Filing a consumer proposal or bankruptcy is a big step in dealing with debts that are holding you back. But you may be unsure of what to expect and what you need to do. The good news is that with the proper preparation and a solid plan, you can make the process much easier on yourself.
In this article, we’ll walk you through what to do before filing a consumer proposal or bankruptcy—and what to do immediately in the week that follows. In doing so, you’ll avoid a whole lot of stress, protect your income, and lay the groundwork for a stable financial future.
Consumer proposal and bankruptcy checklist:
Below is a checklist we’ve created to help you prepare for your proposal or bankruptcy. Following these steps will allow you to start the debt-relief process right away and avoid further issues with creditors, while continuing your life as usual.
Feel free to bookmark or download this checklist for your reference. In the rest of the article, we’ll explain each step in more detail.
Before Filing
- Open a new bank account
- Move your payroll to the new account
- Update or cancel pre-authorized debits (PADs)
- Stop using credit cards included in the filing
- Notify joint account holders or co-signers of expected changes
- Organize financial documents for your trustee
Your First Week After Filing
- Confirm wage garnishments and collection calls have stopped
- Check that your bank freeze is lifted (if it happened)
- Monitor accounts for NSF attempts
- Start a realistic budget
- Save all proposal or bankruptcy documents
- Attend to CRA updates and expected tax refunds
- Stay in close contact with your trustee
- Begin planning your credit rebuild
What to do before filing a consumer proposal or bankruptcy
Starting on the right foot is crucial for a smooth and speedy insolvency, whether you’ve chosen a consumer proposal or bankruptcy. Follow the steps below to avoid unwanted surprises, protect your finances, and eliminate your debts with confidence.
1. Open a new bank account
Do you owe money to your current bank, and the debt is part of your filing? If so, it may freeze your account, disrupting your ability to pay bills, make purchases, and withdraw cash. It can also seize the money you owe to pay down your debt (known as the right of offset). That’s why we strongly recommend opening a new bank account at another financial institution after your filing date.
When you declare bankruptcy or file a proposal, a stay of proceedings protects you against such actions by your bank. But removing a bank freeze can take time. And sometimes, your bank may not be aware of your insolvency until much later, so your money’s still at risk. So prioritize opening a new bank account with a bank or credit union you don’t owe money to. That way, you’ll maintain control over your day-to-day financial transactions.
2. Move your payroll to the new account
Transfer your payroll to the new bank account to continue receiving on-time payments from your employer. It’s important to keep paying your bills and daily household expenses on time to avoid further financial trouble. With a new bank account that your creditors can’t raid, your paycheque and other income you receive will be in safe hands.
3. Update or cancel pre-authorized debits (PADs)
Like most people, you probably have pre-authorized debits (PADs) set up for various household bills and debts. During your bankruptcy or proposal, you’ll stop paying some of these, such as credit cards and payday loans. However, money still needs to be withdrawn from your chequing account to pay for others, such as rent, utilities, and insurance.
To prevent unauthorized and delayed transactions, cancel all automatic payments for debts and bills that are part of your filing. Then update all the others with your new bank account details, including debts not discharged under bankruptcy or a proposal, such as a car loan.
Don’t forget to update PADs for small subscriptions (streaming, gym membership, etc.) and your Canada Revenue Agency (CRA) account to continue receiving tax refunds and other benefits.
4. Stop using credit cards included in your filing
Once you’ve enrolled in a bankruptcy or a proposal, you must surrender all credit cards that are part of your filing, including those with no balance, to your Licensed Insolvency Trustee (LIT). So before proceeding with your filing, stop using your credit cards, even if they’re still active.
We also discourage you from using or applying for a new card. Continuing to use credit cards may complicate your bankruptcy and distract you from the goal of becoming debt-free. As well, if you’re applying for a card with a credit limit of $1,000 or more, you must legally disclose to the lender that you’re in bankruptcy, which could make it harder for you to qualify.
Given the complications with credit cards, use only debit cards or cash for purchases until you begin rebuilding your credit. There are even debit cards and chequing accounts that allow you to collect points, which can be a nice substitute for a credit card.
5. Notify joint account holders or co-signers of expected changes
Your consumer proposal or bankruptcy filing doesn’t just affect you—it can also impact people connected to your accounts. For example, if you own a credit card where your child is an authorized user, they will lose access to once you file.
Therefore, notify everyone with whom you have financial ties that their privileges and responsibilities may change. This includes joint bank account holders, authorized users on credit cards and lines of credit, and co-signers on loans.
6. Organize financial documents for your trustee
Your LIT will need details about your finances before starting your proposal or bankruptcy. This disclosure is legally required as part of the filing process; it also gives your trustee accurate guidance from the start so that they can carry out your insolvency effectively.
Gather documents related to the following:
- Your income and expenses. Provide recent pay stubs, bank statements, and a rough monthly budget. Make sure to include special expenses and income such as child support, fines, and out-of-pocket medical costs, large gifts, and recent asset sales.
- Your assets. Bring a list of what you own with an estimated value of each item, including your home, vehicles, and investments.
- Your debts. Provide loan statements for all secured and unsecured debts you owe.
- Other. Bring anything else that is related to your finances, such as recent tax returns, collection letters, legal documents related to lawsuits, wage garnishment judgments, and a credit report.
What to do in the first week after filing a consumer proposal or bankruptcy
Your first week after filing is when creditor protection kicks in, giving you immediate financial relief and much needed peace of mind. However, it’s also a period of adjustment and a time to ensure everything is organized and working the way it should.
