establish their credit rating.
Will a bankruptcy or consumer proposal affect my spouse?
Marriage –or living common-law—does not create an obligation by your spouse to pay your bills.
So you do not have to worry that your spouse will be affected by you going forward with us.
But…
If your spouse—or anyone else—cosigned a debt with you, then they will be responsible for the debt. And in such cases, the cosigner would be responsible for the entire amount owing (the amount owing is not split between the two of you).
The other potential issue is when property is jointly owned, like a house, car or bank account.
If property is jointly owned, we will need to carefully explore the various options to handle the debt and, at the same time, retain the property to ensure that no harm is caused to your spouse.
We can help craft creative and effective solutions to minimize or eliminate any negative impact on others.
My bankruptcy was essentially free. How?
Low-cost (or ‘no-cost’) bankruptcy happens periodically. Sometimes these so-called ‘free bankruptcies’ can be a pleasant surprise.
It doesn’t always happen, but in your case we were delighted to be able to give you the good news! In fact, I recall that you made small monthly payments through your bankruptcy. When we finalized the administration, we were able to return all GST credits that the government sent to us.
In your case, the GST we returned to you was actually more that what you had paid, so you got all of your money back, and then some! And your debt was eliminated too.
For many people that have low income, we can work with you to make sure your payments are easily affordable. And in some cases, we can return some or all of the payments when we close the file.
Contact us to find out if you may qualify for a low-cost (or ‘no-cost’) bankruptcy.
What about child support arrears? Student Loan Debt?
Child support is a special obligation that is not discharged through either bankruptcy filing or proposal filing. In other words, if you owe child support, it will survive. In fact, child support payments and garnishments of income (seizure of income) due to child support arrears is not halted by filing a bankruptcy or a proposal.
Regarding federal or provincial student loans, they will ‘go-away’ if you last attended at school over seven years ago. But as it stands in Ontario at the moment, if you returned to school at any point within the last seven years –even if you did not obtain additional student loans when you returned–then the loans will survive both bankruptcy and proposal filings!
But stay tuned, the Court of Appeal in British Columbia will decide whether government-backed student loans should ‘go-away’ in proposals and bankruptcies based solely on the date the student last attended school for which they received federal or provincial student loans. ( Piekut v. Canada (Minister of National Revenue), 2022 BCCA 50).
How much will it cost to get rid of my debt?
In a bankruptcy, if your income is low and you have few assets, and your situation is straightforward (simple bankruptcy without a need to go to court), then it is possible to pay less than $75 / month for 18 months (or less).
If your income is high, what you pay in a bankruptcy is mainly based on your family income. The more you and your family earn, the more you are required to pay. If your income exceeds the standards established by the government, then you will pay for a longer period as well.
In order to compute what you are required to pay in bankruptcy, we must look at your after-tax income (net monthly income) and subtract essential expenses (called non-discretionary expenses) which include: Spousal and child support, Child care, Medical expenses (doctor prescribed), Mandatory payroll deductions (union dues etc) and Court-ordered payments. If you are a sole proprietor, we look at your operating income (gross revenues minus business expenses), less amounts remitted for tax (installments).
In a consumer proposal, it is possible to settle debts at 30% of what is owing. In some cases, the proposal can offer even less than 30%. Payments can be made over an extended period to fit within your budget and all payments are interest free.
At Rusinek & Associates Inc LIT, we do not charge anything over what you are required to pay. (We collect our fee from what we pay out to the creditors, not from you).
I owe income tax. Will it go away?
Tax debt is dischargeable (it will go away) in bankruptcies and proposals. Canada Revenue Agency will settle on tax debt that is owing!
If you owe HST as a self-employed person, this debt will also ‘go away’.
It is important that you make sure you file your returns –even if you cannot make payment–because failing to file when taxes are owing is tax evasion (which is a criminal offense), and once criminal proceedings start, we are no longer in a position to help!
Bottom-line: File your returns, and don’t wait too long before contacting us. We can handle the CRA.
There are special rules regarding employers and directors of companies which we would be happy to discuss with you if you fall into this category.
