Consumer Proposal and Canada Revenue Agency
Question: I have recently met with a credit counsellor and was advised that my only options based on my income (I am currently working doing odd construction jobs and some music gigs as I play guitar which equals about $2400 a month and this may increase as my friend and I get more construction jobs) are consumer proposal or bankruptcy. I chose consumer proposal because I can afford to pay something and want to be responsible plus it will be purged from my equifax report 3 years ater my last payment whereas bankrupsy stays forever. Also my girlfriend and I intend to marry one day and she doesn’t want a bankrupsy to haunt us as she works for a bank.
My question is that I have no assets except a humvee that is basically worthless if I tried to sell it, in fact the leasing company issued the buy back out at $1500 and deplated it. However, my concern is that when my creditors see that I own a humvee they think its worth thousands. Mine was purchased on lease to own in 1997 for $90000 which I paid off last month. However the leasing company deplated it because it does not work and will not pass emissions or certification. The reason for this is because the transmission blew and all the parts had to be removed including tires and is basically gutless as I sold off parts to pay my debt in my 3 year struggle to try to hold onto my business and had no money to keep it maintained. Also, I have to file my last 3 years in taxes and close my old business that went belly up before the proposal. I owe past taxes which is a large part of my debt but this total (35k of a 70k debt) could be substantially reduced once I close out my business by filing my returns. The trustee quoted $24k as a proposal but said CCRA will probably not accept this and we will have a meeting.
My questions are this: what information do I have to bring to my first meeting with the trustee regarding my debts and truck? What questions will be asked of me at the proposal meeting if there is one. In my past tax returns prior to 2001 I reported my truck as a capital item which they refused to accept anyway even audited me. Its been such a nightmare. Your advice would be greatly appreciated. Thanks.
Answer: Before we provide answers to your questions, we should correct your statement about credit reports:
You are correct that a consumer proposal remains on your credit report for three years after the proposal is completed. A bankruptcy remains on your credit report for six years after you are discharged, so it is not correct to say that a bankruptcy remains on your credit report forever.
Regarding Canada Revenue Agency (CRA), your trustee is correct; they will ususally not accept a proposal if you have not filed your tax returns. In fact, they may file a proof of claim based on what they guess you might owe, which may give them enough votes to defeat your proposal. Therefore you should not file your proposal until you have filed all outstanding tax returns. It is a waste of time to file a proposal that will almost certainly fail. Get the tax returns filed, which as you say will probably lower what you owe, so it’s to your advantage to file them first.
Now, to your questions. Bring to your meeting with your trustee all information regarding the truck. Ideally, you should have a humvee dealer give you a written appraisal on it before you file your proposal. By getting an appraisal first, it is unlikely anyone will question what it is actually worth.
At the first meeting of creditors, if there is one, CRA will ask what happened to your vehicle, and they will want to know what happened to your business. They will also want to know how you plan to keep your taxes current in the future.
If you are not satisfied that your trustee explained all of this to you, we suggest you consult another trustee for a second opinion.