Consumer proposal vs. Bankruptcy in Toronto,Ontario

If you’ve come to the decision that you simply can’t continue in your current financial state, you may be looking at another important decision — consumer proposal vs. bankruptcy.

There isn’t a one-size-fits-all answer; you need to make the choice that suits you best. Both could be an appropriate course of action for someone whose debts are beyond their ability to repay. Here are some key features of each:

Consumer proposal

–          In a consumer proposal, your Trustee/Credit Counsellor will contact your creditors on your behalf and try to negotiate an agreement under which you will repay all or (usually) a portion of your debts through one pre-set monthly payment.

–          A majority of your creditors must agree to the proposal for it to move forward; the good news is that they generally do, understanding that if you must declare bankruptcy, they will be repaid very little if at all.

–          Consumer proposals generally include only unsecured debt, such as credits cards and lines of credit, not secured debts, such as homes or cars.

–          You get to retain your valuable assets.

–          One approved, your consumer proposal becomes a legally binding agreement.

–          A consumer proposal will be removed from your credit report three years after your consumer proposal is fully paid, and if your income does substantially increase, you can repay your debts sooner than your agreement calls for.

Bankruptcy

–          Once the necessary duties have been completed, an uncomplicated bankruptcy will take nine months to discharge, but will stay on your credit report for seven years.

–          Once discharged, all of the debts included in your bankruptcy will be erased.

–          You will be obligated to attend two credit counselling sessions.

–          You may be permitted to keep certain personal assets, but only up to a certain amount; for example, in Ontario, you can keep furniture and appliances up to $11,300, clothing up $5,650, and one motor vehicle needed to get to your job, up to a value of $5,650.

–          In Ontario, your principal residence is not exempt from bankruptcy, which means you may be required to sell it and remit the value for disbursement to your creditors.

–          Other assets may also be subject to seizure and sale.

Here is some guidance on which choice might be the most appropriate for you.

A consumer proposal may suit you best if …

–          You have a regular income, but are simply unable to meet your monthly payments.

–          You believe your income will increase considerably before a bankruptcy would be discharged.

–          You have certain valuable assets, such as a luxury car, a house, or certain RRSPs.

–          You have declared bankruptcy before; a second or subsequent bankruptcy is more complex and takes more time to discharge than a first.

–          You have debts that a bankruptcy will not discharge, such a student loan or income tax debt.

–          You own and operate a limited company.

–          You wish to maintain ongoing relationships with secured creditors, such as a mortgage company.

Bankruptcy may suit you best if …

–          You are unemployed or your income is irregular and unlikely to increase.

–          You have a steady income but have a number of dependents and/or high non-discretionary obligations (such as support or health care).

–          You have few assets or they are of little value.

In either case, you must meet certain criteria, and be prepared for your decision to reflect negatively on your credit score. This is by no means a comprehensive analysis, and every case is different. Neither decision should be taken lightly.

If you’ve come to the point where your best options for resolving your financial issues are to file a consumer proposal or declare bankruptcy, get personalized advice from a qualified Credit Counsellor, like those at GTA Financial. Take the first step towards peace

Why do people file for bankruptcy

Most people look at the declaration of bankruptcy as an absolute last resort when they’re looking for a way to ease their financial problems. In many cases, it’s a simple matter of morality — most of us want to honour our commitments and feel very badly when we can’t. Who want to feel like a deadbeat? Bankruptcy can also mean the loss of assets, and will mean having to rebuild your credit slowly, over time.

So why do people do it?

When people become insolvent — that is, they have more debt than they can afford to repay — it can mean sleepless nights, harassing phone calls from creditors, and the continuing accumulation of debt if you find yourself using credit to pay for necessities like groceries or utilities. Bankruptcy can take care of all of these problems in a few simple steps and a few months of accountability to a trustee.

Bankruptcy offers a clean slate and a fresh start, and for some people, that’s what it will take to get them back on their feet and in the right frame of mind to face the future.

There’s often more to their situation than just badly handled credit. Many people are forced to consider bankruptcy because they lost their jobs, got divorced or separated, lost property that was insufficiently insured, needed legal counsel, or any one of a variety of legitimate reasons why otherwise responsible people find themselves insolvent.

The bottom line is that the decision to declare bankruptcy is a very personal one, one that needs to be made only after careful consideration and consultation with a professional credit counsellor. If, after careful consideration, you and your counsellor decide that bankruptcy is the right option for you, proceed without beating yourself up. The option exists for a reason. Use your bankruptcy as a lesson, and learn the skills you need so you never have to face financial problems again.

How is surplus income calculated in bankruptcy

Should your financial issues result in a declaration of bankruptcy, one of the conditions to which you’ll have to adhere is to advise your bankruptcy trustee of your household’s income each month, and then remit half of any “surplus income.”

Monthly net income thresholds for singles and families are set by the government, based on what they’ve decided it takes to maintain a reasonable standard of living. Every dollar over that is subject to a surplus income payment of 50% until your bankruptcy is discharged.

So, the basic formula then is:

Net income – government threshold = surplus x 50% = amount you must remit

You will be required to submit to your trustee proof of your income, for example your pay stubs. If you’re in a career where your income fluctuates, you may pay more some months than others.

