A consumer proposal is the lesser known alternative to filing for bankruptcy, and many clients find that it is a better solution for them than filing bankruptcy. So, in what circumstances might a consumer proposal be a good alternative for you to consider?
1.) You may have things that you own (assets) that you wish to keep, but might be required to surrender if you filed bankruptcy. This is one of the most common reasons that clients choose to file a consumer proposal rather than bankruptcy. Let me give you an example. Let’s say you owned a home that had $10,000.00 equity in it (equity is the amount of money after selling costs that would be left in your pocket if you sold it). If you filed bankruptcy, you would have to give that equity to your Trustee to give to your creditors, and that would happen in one of 2 ways – either you give the Trustee $10,000 or the Trustee takes your house and sells it. For many people finding $10,000 to give to a Trustee is next to impossible. If you file a consumer proposal, you still have to give the Trustee $10,000 to give to your creditors, but you can do so by making monthly payments to your Trustee over a period of up to 5 years that will then be distributed to your creditors.
2.) Based on the government’s rules, you might not be able to afford the payments you are required to make if you file for bankruptcy. These rules are called the Surplus Income Payments and they don’t apply when you file a consumer proposal. This is another common reason why people choose to file a consumer proposal. Again, let me try to illustrate this with an example. Let’s say that you are a single person earning $2,800 per month. If you filed a bankruptcy, you would be allowed to keep $1884 of this income, but would be required to give your Trustee half of any monthly earnings that exceeded this amount; in my example, if you earned $2800 in a month, you would pay 50% of $916 ($2800-$1884) which would be $458. Further, depending on how much income you earn over the period of your bankruptcy, you could end up paying this for an extended period of time. As you can see, for many people, the bankruptcy payments in of themselves can be difficult to manage. If you filed a consumer proposal you would still pay the Surplus to your creditors, but again, you would do so in more manageable monthly payments over a longer period of time.
These are the 2 of the most common reasons that people choose to file a consumer proposal rather than bankruptcy. In many cases, people choose to file a proposal because it is simply more affordable. So, if you have delayed seeing a Trustee because you are worried about the costs of bankruptcy or that you might lose your house or other assets, perhaps a consumer proposal is an alternative you could consider. If you have any questions or would like to discuss how filing a proposal might help you in your situation, give us a call at 310-PLAN or fill out an on-line evaluation – we would be very pleased to help.
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