Licensed bankruptcy trustee Doug Hoyes, talks about why a consumer proposal is better than bankruptcy including what the key differences are between these two options available under the Bankruptcy and Insolvency Act in Canada.
If you would like more information about consumer proposals, view our slideshare presentation: Consumer Proposals: The Bankruptcy Alternative
You’ve got more debts than you can handle so you’re trying to decide if you should file a Consumer Proposal or just go bankrupt. Every situation is different, but let me give you five reasons why for some people a Consumer Proposal is better than bankruptcy.
First, in a bankruptcy, the amount you pay each month can go up if your income goes up. Each month you’re required to send your Trustee proof of your income and if your income goes up, so does your payment. In a Consumer Proposal your payment is fixed. It never changes so you know exactly what your required to pay each month.
Second, in a bankruptcy you lose your tax refund and possibly other assets like your HST rebate, any contributions you’ve made to RRSP in the last year or ESP’s for children and any equity you have in your car or house or other investments. In a Consumer Proposal you keep everything.
Third, a Consumer Proposal is much simpler than bankruptcy. You don’t have to send in paystubs every month and you don’t have to give you Trustee information to file your taxes.
Fourth, no court. In a bankruptcy any creditor can object to your bankruptcy ending which triggers a court discharge hearing. Unfortunately, a creditor can object right up until the time your bankruptcy is scheduled to end so you never know for sure when your bankruptcy will end. In a Consumer Proposal, once the creditors accept your proposal, the terms, and the time period are fixed. There is no court hearing at the end.
Finally, I think the biggest advantage to a Consumer Proposal is that it’s proactive. A bankruptcy is your last resort. You are reacting to the situation. A proposal is proactive. You decide what you can afford to pay. You make the offer to your creditors. We negotiate the settlement and in the end all parties agree. Your creditors are happy because they’re getting more than they would expect to get in a bankruptcy and you’re happy because you know you took control of your situation and worked out a plan. You are in control.
A Consumer Proposal is not the best solution for everyone, but if you have more debts than you can handle and if you want to take charge of your situation and make a plan to deal with your debts, a Consumer Proposal might be the right answer for you.