To determine net income, taxes are subtracted, as are spousal support, child care, medical bills, and whatever other expenses you would normally deduct when preparing your income taxes.

If you are married, your spouse’s income is included in the household net income. Once net income is determined, the amount each must remit is based on each partner’s percentage of the total.

Failing to remit surplus income payments will result in the delay or denial of your discharge.

Normally, a first bankruptcy is discharged in nine months, but if your surplus income exceeds $200 each month (so that you would be paying more than $100), your discharge will be extended for 12 months, which means you will pay that surplus income charge for 21 months in total. Remember to tell your trustee if you anticipate any bonuses or overtime over the course of your bankruptcy — they will increase your average monthly pay and could extend your bankruptcy; likewise, five-paycheque months (if you’re paid weekly) or three-paycheque months (if you’re paid bi-weekly) will increase your average monthly income and could affect the length of your bankruptcy.

The amount of the government thresholds (which, for a single person is only about $2,000/month) and potential amount of remittance over a long period of time are two more reasons that bankruptcy is a last resort for most people. If you’re faced with insolvency, consider filing a consumer proposal instead. Regardless whether your income increases, your payments in a consumer proposal stay the same. Talk to your GTA Credit professional today about what is the right choice for you.

Who qualifies for consumer proposal?

For many people who find themselves insolvent (unable to repay their debts), a consumer proposal provides a workable solution without necessitating filing for bankruptcy.

In Ontario, anyone who is insolvent and owes between $1,000 and $250,000 (not including a mortgage) is eligible to file a consumer proposal. Essentially, a consumer proposal is an offer you make to your creditors to modify your payments, made through an administrator appointed by the Office of the Superintendent of Bankrupcy (OSB) to administer consumer proposals. You propose to either make a lower regular payment or to repay a percentage of what you owe, to be completed within five years.

A consumer proposal is a legally binding agreement that prevents your unsecured creditors from taking any further legal action to recover the amount you owe, such as seizing property or garnisheeing wages.

Your administrator will meet with you about your financial situation, and help you decide on the details of your proposal; he or she will then file the proper documents with the OSB. Within 10 days, the administrator will also send the OSB a report a report listing your assets, debts, and creditors, and their professional opinion on the fairness of the proposal and your ability to meet its terms.

The proposal and the report are also sent to each of your creditors for review. Your creditors have 45 days to accept or reject the terms of your proposal. Non-response is considered an acceptance. A creditor may reject your proposal in writing to your administrator or at a meeting of your creditors, which is not mandatory but may be requested by the OSB. Any creditor who is owed 25% or more of your debt can also request a meeting.

A majority of your creditors (by amount owed) must accept the proposal to proceed, and it must then be approved by the court, at which time it becomes binding. The court may reject the proposal if they decide the terms are unfair, but if no request for review is made by the OSB within 15 days of acceptance by your creditors, it is considered approved. It can still be annulled if you fail to comply with the terms of your proposal, which also allows your creditors to renew their efforts to recover the full amount of your debt.

To learn more about the terms of a consumer proposal, and what your obligations are likely to be, contact a professional at GTA Credit Solutions today.

How to declare bankruptcy in North York-Scarborough

If you’ve exhausted all options and need respite from the overwhelming stress of unpaid debts, you and your credit counsellor may decide that your best option is to declare bankruptcy.

Take heart — while it is a serious matter, it isn’t the end of the world. You will recover, and so will your credit, as long as you work to make good decisions and to change the habits that led you here.

Bankruptcy in Ontario provides legal protection from your creditors. It is available to anyone who owes more than $1,000 in unsecured debt and is insolvent, meaning that your debts outnumber your assets and you are having trouble repaying them.

To claim bankruptcy, you must meet with a certified credit counselor or licensed bankruptcy trustee, who will review your finances and file on your behalf.

While the vast majority of uncomplicated first-time bankruptcies are automatically discharged nine months later (meaning that your creditors are legally prohibited from any further action to collect or offset your debt to them, and you are free to start rebuilding your credit and accrue assets — your debts are permanently erased), sometimes things get a little more complicated. A creditor can object to your discharge if they think that you should have filed a consumer proposal instead, or that you have lied during the process or are hiding assets. As long as you complete your duties, it’s rare for a creditor to object. Once discharged, you’re free to start fresh. (Subsequent bankruptcies take longer to discharge.)

Your duties in bankruptcy, simply put, are to disclose to your trustee all of your assets and the details of your income, as well as supplying the trustee with required income tax returns; hand over your credit cards for cancellation; disclose the sale of any assets within one year of declaring bankruptcy, as well as any valuable gifts you bestowed within five years of declaring; attend the initial meeting of your creditors; and attend two sessions with a credit counsellor. Failure to fulfill any of these or other required duties could delay or prevent your discharge.

Until discharge, you will be required to keep track of your income and expenses, and may be required to pay a portion of your income to the trustee for disbursement to your creditors.

If your debts are overwhelming, it’s time to talk to a credit counselling professional. Even if bankruptcy turns out to be your best option, we can help you cut your expenses, plan your spending, and make better financial choices in the future. Give us a call today.