Why Are Toronto Consumer Proposals Better Than Bankruptcy

Many Canadians today are choosing to file Toronto consumer proposals as an alternative to bankruptcy. They feel that it is a more honorable solution to their debt problems. It allows them to make a deal with their creditors and actually offer some form of payment, and that makes them feel much better than not being able to pay at all.

Bankruptcy and other debt repayment programs will also deal with your debts, but there are several reasons why more people think that a consumer proposal is a better option for them.

Affordable monthly payments

One great feature of a consumer proposal is that it gives the debtor the ability to make affordable monthly payments. Your consumer proposal administrator can negotiate for you to repay 50% or 30%, at the very least, of what you owe to your creditors, and if accepted this will be divided into a fixed monthly amount for a period of up to three to five years. Your monthly payment will not be subject to interest charges and it will remain the same amount regardless of any additional income you make within the proposal contract period.

If your financial circumstances get better, you can make extra payments to pay it out faster.

You can even make a one time payment too if you can obtain access to a lump sum amount at some point. What most people do is set up the proposal for the longer term initially to get a lower minimum payment and then shorten the time of the proposal once they have the ability to do so.

No surplus income

In a bankruptcy, you are required to pay a surplus income penalty if your income is higher than the limit set by the government. Your trustee will calculate if you have any surplus income based on the income and expense statement you are required to provide every month that you are bankrupt. If you have a surplus income that is more than the limit, this will extend your bankruptcy to 21 months and you will need to make surplus income payments for each month you remain in bankruptcy.

You will have to take into account if you can afford to make the  extra payments in case you have significant surplus income. In a consumer proposal, you know exactly what you are required to pay each month, which is one reason why consumer proposals are better than a bankruptcy.

Loss of assets

Another significant reason why more people prefer a consumer proposal is the high chance of losing some of their assets in a bankruptcy.

Some assets that you may lose can include the following:

• You lose any tax refund for the year you file for bankruptcy and all refunds in previous years that you have not yet received
• You lose RRSP contributions in the previous 12 months
• You may lose some investments, such as your RESPs, stocks, and Canada Savings Bonds
• You may lose the equity in your house, depending on bankruptcy exemption rules which are different in each province
• You may lose your car or other motor vehicles, depending on bankruptcy exemption rules which are different in each province

For some people, the cost of losing these assets can equal to a substantial amount, and a consumer proposal may make more sense to help them minimize their loss.

In many cases, it can be very complex to determine if Toronto consumer proposals are a better alternative to bankruptcy. It will greatly depend on each individual’s financial circumstances. There’s quite a bit of math to solve and a lot of laws to apply. It’s highly recommended that you talk to a Licensed Insolvency Trustee to find out all your options so you can decide if it is indeed the best solution for you to take.