Filing a Consumer Proposal After Bankruptcy: A Comprehensive Guide
Bankruptcy and insolvency are complex subjects that demand a thorough understanding. What happens when you need to file a consumer proposal after bankruptcy? Is it even feasible? This guide will delve into the details to provide you with a clear understanding of the process and its potential impact on your financial situation.
What is a Consumer Proposal?
A consumer proposal is a legal agreement structured by a Licensed Insolvency Trustee (LIT). It can provide a viable alternative to bankruptcy.
Who Can File a Consumer Proposal?
According to the Bankruptcy and Insolvency Act (BIA), a consumer proposal can be made by:
- An insolvent individual
- A bankrupt individual
The Debt Threshold for a Consumer Proposal
A consumer proposal can be filed by individuals who have total debts of $250,000 or less. This figure includes secured debts such as car loans but excludes mortgages on the debtor’s primary residence. For joint consumer proposals, the ceiling is $500,000.
Can I File a Consumer Proposal After Bankruptcy?
Yes, an individual who has declared bankruptcy under the BIA and has not been discharged from bankruptcy can choose to make a consumer proposal to their creditors. It’s crucial to remember that the proposal must be filed before you are discharged from bankruptcy.
Benefits of Filing a Consumer Proposal
There are several benefits to making a consumer proposal to your creditors:
- You maintain control of your assets, as long as you continue to keep up with payments to your secured creditors.
- The proposal can include terms to compromise non-dischargeable debts.
- You can continue to act as a director of a company, unlike in bankruptcy.
- The impact on your credit rating is less severe compared to bankruptcy.
- Your monthly payments to a consumer proposal do not fluctuate with income.
Challenges in Filing a Consumer Proposal
While there are benefits to filing a consumer proposal, there are also challenges to consider:
- The proposal must be approved by the majority of inspectors assigned to your bankruptcy estate.
- Dividend distribution to creditors must be greater in a consumer proposal than in a bankruptcy.
- You need to assess whether a consumer proposal is a manageable and affordable option for you.
Amending a Consumer Proposal
If you are close to defaulting on your consumer proposal due to significant changes in your personal, financial, or employment situation, you might have the option to amend your proposal. This could involve a reduction in monthly payments or the number of payments.
Reverting to Bankruptcy
If your consumer proposal is accepted by your creditors and approved by the court, but there is a subsequent annulment of your proposal due to a default in the terms of the proposal, you will revert to bankruptcy.
Conclusion
Filing a consumer proposal after bankruptcy is indeed possible. However, it is essential to understand the intricacies of the process and the potential impact on your financial situation. Always consult with a Licensed Insolvency Trustee or a financial advisor to make the best decisions for your financial future.