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:
– 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.
– 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