How Has COVID-19 Affected Bankruptcy and Consumer Proposals?

All the Different Ways the Pandemic is Having an Effect on Debt Relief

The global COVID-19 pandemic has affected nearly every facet of our lives, and for many people, that includes their financial circumstances. Job losses, business closures, and the inability to meet in person are just a few of the issues negatively affecting Canadians who are either considering debt relief solutions or are already in the midst of bankruptcy or a consumer proposal.

How the Global Pandemic Continues to Affect Credit and Financial Health

At the start of the pandemic, the federal government moved quickly to offer relief payments to Canadians whose livelihoods were negatively affected. Many creditors also began offering deferral options. But as the situation has dragged on, circumstances have continued to evolve, and not always to the benefit of those experiencing financial hardship.

End of CERB

The Canada Emergency Response Benefit (CERB) officially ended on October 3, 2020. Many of those who were receiving CERB payments now qualify for employment insurance (EI), but those who do not may apply for relief under several new programs: the Canada Recovery Benefit (CRB), Canada Recovery Caregiving Benefit (CRCB), or Canada Recovery Sickness Benefit (CRSB). However, some individuals may not qualify for any of these relief payments, and applying for them is complex, takes time, and can lead to a gap in income.

End of Payment Deferrals

For several months, many lenders and the CRA allowed Canadians to defer payments on mortgages, loans, and income tax or HST. However, most of those deferral programs have now ended or the delayed deadlines have arrived, whether or not people’s financial situations have improved.

Tightening of Restrictions

With a second wave of COVID-19 now happening in much of Canada, some businesses have had to close or cut back their operations once again after reopening in the summertime. Food service workers, gym and recreation personnel, and retail employees may all see a negative effect on their finances as a result.

Debt Relief Options

If your finances have taken a beating this year or were already in rough shape when the pandemic hit, you may now be at the point of considering debt relief options. There are three main avenues open to those whose debt is becoming unmanageable.


If your debts are insurmountable—you cannot see how you will ever pay them off, and you have little or no income coming in—then bankruptcy may be right for you. However, it should be an avenue of last resort, so speak to aLicensed Insolvency Trustee (“LIT”)before making any final decision about filing for bankruptcy.

Consumer Proposal

If your debts are high, but you still have a steady income and can manage some but not all of the payments, a consumer proposal may be suitable. It’s a legal agreement where your creditors agree to forgive a percentage of your debts (sometimes up to 70%) and you agree to repay the remainder over an agreed upon period of time.

Debt Consolidation

If you’re still able to make payments on all your debts, but high interest rates are keeping you from paying down the principal more efficiently, consider a debt consolidation loan. It allows you to pay off all your high-interest unsecured debts and make one lower-interest payment each month.

How Has COVID-19 Affected Bankruptcy and Consumer Proposals?

The pandemic has also necessitated some changes to the way bankruptcies and consumer proposals are initiated and carried out. Earlier this year, the Office oftheSuperintendent of Bankruptcy (“OSB”)appliedto the courts for a number of legislative accommodations, many of which were granted.The OSBhas also allowed some accommodations.

Filing Extensions

The court has allowed for temporary extensions to the amount of time within which a meeting of creditorsis held, the amount of time required to schedulemediation,and the amount of time to request a discharge hearing for the Bankrupt’s application for discharge.However, these extensions have now expired.

Increased Number of Payment Defaults for Annulment

This is the big one. Usually, if someone with a consumer proposal misses three monthly payments, their proposal is deemed to be annulled. However, the court recognized the effect that the pandemic has had on many debtors’ ability to make such payments, and has essentially determined that the debtor could miss up to three payments during the period from March 13 to December 31, 2020 without it being deemed annulled. If they miss an additional three payments outside of that window of time, however, their proposal will be deemed annulled.

Digital Proceedings

Normally, when you file for bankruptcy or a consumer proposal, you must meet in person withan LIT. However, in light of the pandemic, the OSB has provided approval to complete theassessmentmeetings via videoconference or a combination of teleconference and email for confirmation. Meetings of creditors can also take place via videoconference, and legal documents requiring signature can be exchanged electronically using digital signaturesand virtual witnessing,with the understanding that originals be provided at a later date.

Credit Counselling Sessions

One of the requirements for successful completion of a consumer proposal or discharge of a bankruptcy is attendance at two credit counselling sessions. While these must usually be completed in person,the OSB has permittedthem to be completed via videoconference or, where necessary, teleconference.

Whether you’re considering seeking debt relief right now, or are already in the process of dealing with your debt through bankruptcy or a consumer proposal, our team of Licensed Insolvency Trustees is here to help. They can explain further how COVID-19 has affected these processes and what you need to do to ensure you meet all your responsibilities safely and on time.

Baker Tilly Ottawa Ltd. is a Licensed Insolvency Trustee based in Ottawa. We service Ottawa and most of eastern Ontario. We have helped thousands of individuals and couples successfully resolve their debt challenges since 2002. Its passion – its mission – is your health and well-being!