Will my employer find out about a consumer proposal or bankruptcy?
Your employer will not be advised of a bankruptcy or proposal filing. In fact, no one–other than your creditors, Canada Revenue Agency and the Office of the Superintendent of Bankruptcy–will receive notification from us.
If your employment requires that you are bondable (if you deal in negotiables–cheques or cash–or if you a security guard for a bank etc., ), then you may have reporting requirements based on your employment contract, but we do not contact the employer.
Some professions may be impacted by filing bankruptcy such as those in the legal or accounting professions, or mortgage and insurance brokers including those who are licensed through the Financial Services Commission of Ontario. We can discuss options to ensure your employment is unaffected. But in all of these examples, we do not contact the employer.
If your wages are being seized by a creditor when you come to meet with us, we will have to serve notice to your employer in order to bring a halt to the garnishment (seizure of income).
Can I keep My Home and Car ?
Short answer: Yes! We can arrange for you to rid yourself of debt and keep your property too.
The creditors are not interested in your home or car, but they are interested in recovering any value (equity) in the property you own.
Most financed cars are fully encumbered and therefore hold no value. But you would have to continue to pay the auto loan if you wanted to retain possession of the car.
If the car is not encumbered (i.e., no loan against it), we would have to take a look at its wholesale value to see if it is protected (It is protected if it is less than $7,117).
For real property (your home) we would have to calculate its equity by looking at its present value and the mortgages against it. If there is more than $10,000 equity, we can discuss filing a proposal to eliminate your debt and keep your home! (Of course, you would have to continue to pay the mortgage).
How do I chose a trustee firm in Toronto, Oshawa, Brampton or Mississauga?
Only licensed insolvency trustees (LITs, formerly known as trustees in bankruptcy) can administer proposals and bankruptcies under the Bankruptcy and Insolvency Act (Act). No other type of advisor or professional can carry out this role.
Some lawyers have specialization in insolvency law and can provide financial advice, but they are not able to file bankruptcies or proposals under the Act.
It is important to be wary of individuals or businesses that purport to provide proposal or bankruptcy services.
We see too many unlicensed companies that provide bankruptcy and proposal “advice” but cannot administer bankruptcy and proposal files and have to refer debtors to LITs to carry out administrative duties. Debtors may end up paying for this unnecessary service. These companies are not regulated by the Federal Government.
We suggest the following ‘rules’ to find a LIT:
- The firm must have the “LIT” designation. If they do not, then they cannot file proposals or bankruptcies. LITs are recognized by the Federal Government as experts in insolvency;
- The main office should be reasonably close to where you live or carry on business. For example, it can be frustrating if the LIT’s main office is in London when you live in Toronto;
- Word of mouth is the best way to find a LIT, but many feel uncomfortable to disclose their financial situation to others;
- Google reviews can be a good way to find a LIT in Toronto or surrounding areas, BUT, the reviews can be very misleading and in some cases may be offside in relation to advertising regulations of the Competition Bureau of Canada. Some post fake positive reviews (known as ‘astroturfing’) on google. As a general rule, if a LIT has many 4 and 5 star reviews (especially if there are more than 50 or so), they should be viewed with a great deal of suspicion!
- The Office of the Superintendent of Bankruptcy has an online directory of LITs across Canada.
Ultimately, you must feel comfortable with the LIT because you will be working closely with them to arrive at plan to become debt-free.
Payday Loans!–what can be done?
We are hearing from many that they are not able to deal with their debts, especially high-interest payday lenders.
The lay-offs brought about by mandatory closure of “non-essential businesses” in Ontario, due to Covid-19, have made it nearly impossible to make payment toward payday loans (and other debt as well).
Clearly the top priority should be to stay healthy and to ensure that you have a roof over your head, and food on your plate.
But take heart: Payday loans ARE dischargeable in a bankruptcy and in a consumer proposal (they ‘go-away’). Most other unsecured debts are dischargeable too (such as credit cards, charge cards, and even tax debt).
Stay healthy. We are here to help.
