“I filed for bankruptcy before and was discharged. Unfortunately, I am in over my head again and I am wondering: Should I file for bankruptcy or a consumer proposal?”
Considering filing bankruptcy a second time is not as unusual as you think. There are however implications of a second, or third, bankruptcy that you need to consider.
Should You File Bankruptcy a Second Time?
You need to consider the cost of a second bankruptcy.
A second bankruptcy will last longer and as a result your cost of bankruptcy will be more.
- A second time bankrupt with no surplus will get an automatic bankruptcy discharge after 24 months (unless opposed)
- A second time bankrupt with surplus will get an automatic discharge after 36 months (unless opposed)
- If this is your third bankruptcy, you are not eligible for an automatic discharge. Your bankruptcy trustee will need to apply to the bankruptcy court for an application for discharge hearing.
One of the biggest issues is if you have “surplus income“. Making higher payments due to higher income, for longer, can make filing bankruptcy a second time very expensive. An alternative in this situation is to consider a consumer proposal.
Another factor to consider is the fact that a second time the bankruptcy will remain on your credit report for 14 years after discharged. The first time you filed it was removed in six years after discharge. If you file bankruptcy a second time it will remain on your credit report for 14 years.
Consider a Consumer Proposal as an Alternative to a Second Bankruptcy
A better route than filing bankruptcy a second time may be to file a consumer proposal.
Filing a consumer proposal vs bankruptcy the second time around is often better than a repeat bankruptcy because:
- It falls off your credit report sooner. A consumer proposal remains on your credit for 3 years after completion. So a 5 year proposal means your credit is affected for only 8 years, not 16-17 as in a second bankruptcy.
- You can pay your proposal off faster if you want. If you pay off your proposal sooner, it falls off your credit report sooner as well.
- Once your proposal is accepted, there is no risk that your creditors may oppose your discharge.
It would still cost more (because you have to pay at least what a bankruptcy would cost), but you can spread this out over up to 5 years to make the payment more manageable. You also have the option to make additional payments to pay off your consumer proposal faster if your financial situation improves.
But the main reason many people choose to file a consumer proposal is the effect on their credit rating. The difference is substantial enough that in most cases people file a consumer proposal the second time around.
If you are trying to decide what to do, Hoyes Michalos can help. Call us and together we can develop a plan that is right for you.