-redacted by Réjean J. Boudreau

with the collaboration of Jonathan Bisson

The Voluntary Deposits Scheme is unique to Quebec province and was created more than a century ago.¹ A similar scheme is available in other provinces as a Consolidation Order, according to the Orderly Payment of Debt Regulations, Part X of the Bankruptcy and Insolvency Act.² According to a rule set by law, 30 percent of monthly income minus exemptions will be deducted from a consumer's gross income (before income taxes), until all debts are paid. In exchange, he (or she) will be protected from most legal actions from the creditors and will benefit from interest rates fixed at 5 percent by the Law (hence lower than many creditors, such as credit card companies). Mostly, the main advantage of the Lacombe Law is to avoid bankruptcy.

      Yet, once all debts are cleared, the mention of the Voluntary Deposits Scheme will remain 3 years in credit files, versus 6 or 7 for a bankruptcy, which implies that gaining credit becomes for that period as difficult as after a bankruptcy. The advantages of the Lacombe Law comparatively to bankruptcy are thus minimal, considering that most debts are annulled during bankruptcy (with some exceptions). Also, the duration of a bankruptcy may be shorter than paying all debts with the Voluntary Deposits Scheme (a first bankruptcy takes 9 months before liberation without exceeding income, or 21 months with exceeding income). Furthermore, a simple debt consolidation might suffice to reach an interest rate near 5 percent and thus eliminate high interest rate debts. In several cases, if bankruptcy seems more efficient to clear one’s debts and start anew, why would someone choose to avoid it at all costs? To answer this question, one must try to understand the taboo of bankruptcy or how a social stigma can hinder the resolution of an otherwise purely mathematical equation.

    For example, for a debt of 20,000$:

-For a first bankruptcy, the duration of the bankruptcy would be 9 months with a mention in credit files of 7 years, at the total cost of 2,000$.

-For a second bankruptcy, the duration would be 21 months with a mention of also 7 years in credit files, at the cost of 6,000$.

-Under the Lacombe Law, completing the totality of payments would take, according to income, about 5 years with a mention of 3 years in the credit files. The costs, of course, would be 20,000$, plus administrative costs.

____________________________________

1.Portail Québec, ‘Dépôt volontaire: Ministère de la Justice,' http://www.formulaire.gouv.qc.ca/cgi/affiche_doc.cgi?dossier=2956 [consulté le 6 mai 2010].
2.Bureau du Surintendant des faillites, ‘Glossaire des termes employés en insolvabilité,' http://www.ic.gc.ca/eic/site/bsf-osb.nsf/fra/br01467.html#fusion [consulté le 6 mai 2010].