Bankruptcy in Guelph: The Ted Michalos Bankruptcy Guelph Blog

What is a consumer proposal in Guelph?

Here are some short answers to that question:

• It’s a way to repay your unsecured debts
• It’s a legal procedure that provides you protection from collection agents and wage garnishees
• It’s an alternative to bankruptcy for people that are in financial trouble
• It’s a procedure that many people can benefit from (if they only knew it existed!)

Here’s the long answer (and what you need to know to determine if a proposal might be the right solution for you).

A consumer proposal is a legal procedure permitted pursuant to the Bankruptcy and Insolvency Act. They were created to provide individuals considering an assignment in bankruptcy with an alternative under the law.

The concept behind filing for bankruptcy is that you are unable to repay even a portion of your debts. In exchange for singing over your rights to the things that you own and making payments based on your income, after a period of time you are released from your debts.

The concept behind a consumer proposal is that while you can’t afford to repay all of your debts (and the interest), you can afford to repay “a portion of your debts” and you voluntarily offer to do so. The portion you will be required to repay is determined by you and your creditors – basically you offer the people you owe a payment plan and they vote for or against it.

You might be asking, “Why would they accept less than everything that I owe them?” It’s a good question, but please remember, a consumer proposal is an alternative to filing for bankruptcy. If you are voluntarily offering to pay your creditors more money than they will receive if you file for bankruptcy then it is in their best interest to accept your offer.

Now you’re wondering why you might want to agree to pay more in a consumer proposal than you would have to pay in a bankruptcy. Another good question and unfortunately part of the answer will be quite technical.

When you file for bankruptcy your trustee is required to turn the things that you own into cash for your creditors. You don’t lose everything, but if you have any savings, RRSPs, more than one car, and/or equity in your house al of these things (and some others) might be seized and sold by your trustee. In addition, you will be required to make a payment into your bankruptcy based on your household income and family size – the more you earn the higher your payment and the longer you will be required to pay.

Based on the all of that there are times (quite often actually) when it makes more sense to voluntarily agree to make a fixed monthly payment for a longer period of time to avoid losing the things that you own or making the income based payments in a bankruptcy.

Let me give you an example:

Let’s say you and your spouse have run into some financial problems and you are thinking about filing bankruptcy. You’ve got two children, between you and your wife you earn $4,000 per month and you think you have $15,000 equity in your home (equity is the amount of money you’d be left with if your home was sold after the mortgage, real estate fees, legal costs, etc are paid).

If you filed for bankruptcy you would be required to pay your trustee $15,000 to keep your house (if you can’t work out a payment plan the house will be sold to raise that money) and based on your income and family size you’ll have to pay an additional $320 in surplus income payments. These payments will run for at least nine months (later this year the payments will be extended to 21 months under new laws that will be coming into affect). So, bankruptcy will cost you at least $18,000.

Instead of filing for bankruptcy, you might offer your creditors a consumer proposal to pay them $21,000. You’d do so by paying $350 a month for 60 months. By doing so, you no longer have to worry about paying your trustee for the equity in your house, nor do you have to worry about any payments based on your income. In the example I have given you are voluntarily offering to pay $3,000 more in your proposal than you might have to pay if you filed for bankruptcy, but the payment is manageable and you get to keep you house.

There are many other examples when a consumer might make more sense than filing for bankruptcy – it literally depends on your own situation.

I can tell you that nationally, for every six bankruptcies that are filed there is one proposal filed. In Ontario it’s five bankruptcies for every proposal, and in our practice its two to one. For every tow bankruptcy that we file we file one proposal.

They aren’t right for everyone, but for many people a consumer proposal is a great alternative to bankruptcy. The best part – if anyone asks you can honestly say that you didn’t file for bankruptcy, you worked out a deal to repay your debts…

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