Question: We are looking at filing either bankruptcy or a consumer proposal. Will our surplus income effect the amount we should/could offer in the proposal?
To accept a consumer proposal your creditors will expect to receive, in total, more than they would receive in a bankruptcy.
Your surplus income definitely will have an impact on the amount your will need to pay in a consumer proposal. In order to get the creditors to accept your consumer proposal, you must offer them more than they would expect to receive in a bankruptcy.
For example, if you estimate that you would be paying $500 per month in surplus income, and you assume that because of your high surplus income you would be bankrupt for 21 months (instead of the minimum of 9 months), then your bankruptcy would generate 21 x $500 or $10,500 in realizations for the creditors. Therefore, you would need to offer a proposal of more than $10,500. For example, you may offer a proposal of $200 per month x 60 months, which is $12,000. The amount that must actually be offered will vary in each circumstance.
Unlike in a bankruptcy, once your proposal is approved and accepted, if your income increases, your payment is fixed so it does not increase.
If you would like help determining whether a bankruptcy or a consumer proposal is a better option, talk to an Ontario Bankruptcy Trustee about your situation.