Free Bankruptcies and Proposals
If you alter your perspective a little you might conclude that you can get free bankruptcies and proposals. Here’s the thing, for the most part individuals making a proposal or bankruptcy gets a massive discount on the face value of their debts – so in effect they are already moving towards a better financial position.
Additionally, LIT fees are set by a tariff in Bankruptcy and Insolvency Act, the LIT’s fees are drawn from funds paid into the proposal or the bankruptcy that would otherwise be paid to creditors. It is exceedingly rare that a proponent or bankrupt would be required to pay and amount for the creditors plus an additional amount for the LIT fees.
For example, lets say you have filed a consumer proposal, and based on your circumstances it has been determined that you will pay a total of $20,000 over a period of five years (60months).your monthly payments are just shy of $335. Your LIT will hold that money in trust and release payments on a pari passu basis to all of your unsecured creditors.
At the time of making the distribution the LIT retains a tariffed amount from the money paid, and agreed to by your creditors, to settle your debts. Effectively, you are not paying your LIT in the same manner you would for any other professional service provider. There is zero additional cost to you.
The same holds true in a bankruptcy, the LIT’s fees are paid in priority to the dividends paid to the creditors – so in a roundabout way your creditors are actually paying for you to clean up your debt problems.
What do you think? Can you see how creditors in effect fund the insolvency system?