If you find yourself completely buried in debt and you don’t think you have any choice but to file for bankruptcy, you may be able to avoid bankruptcy by filing a consumer proposal.
I have to be honest with you – our firm has been a big proponent of consumer proposals since we opened for business in 1999. They aren’t right for all people, but more often than not, a consumer proposal provides a better solution for people in financial trouble than most people realize.
Some basic information you need to know before we proceed: a consumer proposal is an alternative to filing bankruptcy, it is not a procedure to be used by people that can afford to repay their debts in full. Consumer proposals allow people to repay a portion of what they owe over time with no interest charges. The total amount you offer to repay in a consumer proposal will always be greater than the amount you may have had to pay if you filed for bankruptcy, but you are allowed a longer period of time to make those payments in a proposal which makes it more manageable for most families.
Let me give you an example. John and Mary have 2 kids and own their home (rather than renting). If the house is sold they will receive $24,000 in equity. They owe $75,000 in unsecured debt. If they filed for bankruptcy, John and Mary would have to pay an amount equal to their equity into their bankruptcy or the house would have to be sold to gain access to the money. Instead of selling the house, John and Mary could file a consumer proposal to repay $25,000 of their debt over 5 years, or $417 per month.
If John and Mary are prepared to move and have the house sold then bankruptcy might make more sense to them. If they want to avoid bankruptcy and keep the house, then a consumer proposal might allow them to do so, assuming they can afford the monthly payment.
Here’s a second example: Bob is single, lives alone and earns $2956 net per month. He owes $34,000 in credit cards, loans and income taxes. It costs Bob about $2600 per month just to live. If Bob were to file for bankruptcy, his payment based on his income would be $475/month for 21 months, or a total of $9,975. As an alternative, Bob could file a consumer proposal and offer to repay $12,000 – $200 per month over 5 years.
In this example, the consumer proposal adds another $2,000 to what Bob repays, but the $200 a month payment is manageable, whereas the bankruptcy payment at $475 is not.
I can easily produce examples where a bankruptcy makes more sense than filing a proposal but a consumer proposal works by:
- allowing you to repay less than you owe;
- stopping interest and penalty charges;
- making your monthly payment more affordable;
- allowing you to keep your assets like a car or your house.
The real point of the article is to convince people to consider all of their debt relief options – don’t fixate on bankruptcy as the only solution to money problems. There are times when filing bankruptcy is the most appropriate response. There are as many or more instances where a consumer proposal or some other strategy make the most sense.
When deciding, it is useful to talk to a bankruptcy trustee. A bankruptcy trustee is required to walk you through all of your alternatives to help you deal with your debt, not just bankruptcy. To see if a consumer proposal or bankruptcy, or other debt relief options, will work for you, contact a Bankruptcy Canada trustee in your area today.