Consumer proposal filings in Canada are at record levels. According to statistics just released by the Office of the Superintendent of Bankruptcy, in the year ended October 31, 2011 consumer proposal filings increased 7.4%, from 41,634 to 44,702.
This is surprising, because in the same period the number of bankruptcy filings in Canada actually dropped by 15%, from 94,328 to 80,184.
Why would bankruptcy filings drop, while consumer proposal filings increase?
First, it’s a sign of an improving economy. The unemployment rate in Canada decreased in 2011, so more people have jobs, and incomes, so more Canadians have the income to make settlements with their creditors.
Second, an increasing number of Canadians are realizing that consumer proposals are a better alternative than bankruptcy when dealing with debts. If you go bankrupt and you have high income, you are required to make surplus income payments, which increases the length and cost of your bankruptcy. That’s why many Canadians are choosing to avoid the surplus income trap in a bankruptcy by filing a consumer proposal.
Finally, even though they have debt, most Canadians don’t want to go bankrupt. They want to pay what they can afford to pay towards their debts. If they can’t pay in full, they want a break to be able to pay what they can afford. That’s a consumer proposal, and for many Canadians it makes sense.
While it’s impossible to know the future, it’s likely that the number of consumer proposals filed in 2012 will continue to increase, and that’s good news for Canadians who are looking for affordable ways to deal with their debts.
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