Making a Choice Between Bankruptcy and Consumer Proposal
If you are having difficulty paying your debts and are unable to pay your bills as they become due, two possible options that could be available to you are bankruptcy or consumer proposal. These are both legal processes that are designed to help you reduce or eliminate your debt. If you are considering either of these processes, the first step is to sit down with a licensed trustee in bankruptcy.
A trustee in bankruptcy is a person who has been specially trained and is registered by the federal government to administer bankruptcy and proposal processes. Trustees receive years of training and are bound by a specific code of ethics. This means that they will explain all possible options to you and take steps to ensure that everything is handled fairly if you decide to file for bankruptcy or consumer proposal.
Most trustees offer the initial consultation at no charge. In this meeting, the trustee will renew your financial situation and provide you with information on the options that are available to you. It is then entirely your decision as to how you wish to proceed.
Each financial situation is different, so the choice between bankruptcy or consumer proposal is a personal one that will depend on your situation. In order to make this choice, it’s important that you understand the details of each option. Your trustee can help you.
Bankruptcy is a legal process where someone who is unable to pay bills as they become due is able to eliminate most (if not all) of their debts and start fresh. A bankruptcy may only include unsecured debt such as credit card debt, unsecured lines of credit, bank overdraft charges, personal debts and other such debts. Student loans can be included only if you have been out of school for more than seven years.
A bankruptcy does not eliminate secured debt (such as mortgages or automobile loans) nor does it eliminate court ordered debt such as alimony or spousal support.
Each province in Canada maintains a list of items that are considered necessary to live a basic lifestyle. These items are exempt from bankruptcy, so you are able to keep them when you file. In addition the Federal government has determined the level of your income you are able to keep to support your family. This money is not available to your creditors. Any excess over this amount ( Surplus Income) will go into your estate for payment to creditors
The cost of your bankruptcy will depend on your particular financial situation. Your trustee will inform you of the cost of your bankruptcy after reviewing your financial situation. Depending on your income and expenses, you may need to make surplus income payments during the bankruptcy process.
The length of a bankruptcy depends on whether or not you need to make surplus income payments as well as whether or not it is your first bankruptcy. A bankruptcy remains noted on your credit report for seven years after you have been discharged.
Understanding Consumer Proposal
A consumer proposal is also a legal process. With a consumer proposal, you make an offer to your creditors to repay them on terms that you can afford. Most consumer proposals involve paying a portion of your debts over a specific period of time (between one and five years, depending on the situation).
When you file a consumer proposal, your trustee determines what a fair offer to your creditors will be based on your financial situation. Like a bankruptcy, a consumer proposal can only include unsecured debts. This offer is then sent to all of your unsecured creditors who will vote on whether or not to accept the proposal. If the majority of your creditors vote to accept it, then all unsecured creditors are bound by its terms.
Once the proposal is accepted, the monthly payments will not change, even if your income changes. A consumer remains on your credit report for three years after it has been completed.
Making the Right Choice for you
When you meet with a trustee, you will find out information on all of the possible options. Bankruptcy and consumer proposal may be possible options, but there may be other choices as well. By reviewing all of the choices and understanding the details of these options, you can make the right decision for your financial future, whether it be bankruptcy or consumer proposal or another option.