Have you heard the expression, “it’s not over ‘til it’s over?” It applies to bankruptcy in Canada as much as anything else.
If you have filed an assignment in bankruptcy and your situation changes for the better, you don’t have to remain bankrupt. You have the right to file a consumer proposal that, if accepted by your creditors, will cause your bankruptcy to be cancelled.
No one ever told you this? It is not surprising as it is not something that happens very frequently, but there are definite cases when it makes sense.
When To File A Consumer Proposal During Bankruptcy
Your Income Changes
Take for example a bankrupt that was out of work when they filed bankruptcy, but shortly thereafter landed a good (and by that I mean high paying) job. Their trustee likely told them their bankruptcy would cost about $1800 and run for 9 months, well the new job changes all of that. If the person earns more than the government threshold then they may be subject to surplus income payments (50% of every dollar they earn in excess of the standard) and their bankruptcy will automatically be extended by another 12 months. Depending on how the numbers work it, it might make more sense for the bankrupt to offer a consumer proposal to repay more money that their creditors might receive in the bankruptcy, just to get a lower monthly payment and to have the bankruptcy removed from their record.
You Receive A Windfall
Another typical example is a bankrupt that suddenly comes into some form of windfall (free money). Under bankruptcy rules the windfall is supposed to be seized by the trustee and paid out to the bankrupt’s creditors. If asked, the creditors may agree to accept a portion of this money in the form of a consumer proposal just to give the bankrupt a break. I have seen this done with inheritances and with life insurance proceeds. No one, not the bankrupt or the creditors was expecting the money, so a consumer proposal that provides for more money than the creditors were originally expecting is often accepted.
The point of all this is to demonstrate that “it’s not over ‘til it’s over”. If a bankrupt’s situation improves during their bankruptcy then it may makes sense to consider whether or not the bankruptcy should be completed, or whether it makes more sense to file a consumer proposal to deal with the debts and cancel the bankruptcy. Converting to a consumer proposal, if accepted, can cost you less money than continuing with your bankruptcy.
The last little tidbit – if your current trustee doesn’t want to discuss your options you have the right to use a different trustee to file your consumer proposal. I am not suggesting that you should shop around, but if your situation changes you should speak to someone that will review all of your options so that you may make an informed decision regarding what’s best for you.