Both a consumer proposal and a bankruptcy in Ontario provide immediate relief from creditors and provide a legal method to eliminate your debts. For a creditor to accept a consumer proposal however, they will have to be offered more than they would receive in a bankruptcy. This is generally true because they will be receiving their payout over a longer period of time. For this reason, in total over the length of the proposal, you will be paying more to settle your debts than you would be if you filed personal bankruptcy in Ontario.
Why then, would a consumer proposal be a better alternative? There are situations where a consumer proposal is often the better alternative:
- If you have assets you would like to keep that would otherwise be seized and sold in a bankruptcy, like equity in your home. A consumer proposal allows you to keep those assets and pay the ‘equity’ to your creditors over a longer period of time.
- If you would like to lower your monthly payments by spreading them out over a longer period of time. This is particularly true if you would be required to make large surplus income payments in a bankruptcy. While in a bankruptcy you might be required to make payments of $1,000 a month for 21 months (or $21,000) you could perhaps pay $24,000 over a period of 48 months which would mean you are only paying $500 a month in your proposal.
- If your income level might increase during your bankruptcy, triggering the potential for higher payments.
- If you might receive a windfall, such as an inheritance, during your bankruptcy.
- If you want to opportunity to pay off your proposal early or have access to funds (from a friend or family member or RRSP savings) to offer a lump sum settlement.
- If you have previously been bankrupt, filing a consumer proposal might be a preferred option if you want to avoid a second bankruptcy.
- If there is some question as to whether or not you can receive an automatic discharge. Perhaps you have sold an asset prior to bankruptcy or this may be your third bankruptcy.
- Where filing a bankruptcy may affect your professional designation or credentials.
- If filing for bankruptcy might cause a default on a business contract which would have negative consequences.
- You know you owe the money and want to pay what you can afford to your creditors but you just prefer to avoid bankruptcy.
Each person’s financial situation and objectives are unique. If you are looking for a solution to reduce your debt, talk to an Ontario Bankruptcy Trustee today about what alternative is best for you.