How to avoid bankruptcy – File a Consumer proposal

A Consumer Proposal is a formal procedure that is governed by the Bankruptcy and Insolvency Act (“Act”).  It allows insolvent debtors to settle their debts for less than they actually owe, while avoiding bankruptcy.   Declaring bankruptcy can cause embarrassment, seizure of your assets, and can pose a financial hardship if required to pay surplus income.  A consumer proposal can deal with most of your unsecured debts, including:

  • credit cards of all kinds
  • overdraft accounts
  • unsecured lines of credit
  • loans
  • personal loans from family, friends and others
  • student loans (if older than 7yearsj)
  • income tax debt
  • ·GST

Secured debts, such as mortgages owing on your home and leased or financed vehicles would not form part of a Consumer Proposal and must be dealt with directly with the secured creditor.

The Act ensures that you are protected from legal actions by your creditors and means that your debt repayment follows a strict and monitored process. Your trustee will negotiate a settlement between you and your creditors, and you will typically make one monthly payment over a 5 year period.  Once you have made your final payment, your debts will be eliminated. Though you will be repaying more to your creditors than you would in a bankruptcy, these payments are spread out over a longer period of time.

What are the Advantages?

  • You are able to retain your assets.
  • It can be 75% less expensive then repaying your debts on your own.
  • Your creditors cannot commence or continue legal actions against you once the proposal is filed.
  • Professional accreditation can be retained which may not be in bankruptcy (for example, insurance brokers, director of a corporation, licensed real estate broker)
  • Interest if frozen at the date of your proposal.
  • Under a proposal, you will still be able to sponsor a family member through the Canadian immigration process, were it may be hampered under a bankruptcy.
  • It is an effective alternative to bankruptcy from the aspect of its effect on your credit rating: with a proposal your credit rating is not as adversely affected as in a bankruptcy.
  • If filing a second/third bankruptcy, the process can be lengthy and stressful.  A proposal would avoid this.
  • You likely won’t lose your income tax refunds.
  • If you opt to declare bankruptcy, it can be costly.  You may be required to make additional monthly payments, called surplus income payments. The more you earn at your job, the more you will pay monthly and the longer the duration.

More and more Canadians are looking at the Consumer Proposal option to provide them a financial fresh start.  At Doug Lee & Associates Inc, we will work out the numbers for you and ensure that the proposal is fair and reasonable.  Give us a call for a free consultation, we would be happy to assist you with a new financial beginning.

Not all debts are Forgiven

A consumer proposal or a bankruptcy is a formal process under the Bankruptcy and Insolvency Act that allows people to get discharged from their debts that they owe to creditors.  Certain debts/obligations will survive the process and you will be still required to pay them.  The five most common debts that would survive are as follows:

1)        Student loans less than 7 years old:  A consumer proposal or bankruptcy can only discharge student loans that are over 7 years old.  If you have a student loan that is more recent than this, the debt will still be yours to repay even after completion of the process. If you have other debts, a consumer proposal or bankruptcy would eliminate these obligations possibly making it earlier to service your student loan debts.

2)        Child support: If you have been ordered by a court to pay child support, a consumer proposal or bankruptcy will not affect this arrangement. You will be required to continue to make payments.  As well, whatever payment arrangements you have will remain in effect during the process.

3)        Alimony: Similar to child support, alimony or spousal support is not discharged in a consumer proposal or bankruptcy. Even after completion of your bankruptcy, you are not released from spousal support payments.

4)        Debt related to fraud or misrepresentation: Any debts accumulated as a result of fraud will not be discharged through a consumer proposal or a bankruptcy. For example, if prior to your consumer proposal/bankruptcy, you racked up expensive charges on your credit cards (with no intention of paying these debts back), your creditors can apply to have this debt excluded from your discharge.

5)        Court-imposed fines: If you have been fined in a court of law, you will have to pay the fine regardless of your consumer proposal or bankruptcy.