Here’s what to focus on once your proposal or bankruptcy has officially begun.
1. Confirm wage garnishments and collection calls have stopped
By this point, your creditors should have received notice of your filing, which means they must legally stop all wage garnishments and collection calls. Creditor protection under a consumer proposal or bankruptcy is automatic and immediately follows your filing. But it may take a few days for all your creditors to receive and update their records.
Keep an eye on your next paycheque to make sure the garnishment has been removed. Your employer should stop redirecting your money after receiving the official stay of proceedings from the court. If not, escalate the issue to your trustee, so they can remind them of their legal obligation to cancel the garnishment.
Treat collection calls, text messages, and emails the same way. If your creditors keep pestering you for payment, let your trustee know—they will contact them to resolve the issue.
2. Check that your bank freeze is lifted (if it happened)
Legally, your bank must unfreeze your account after your proposal or bankruptcy filing date. However, it may take the collections department a few days to act on this requirement. So, check your bank account to see if you’re still having trouble accessing your funds.
If your account remains frozen, contact your trustee right away—they’ll re-send the notice of your filing to your bank or escalate the issue to the financial institution’s legal department.
3. Monitor accounts for NSF attempts
When a creditor or service provider tries to pull money from a closed or overdrawn account, you can get hit with a non-sufficient funds (NSF) fee. These fees can be pretty steep—sometimes $45 per transaction—and they can rack up quickly. Unless you have overdraft protection, you may be responsible for paying these costs, so it pays to act fast and prevent them in the first place.
While changing your pre-authorized debit (PAD) information helps prevent NSF fees, your creditors may still attempt to withdraw funds from your old account, either out of habit or due to a delay in updating your account details. As a result, NSF fees may still show up.
That’s why it’s worth reviewing your account daily to catch any unexpected withdrawals or NSF charges. If you spot one, notify your trustee so they can send a reminder to your creditor to stop initiating these transactions.
4. Start a realistic budget
A consumer proposal or bankruptcy will significantly reduce your debt burden, giving you a fresh start. However, staying free of financial trouble in the future requires careful money management. The first week after your insolvency filing is the best time to break bad spending habits and rethink your approach to debt management. And one of the most effective tools you can use to get your financial house in order is starting a budget.
Various budgeting tools and techniques exist, but here’s a basic breakdown of the process:
- Step 1: Calculate your monthly income and expenses
- Step 2: Figure out your priorities (e.g. food and rent) and goals (e.g. saving money for a new car) based on your net income
- Step 3: Implement your budget and track your progress using a notebook, spreadsheet, or app.
- Step 4: Stick with your budget each month and make adjustments until it fits your lifestyle, net income, and financial goals
5. Save all proposal or bankruptcy documents
Organization is key when it comes to financial paperwork, especially documents that pertain to your insolvency. You never know when your creditors will contact you or when you’ll have to make a court appearance during your proposal or bankruptcy.
Store documents related to your insolvency in a secure place (digital or physical) that you can quickly access. These include your confirmation of filing, payment schedules, creditor notices, and monthly income and expense reports. These documents will help you understand when and how to perform your duties and track the progress of your proposal or bankruptcy.
Be sure to also retain your financial records and tax documents for future reference and as proof of your insolvency.
6. Attend to CRA updates and expected tax refunds
The Canada Revenue Agency (CRA) may need to update your account, especially if you’re behind on your tax filings or expecting a refund. Ensure your trustee has your current tax information and follow up if you’re waiting to receive a refund. Depending on your insolvency, you may have to surrender your refund to your creditors.
The filing of taxes works differently under a consumer proposal or bankruptcy compared to a standard filing, so things can get messy. Luckily, your trustee will help you file your returns correctly, get your CRA file up to date, and ensure you receive any refund that you’re entitled to.
7. Stay in close contact with your trustee
The first week is especially crucial for getting off to a good start, so keep in touch with your trustee to ensure things are going smoothly. Regular check-ins will. They will guide you through your insolvency from beginning to end, so regular check-ins are part of the process.
Don’t hesitate to ask your trustee questions, raise concerns, or verify your duties during your proposal or bankruptcy. If there’s been a sudden change in your income or living situation, let your trustee know right away, as this could impact how your insolvency unfolds.
8. Begin planning your credit rebuild
Declaring bankruptcy or filing a proposal will lower your credit score significantly. But you can start planning for a recovery right away. The sooner you start rebuilding your credit score, the sooner you’ll have the opportunity to qualify for loans at favourable rates and terms.
A great place to start is by inquiring about secured credit cards and other credit-building programs from your trustee. You can also learn how a credit score is calculated, so you can take steps to boost yours. One of the best ways to do this is to use your credit wisely and pay all your bills on time.
The bottom line on preparing for a consumer proposal or bankruptcy
Filing a consumer proposal or bankruptcy is a big step in securing lasting debt relief. But what you do before the official filing date and in the days immediately after is vital to your success. Following the checklist in this article will set you on the right path to eliminating your debt problems for good, minus the stress and aggravation.
At David Sklar & Associates, we know that enrolling in a consumer proposal or bankruptcy can be intimidating. That’s why we don’t just file the paperwork—we guide you through every step of the process. We’ll show you how to switch banks, update payment details, set up a budget, and more to help you succeed. If you’re ready to take control of your debt and move forward with confidence, book a free, confidential consultation with us today.
