The Globe and Mail published a story on How to Avoid Filing for Bankruptcy, and one of the options they highlighted for avoiding bankruptcy is to file a consumer proposal. A number of people commented on the story; some people believe that you should never file bankruptcy under any circumstances, while others believe that it is actually better to file bankruptcy than a consumer proposal. That idea also appears on the various on-line consumer proposal support groups that exist. Here’s their reasoning:
If you have no surplus income, and if you have no assets, and if this is your first bankruptcy, you are likely to be discharged in nine months. Why would you want to file a proposal that could last for three to five years, if you could be discharged in nine months?
Good question. The answer is that, if you have no surplus income, and no assets, and you have never been bankrupt before, filing bankruptcy in Canada may be the best option for you. It would be quicker and less expensive for you.
However, if you have surplus income, a first bankruptcy will last for a minimum of 21 months, not nine, and you will be required to make a surplus income payment for 21 months. Here’s the question: which is better: paying $1,000 per month for 21 months in a bankruptcy because you have surplus income ($21,000 in total), or paying $500 per month for 48 months ($24,000 in total) in a consumer proposal? Obviously in this example you are paying more in the proposal, but your monthly payment is lower, which may be much more manageable for you.
In addition, in a bankruptcy you are required to send copies of your pay stubs to your trustee each month, so if your pay increases, your payments increase. That’s why a consumer proposal may be better than bankruptcy if your income will increase during the bankruptcy period.
With a consumer proposal your payments are fixed; they don’t increase when your income increases. In a bankruptcy, as your income increases your payments increase.
In addition, if you go bankrupt and have certain assets, like equity in a house, or an RESP for your children, you may lose them. You lose your tax refund, and your GST credits. In a proposal you don’t lose your assets. You keep your tax refund.
So why should you try to avoid bankruptcy by filing a consumer proposal? If you have surplus income, or if you have assets, a consumer proposal may be a better option for you.
Also consider the fact that most people simply don’t want to go bankrupt. They know they owe the money, and they want to repay their debts; they just want some time to repay them. They just want a break on the interest. They need some breathing room. For many people, that’s the reason they choose to file a proposal. They feel better, knowing they have negotiated a settlement with their creditors.
Each case is different. For some people a bankruptcy is the best option. For others, a consumer proposal is a better option. You should research the cost of filing a consumer proposal, consider your options, and then contact a consumer proposal administrator for a free initial consultation to review your options. Spending a few minutes talking to a professional will help you make an informed decision.
About
Comments on this entry are closed.