5 Reasons why a Proposal is better than filing a bankruptcy

Danielle Ratford

Today’s post will look at 5 reasons why filing a Consumer Proposal may be a better option for you than filing for Personal Bankruptcy. 

 If you compare Bankruptcies and Consumer Proposals side by side, what stands out the most is Consumer Proposals are easier, less “complicated” if you will.

Here are the top 5 reasons why:

• 1  -  In a consumer proposal you still have control of your assets.

In a Bankruptcy you “assign” your assets to the trustee.  In a proposal, you remain in control.  You are still able to manage, and make withdrawals from your investments if you so chose.

You lose this right in a bankruptcy and you could even lose the asset all together.  Recent contributions to RRSP’s will be seized by the trustee and any investments such as RESP’s, Canada Savings Bonds, Stocks and Shares can be collapsed and the proceeds distributed to your creditors.

•  2  -  With a Consumer Proposal all the work is done at the beginning.

It’s less complicated than a bankruptcy. Your regular monthly income and expenses are only assessed once by a trustee and creditors when you file a consumer proposal. 

While Bankrupt you are required to submit detailed Income and Expense statements for the duration of the bankruptcy, which will include supplying copies of pay stubs or bank statements to verify income received.

• 3  -  Your monthly payment will remain the same.

It’s easier to budget knowing exactly what you’re required to pay to the trustee each month.  Where-as in a bankruptcy you might not know from one month to the next exactly what you have to pay, in a proposal it would be easier to plan ahead with a budget knowing you’re payments to the trustee won’t change.   If your income increases during the proposal, specific rules prevent creditors from requesting more money at a later date during the proposal if you’re fortunate enough to be making more money.

During a bankruptcy, the more money you make, the more you’ll have to pay.  Your monthly payments will vary depending on your family income.

The Government sets out thresholds for bankrupts depending on your family size. For example under current guidelines, a family of four’s threshold is $3501(net). If your household income exceeds this amount you are required to pay to the trustee half of the amount you’re over the limit by.  If your household income averages to be more than $200 over the limit, your bankruptcy will be extended, which will result in more fees and possibly more income reporting.

• 4  -  You keep your GST and Income Tax refunds

Many people look forward to receiving, or rely on receiving their quarterly GST cheques as well as a tax refunds during tax time. In a Consumer Proposal you keep your money.  Unless you owed CRA money at the time of filing the proposal, the government will still send you your GST or tax refunds that you would normally acquire. However in a Bankruptcy you will lose your GST and Tax refund during the course of the bankruptcy.

• 5  -  You get the same legal protection and benefits

As a consumer proposal is filed through a licensed trustee and is governed under the same federal legislation as a bankruptcy, you receive the same legal protection from your creditors that you’d receive in a bankruptcy, without having to file bankruptcy.  

A 1^st time bankruptcy remains on your credit score at an R9 rating for up to 7 years after you’ve been discharged from the bankruptcy.  It typically takes between 9 to 21 months to be discharged from a 1^st bankruptcy, so you could be looking at 9 years altogether. 

A Consumer Proposal is better on your credit rating.  It remains on your credit at an R7 rating for three years after you’ve made the last payment.  A proposal can be run over a maximum 5 years, but there is no penalty to you if you choose to pay off your proposal quicker than your original term, so if you have your proposal paid off in 3 years it will be there for 6 years altogether.

If you’d like to discuss a Consumer Proposal with me in more detail, use the form provided and let me know your questions or call me on (519) 622 3773.