You may be at a crossroads with respect to your financial affairs and need to obtain relief from your debts. You may have explored other alternatives, such as consolidation loans, to restructure your financial affairs but have been unable to obtain the required debt relief.
You are now meeting with a trustee in bankruptcy (trustee) to explore your options. The trustee will discuss with you the various options, including a consumer proposal and a bankruptcy.
When and why is a consumer proposal better than a bankruptcy?
Under a consumer proposal, you are making an offer to your unsecured creditors to settle with them for an amount that is less than what you owe them and/or to extend the time period to pay them. A consumer proposal can be viewed as a hybrid between a debt consolidation plan and a bankruptcy. You obtain the protection of the Bankruptcy and Insolvency Act and, if accepted by your creditors, the debt relief you desire.
In a bankruptcy, you are assigning your property to the trustee for the benefit of your unsecured creditors. The property that is assigned to the trustee excludes any property that is, by statute, exempt from seizure, such as household furniture up to $4,500; your automobile up to $3,000 provided that it is used to earn income; your tools of the trade up to $7,500. There are other exemptions available that a trustee will discuss with you.
In addition, secured creditors, such as your automobile lender and your mortgage lender, are generally not affected by your bankruptcy.
The length of your bankruptcy will be affected by the amount of your household income. If your household income is above a threshold amount established by the Superintendent of Bankruptcy the length of the bankruptcy would be extended by 12 months.
A consumer proposal is the better option when you have equity in your home and other assets and/or when your income is at a level where you could make a viable proposal to your creditors.
In these circumstances, a consumer proposal is the better option for the following reasons:
• You maintain control of your property as opposed to the Trustee;
• Any property that you acquire after the proposal has been accepted will not affect the proposal (assuming that there has been no fraud committed to conceal property from your creditors in the process). In a bankruptcy, property you acquire while you are in bankruptcy can be seized by the trustee for the benefit of your creditors;
• You avoid the possibility that your discharge from bankruptcy could be opposed because of your ability to lodge a viable proposal;
• You set the amount that you pay on a monthly basis as opposed to having a mandatory and possibly unaffordable monthly contribution mandated under the BIA; and
• The credit community may look more favourably about extending credit to you in the future knowing that you attempted to pay your creditors something rather than filing a bankruptcy.
The above is not a complete treatment of the subject. There may be circumstances where a bankruptcy is the only option to obtain the debt relief you desire. A Trustee will explain all of the options available to you and advise you of the best option in your circumstances.