“I filed for bankruptcy in 1992 and was discharged. Unfortunately, I am in over my head again and I am wondering: Should I file for bankruptcy or do a consumer proposal?”
I was emailed this excellent question and I would like to tell you about the back story and what the person decided to do. Just for ease, and privacy, I will call him Bill (not his real name).
Bill is single, has no dependants and brings home $2,500 per month in salary. Bill was off work for several months due to illness and has $25,000 in credit card debt. He rents his home and is financing a car.
One of the biggest issues facing Bill in his bankruptcy was that he had something called “surplus income“. In fact, the calculations showed Bill had $308 in surplus income so if he filed for a second bankruptcy it would have cost him $308 per month for 36 months for a total of $11,088. In addition, if he filed bankruptcy a second time the bankruptcy would be on his credit report for 14 years after discharged.
This was a pretty high cost to pay each month as Bill was just getting back on his feet.
Consumer Proposal as an Alternative
The better route for Bill was to file a consumer proposal. It would still cost Bill around $12,000 (because you have to pay at least what a bankruptcy would cost), but he could pay this amount over 4 years to make the payment more manageable. He also had the option to make additional payments to pay it off faster once he felt he was in better financial condition. But the main reason many people choose to file a consumer proposal is the effect on their credit rating. A consumer proposal stays on a credit report for 3 years after it’s paid off. Because this would have been Bill’s second bankruptcy, the impact on his credit report was quite severe. In Bill’s case the proposal would remain on his report for 7 years versus the 17 years for a second bankruptcy.
I bet you can guess what Bill did. He filed a consumer proposal.
If you are trying to decide what to do, Hoyes Michalos can help. Call us at 1-866-747-0660 and together we can develop a plan that is right for you.