Mathieu Roy
Licensed Insolvency Trustee and Financial Recovery AdvisorWhen facing excessive debt in Quebec, voluntary deposit is a legal solution that allows you to repay your debts under the protection of the court. If you want to avoid bankruptcy and protect yourself from seizures, this option may be a viable alternative. It allows you to repay your creditors by paying a portion of your income to the Court of Quebec.
Although voluntary deposit can be an attractive alternative to bankruptcy, it is not suitable for every financial situation. In this article, we explore its main advantages and limitations, as well as its impact on your credit report.
Key Points
- Voluntary deposit protects you from garnishments and allows you to repay your unsecured debts through payments calculated based on your monthly income and ability to pay.
- Your debts must be repaid in full, typically over several years, at a fixed interest rate of 5% per annum.
- This process affects your credit report, resulting in an R9 rating, and may not necessarily be the most advantageous solution depending on your financial situation. Consulting with a licensed trustee can help you understand your options and determine which solution is best suited to your needs.
How Does Voluntary Deposit Work?
Voluntary deposit, formerly known as “Loi Lacombe”, is a legal option unique to Quebec that allows individuals in debt to repay all of their unsecured debts while benefiting from court protection. This option involves paying a percentage of your gross income directly to the clerk’s office of the Court of Quebec. This percentage generally ranges from 5% to 30% of your gross income and is determined based on the total amount of your debts and your ability to repay them.
Voluntary deposit is an alternative to other debt solutions, such as a consumer proposal or bankruptcy. However, it is primarily intended for individuals who still have sufficient financial means to repay their debts in full.
Benefits
Legal Protection
As soon as you enroll in the voluntary deposit, you are protected against wage garnishments and asset seizures, as well as legal proceedings initiated by your creditors.
Fixed Interest Rate
Interest on your debts is reduced to a fixed rate set by law. This rate is currently 5% per year, which is generally much lower than the interest rates charged on credit cards and lines of credit.
Distribution to Creditors
The Court of Quebec is responsible for distributing your monthly payments to your creditors. This simplifies the management of your repayments and can also help put an end to collection calls and other forms of harassment from creditors regarding your debts.
Limitations
No Debt Reduction
Unlike a consumer proposal or personal bankruptcy, a voluntary deposit does not reduce the amount of your debt. Therefore, you must repay the debt in full. This is a major drawback if your indebtedness is quite high. For example, it is not uncommon for a consumer to be able to settle all of his debt for an amount representing 35 % of the total debt under a consumer proposal.
Duration
When the amount of debt is high, repayment can be spread out over several years, sometimes as long as 5 to 10 years. The duration depends, among other factors, on the amount to be repaid and your ability to pay.
Impact on Credit
A voluntary deposit results in an R9 credit rating, which is the most unfavourable rating. This rating remains on your credit report for the entire duration of the repayment period and for an additional 2 to 3 years after the debt has been fully repaid.
How Do I File for Voluntary Deposit?
Filing for voluntary deposit is a legal process designed to be straightforward. The application is filed directly with the court. Here are the steps to follow:
1. Gather the Necessary Documents and Information
You will need to provide information about your total income, the names of your creditors, and their contact information. The court clerk may also ask you to provide proof of identity, such as your social insurance number, driver’s licence, or health insurance card.
2. Complete the Declaration at the Courthouse
You must go to the registry of the Court of Quebec at the courthouse in your judicial district, either where you live or where you work. There, you will complete the debtor’s declaration with the assistance of a court clerk. The clerk will calculate the fixed amount to be withheld from your wages based on your income and the nature of your debts, including credit card debt and child support payments.
The document is then validated and sworn to formalize your application for voluntary deposit.
Comparison with Other Available Solutions
| Criteria | Voluntary deposit | Consumer proposal | Personal bankruptcy |
| Percentage of debt to be repaid | 100% | Negotiated portion of the amount (often 20% to 50%) | 0% (full discharge of eligible debts) |
| Interest rate | 5% per year | 0% | 0% |
| Retention of assets | Yes | Yes | No (certain exempt assets are retained) |
| Duration of the process | Depending on income (often 5 to 10 years) | 5 years max | 9 to 21 months (for a first bankruptcy) |
| Credit score | R9 | R7 or R8 | R9 |
| Time on credit report | 2 to 3 years after the last payment | 3 years after the end (or up to 6 years after signing) | 6 years after discharge (for a first bankruptcy) |
Registering for voluntary deposit offers protection against garnishments, but it can be a longer and more costly process than a consumer proposal, while having a similar impact on your credit history. This option may be beneficial in certain situations, but it isn’t necessarily the best choice for everyone. The most appropriate solution depends, among other factors, on the amount of your debts and your ability to repay them.
If you’re struggling with debt, consulting a Licensed Insolvency Trustee can help you better understand your options and determine which solution is best suited to your situation. Our team is here to support you and guide you toward the right solution for your needs.
More Post
Debts of a Deceased Spouse: Who is Liable?
