When a consumer proposal or bankruptcy starts there is immediate protection from the collection action of all unsecured creditors against the debtor. To get this protection, certain things have to be provided to the Licensed Insolvency Trustee (“LIT”) so that necessary paperwork can be prepared, signed by the debtor and the LIT, and submitted to a government agency which starts the file.
One of these items is a list of all known creditors, to the best of the debtor’s knowledge. This includes secured and unsecured creditors.
The LIT will prepare a statement of affairs which summarizes assets, creditors, and a description of the debtor’s personal situation. The statement of affairs will be sworn as true and complete by the debtor (to the best of their knowledge).
Since a sworn statement is under oath all known creditors have to be listed.
The debtor is allowed to continue monthly payments to secured creditors in order to keep the asset held by the secured creditor as security such as their vehicle or residence, assuming they can afford to make these payments.
Unsecured creditors cannot be paid by the debtor after a proposal or bankruptcy starts for a debt that exists prior to the consumer proposal or bankruptcy. Sometimes we are asked if a particular bank loan can be left out because the person has dealt with the bank for a long time and want to maintain the relationship, or keep and continue to make payments on a credit card to preserve a credit rating on at least that credit card. We have to advise the person that there are no exceptions to this rule. According to the law all unsecured creditors have to be treated the same with no exceptions which means no payments from the debtor. This even includes a creditor related to the debtor.
For a review of your situation and assistance in determining which creditors are secured or unsecured and the types of debt dealt with by a proposal or bankruptcy, contact an LIT in your locality.