Consumer proposals are becoming an increasingly popular alternative to bankruptcy in Canada. While there are many benefits to filing a consumer proposal there are two that stand out most:
- You can keep assets that you might lose if you were to file for bankruptcy,
- Your monthly payments may be less than they would be in a bankruptcy if you have high surplus income.
Your consumer proposal payments are negotiated with your creditors as part of your proposal and are primarily based on:
- how much your creditors can receive in a bankruptcy in total; and
- how much you can afford to pay monthly.
But what happens if circumstances change and all of a sudden you can’t afford your consumer proposal payments as you originally agreed?
Amending Consumer Proposal Payments
First and foremost, if you are having problems making your consumer proposal payments you should speak to your Consumer Proposal Administrator as soon as possible.
The good news is that a consumer proposal can be amended. If the deal you originally made with your creditors isn’t working then you have the right to ask your creditors to change the deal. There are no additional fees to amend a proposal and if your situation has changed then changing the proposal may make sense.
There is a risk to amending your consumer proposal payments however. If you ask your creditors to accept a new deal and they say no, then your proposal will be cancelled. If your payments are current at the time you ask for the amendment you can have it automatically re-instated. Of course, if the original proposal wasn’t working for you then it may not make much sense to have it re-instated. If you do not think you can continue you can consider your second option.
Converting From A Consumer Proposal To Bankruptcy
The second option is to consider whether or not you should be filing for bankruptcy. I know that one of the reasons people file consumer proposals is to avoid filing for bankruptcy, but there are times, particularly if your situation has changed and you can no longer afford your proposal payments, that filing for bankruptcy makes sense.
If you decide that filing for bankruptcy is the correct answer, then the next question to consider is, “when should you file for bankruptcy?” You have the right to file at any time so some people do so immediately. However you may want to delay filing until you have defaulted on your proposal. A consumer proposal is in default when you fall three months behind in your payments. That may give you a couple of months with no payments towards either the consumer proposal or bankruptcy. The savings may stabilize your situation.
You will however need to ask yourself why you are unable to maintain your consumer proposal as filed. If it is because your income dropped then filing bankruptcy, or an amended proposal, may solve your situation. If however it is because you are continuing to spend more than you earn, you need to address the underlying issue. Talk to your trustee about your credit counselling sessions. If you have not yet completed them, ask if you can attend sooner rather than later. They really can help you learn to budget and manage your money better.
So, if you can’t afford your payments in a consumer proposal contact your Trustee or Proposal Administrator and ask them if you should try and change the terms of your proposal or perhaps you should file for bankruptcy.