SHOULD YOU FILE A CONSUMER PROPOSAL OR BANKRUPTCY?
Should I File for a Consumer Proposal or Bankruptcy?
While everyone’s personal situation is different, there are good reasons to choose a consumer proposal or bankruptcy if you wish to resolve an ongoing financial crisis. Living daily with looming financial debt can cause emotional strain and impact your relationships both at home and at work. A Licensed Insolvency Trustee (LIT – previously bankruptcy trustee) can assess your unique circumstances in making this difficult decision. In the meantime, some general guidelines are provided here about why you may prefer one option over the other.
What is a Consumer Proposal and How Does it Work?
A consumer proposal is simply that – a proposal made by a LIT acting on behalf of you, the consumer, to pay a set portion of the unsecured debt owed to your creditors. To qualify for a consumer proposal, you must:
- be an individual (not a business),
- owe less than $250,000 (excluding secured debt such as your mortgage), and ·
- be able to pay your unsecured debt, or a portion of them, in the proposal within five years.
When the proposal is submitted, all legal actions and collection activities must stop and creditors must stop contacting you and begin working with your LIT. Your creditors will have 45 days to accept or reject the consumer proposal. A simple majority of a dollar value is required for acceptance, which then binds all your unsecured creditors who were included in the proposal. In most situations, your creditors will accept the deal because they would get less money if you declared bankruptcy. Any creditors who do not vote are deemed to have accepted the proposal; it’s the vote to reject your proposal that is considered.
Once the proposal is accepted, your LIT will pay your creditors from monthly amounts you pay to him/her and you will be required to attend two financial counselling sessions. Your unsecured creditors cannot take further legal or collection action unless you fail to make three of the agreed payments. You will receive a Certificate of Full Performance once your obligations have been met.
In What Situations Is a Consumer Proposal Preferred Over Bankruptcy?
There are many reasons why a consumer proposal may be preferred over bankruptcy:
You have significant assets (e.g., a home or car) that you don’t want to lose. If you can keep up the payments on these assets while resolving your unsecured debt, you can keep the equity you have built.
- You have a high or steady income or you expect a significant rise in your income shortly. Because you will have pre-set fixed monthly payments under a consumer proposal, changes to your income will not result in extra amounts to pay as would occur under a bankruptcy. If you have additional income, you can pay your debts early, in as little as 90 days, or you can continue with the payment plan.
- You are confident that you can stay on track of a payment plan that avoids bankruptcy.
- You prefer the autonomy and privacy associated with having no reporting requirements. In bankruptcy, you must report your monthly income and budget to your LIT.
Speak to a Licensed Insolvency Trustee to Discuss the Best Option in Your Situation
If both debt solutions are available to you, you will want to think carefully about whether to file for a consumer proposal in Edmonton or for personal bankruptcy. Either option can solve your debt problems if your debts are causing you tremendous financial burden. To learn more about personal bankruptcy as a solution, continue reading Part 2: What is Personal Bankruptcy and How Does it Work?
Want to contact a Licensed Insolvency Trustee today? At Fox-Miles & Associates, our LITs serve the Edmonton area, including Sherwood Park, Fort Saskatchewan, St. Albert, Spruce Grove, Stony Plain, Leduc, Hinton and Edson. We can submit a consumer proposal or bankruptcy and advise the best debt help for your particular circumstances. For a free assessment of your financial situation, contact us at 780-444-3939.