Last month I discussed the advantages of filing a consumer proposal. A reader sent me an important question: what does it cost to file a consumer proposal?
The answer is simple to say, but harder to calculate. The simple answer is that a consumer proposal will cost you more than a bankruptcy, because we must offer more to the creditors than they would get in a bankruptcy in order to get them to accept the proposal.
In a bankruptcy you are required to make payments each month based on your income (the more you make, the more you are required to pay). You may also lose the equity in your house, and non-exempt RRSPs.
For example, if your bankruptcy payments would be $300 per month for nine months (based on your income), and you have $10,000 in equity in your house (the difference between the house value and the amount owing on the mortgage), and you have a non-locked in RRSP worth $5,000, the total amount you would pay, or lose, during your bankruptcy would be $17,700.
It may be possible to offer the creditors a proposal where you pay $500 per month for 50 months, or $25,000 in total. Since the $25,000 the creditors will receive in the proposal is larger than the $17,700 they may expect to receive in a bankruptcy, it is likely the creditors will accept the proposal. It’s a good deal for the creditors, because they get more, but it’s also a good deal for you, because you know exactly what you must pay each month, and you don’t lose your house or your RRSP.
Feel free to e-mail me a question or call my office in Cambridge at 519-622-3773 and my staff will set up a meeting so that I can personally review your situation, and help you determine the cost of a proposal in your circumstances.
