Voluntary Deposit: A Quebec-Specific Solution for Over-Indebtedness
Voluntary deposit, commonly known as the Lacombe Law, is a debtor relief mechanism that exists only in Quebec. Provided under articles 664 to 673 of Quebec's Code of Civil Procedure, it offers an alternative to bankruptcy and consumer proposals for individuals unable to repay their consumer debts in full within the original timelines. This mechanism allows the debtor to retain their assets while repaying creditors in an orderly fashion, based on their actual financial capacity.
How Voluntary Deposit Works
- Registration at the courthouse: The debtor presents themselves at the clerk's office of the courthouse in their judicial district to register for voluntary deposit. They provide a complete list of creditors and debts, along with a declaration of income and dependents.
- Calculating the seizable portion: The clerk calculates the seizable portion of the salary according to the formula in the Code of Civil Procedure. The non-seizable portion protects a base income for the essential needs of the debtor and their family. The excess is the amount to be deposited.
- Regular deposits: The debtor must make deposits at the clerk's office each pay period, without delay. The clerk distributes the funds proportionally among registered creditors based on their respective claim amounts.
- Protection from seizure: As long as deposits are made regularly, creditors cannot garnish the debtor's wages or exercise seizure remedies on essential movable property. This protection ceases immediately if the debtor stops making deposits.
Impact on Credit and Your Mortgage
Voluntary deposit is not reported the same way as bankruptcy to credit agencies. There is no specific notation equivalent to the R9 of bankruptcy. However, delinquent accounts with individual creditors will still be reported, negatively affecting your credit score. In practice, a debtor under voluntary deposit often sees their score drop below 550, making access to conventional credit very difficult. For the existing mortgage, voluntary deposit has no direct impact as long as payments are maintained. The mortgage lender retains its security and remedies in case of default. For obtaining a new mortgage, the situation is comparable to that of a client with poor credit: B lenders and private lenders are the most realistic options during the voluntary deposit period.
Advantages and Limitations Compared to Other Options
- Advantage: no asset surrender required, unlike bankruptcy where the trustee may require liquidation of certain assets.
- Advantage: full repayment of debts over time, which may be viewed favourably by future lenders.
- Advantage: no trustee required and minimal setup costs, compared to bankruptcy or a consumer proposal.
- Limitation: repayment can be very lengthy if debts are high and income is modest.
- Limitation: does not protect immovable property; only essential movable property and wages are protected.
- Limitation: no debt reduction, unlike a consumer proposal which allows negotiating partial repayment.
The AMF-certified mortgage broker in Quebec must be familiar with this Quebec-specific option to properly guide their clients. In some cases, voluntary deposit is preferable to bankruptcy as it better preserves the credit file long term and allows the client to return to conventional lenders more quickly. The LDPSF requires the broker to act in the client's best interest, which may involve recommending a consultation with a budget counsellor or a lawyer specializing in insolvency law before making a decision.