A Nanaimo woman ( we will call her Sally) came to us last year with a $47,000 debt problem. She owed $27,000 on several credit cards plus $20,000 in unpaid income taxes. Revenue Canada was threatening to garnish her wages and she needed some immediate debt help.
Sally was single and had only a low value vehicle and no real estate or investments. She was employed earned only approximately $2,000 per month. Given her situation, the only option seemed to be a bankruptcy filing.
Inheritance Proceeds the Only Available Asset
However, Sally was a beneficiary of an estate of a relative and was due to receive $14,000 within about six months. We suggested she file a consumer proposal to her creditors stating that when the estate proceeds were received, they would be paid into the proposal and distributed to creditors. The amount received by the creditors would be approximately 20% of their claims. (This amount is net of the fees due for the proposal administration which are set by tariff under the Bankruptcy and Insolvency Act.)
The proposal was signed and registered with the Superintendent of Bankruptcy which resulted in an immediate stay of proceedings of any collection actions of creditors, including Revenue Canada garnishees. The creditors had 45 days to vote on the proposal and Sally only needed 51% of the creditors in dollar value voting in favour of it in order for it to be accepted and be binding on all creditors, including Revenue Canada.
Within 30 days all of the votes were received and even though Revenue Canada had voted “No” the proposal was accepted. Within six months the inheritance proceeds were received and the proposal was completed. Sally was free of any fear of a wage garnishee and she had a fresh start with no debt.
Proposal Flexibility and Advantages
While not everyone with a debt problem is fortunate enough to have an inheritance available to make a lump sum proposal, quite often the lump sum payment can come from other sources such as loans from family or friends. Nonetheless, this situation shows how proposals can be very flexible and beneficial. They can be designed with each persons specific situation in mind.
The key advantages in this case were:
- Immediate protection from Revenue Canada garnishee thereat;
- Vote result was binding on Revenue Canada;
- Proposal was finished in 6 months and Sally was then completely debt free; and,
- Proposal did not require any “surplus income” with which to make proposal payments;
For most people, filing a proposal is clearly preferable to a bankruptcy. While it may not always be possible to do file a successful proposal, it is important to contact a professional that can assess your situation. We can advise on how a proposal may be constructed to achieve your goal of getting out of debt in the shortest time period.