My name is Adam Rauf and I’m the associate who works in the Guelph office for Hoyes, Michalos and Associates Inc. and I’m currently in the process of becoming a licensed Trustee In Bankruptcy.
A few months ago I met with an individual who was debating whether or not he should declare bankruptcy or file a consumer proposal to deal with his debts. His total debts were $50, 000 on credit cards and bank loans.
His income at the time of his decision was low enough that if he went bankrupt, his bankruptcy would be 9 months long (meaning he would be in the legal state of bankruptcy for 9 months). For some people if their income is too high, the bankruptcy costs more and becomes 21 months in duration. He fixated on the fact that his bankruptcy would only be 9 months, even though in bankruptcy he had to make sure he didn’t make too much money because he had to report his income every month and he would also lose his tax refunds – which often times can be quite significant.
In the end he felt bankruptcy was the best solution for him. Both consumer proposals and bankruptcies are legal solutions to debt problems, but a bankruptcy has the potential to become more legally complicated. Part way through his bankruptcy one his creditors (people he owed money to) decided to oppose his discharge – which is in every creditor’s right to do so. So a court hearing was held and this individual had to go in front of a Registrar (think Judge) to explain what happened. The party opposing the discharge explained why they are doing so and gave suggestions to the Court on what should happen before the discharge should be granted. The bankrupt opted to hire a lawyer to represent him, because the Trustee’s role is simply to provide the facts about the bankruptcy. This was quite the negative experience to say the least! The bankrupt ended up receiving his discharge but had to deal with this added, (easily avoidable), stress.
Is there an alternative to Bankruptcy?
Sure there is, it’s called a Consumer Proposal. Simply put, a proposal is an offering to your creditors to pay back a portion of what you owe (typically 30%, with no interest accumulating) over a period of time (5 years is the maximum).
A consumer proposal would have been set for $15, 000 spread over 5 years which equates to $250/month. Considering he was paying $800/month on his debts (barely touching principal), $250 is a great deal!
Creditors have 45 days to vote on the proposal, and every dollar they are owed is a vote in their favour. If 51% of the dollars say yes, the proposal is a legally binding contract for all the parties involved. Once a proposal is accepted, creditor oppositions are not an option and the proposal becomes a simple payment plan to resolve your debts issues (without the nuisance of having to prove your income every month and you get to keep your tax refunds).
This individual knew that if the proposal was accepted by his creditors, he could have made accelerated payments, and the sooner you pay off the proposal, the quicker it’s off your record.
If you think a consumer proposal might be the solution for you, visit us on-line and find out more. Alternatively, feel free to call us directly at 310-PLAN and arrange a free consultation with a professional in your area. There’s no harm in sitting down with one of our trustee’s who can explain all the different options available to you.
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