Cost Differences Between Consumer Proposals and Bankruptcies
Cost Differences Between Bankruptcy and a Consumer Proposal Shouldn’t Worry You!
Individuals struggling with debt often spend time looking into debt relief options, and if you’ve done this, you likely have noticed that there are cost differences between two popular debt relief options in Canada – Bankruptcy and a Consumer proposal.
If you would like to learn why there is a cost difference between bankruptcy versus a consumer proposal, read on as we have you covered here!
We know you have enough worries about your debt so we take the stress out of choosing the right debt reduction strategy for you.
We are here to help you understand the cost differnces between your debt relief options.
We feel that debt relief should make sense to you and make you feel comfortable with your final decision.
Let us assist you with comparing your debt relief options so you can make an informed decision about your debt relief plan.
The cost difference between bankruptcies and consumer proposals can vary widely so people often get confused about these options to get out of debt.
We feel that it is important to take the time to explain both bankruptcy filings and consumer proposal so you can fully understand your options, regardless of cost.
Understanding Consumer Proposals and Bankruptcy
The cost differences between bankruptcies and consumer proposals is often quite significant.
A bankruptcy can cost as little as $200 a month for 9 months, for a total of only $1,800.
While you also lose your income tax refunds when going bnakrupt, this is a very low cost for getting out of debt in less than a year.
However, bankruptcy can also cost a lot more.
When you meet with a trustee to compare bankruptcy vs a consumer proposal, the trustee will look at the rules a bankrupt will be subjected to and consider the total cost.
For certain bankrupts, they will lose significant assets, that will be of value to their bankruptcy estate.
Bankrupts with plenty of equity in their home, or a valuable car will likely have to surrender these assets to the trustee for the benefit of your (unsecured) creditors.
The cost of lost assets could quickly outpace the higher costs of making a consumer proposal.
Another consideration we will help you understand is potential surplus income payments you may be required to pay, which could drastically increase the cost of your bankruptcy, as well as extend the time which you will be bankrupt.
When bankruptcies include surplus income payments, the cost goes up.
Surplus income calculation acts as a penalty for people who have a high income and would like to go bankrupt.
If your income is over a threshold set by the government based on your family size, you will be required to make surplus income payments in your bankruptcy.
The more money you earn while you are bankrupt, the more you have to pay.
Essentially, the more money you earn while in bankruptcy, the more you pay.
Therefore, the true cost of your bankruptcy will include such factors as surplus income, and assets you would be required to surrender.
A consumer proposal, on the other hand, doesn’t have a surplus income payment, nor will you have to surrender any valuable assets to your creditors.
A proposal allows you to repay a portion of your unsecured debt over a period of time lasting up to 5 years, interest free.
Depending on the costs of your bankruptcy, spreading your debt over 3, 4, or 5 years could be the better course of action.
We will help you determine what debt relief options is truly more affordable, as it is often more complex than it appears at first glance.
Consumer Proposal Payments are Flexible
Consumer proposal payments are quite flexible, while the bankruptcy rules are very strict and the payment rules in a bankruptcy are quite rigid.
Surplus income payments are non-negotiable and if you don’t complete the payments in time (21 months for a first time bankrupt with surplus income) you will not receive your bankruptcy discharge.
Without your bankruptcy discharge, you won’t be relieved of your debt and you will have to continue to pay as long as your bankruptcy is not discharged.
A consumer proposal is more flexible in its payment rules.
For example, you can spread your consumer proposal payments over a time from 1 month (by making a lump sum payment to your creditors) to up to 60 months (5 years).
This can help you plan your consumer proposal and budget your payments in a way that works best for you.
Bankruptcies can make sense if you have few assets, have never been bankrupt before and have a low income.
Consumer proposals make sense for people with a higher income, and those that wish to have flexibility in their debt repayments.
One major rule of a consumer proposal is that your creditors must be better off than if you were to file for bankruptcy.
Consumer proposal negotiations can be fairly challenging in some cases, but we have the experience to draft an attractive proposal offer for your creditors.
Every situation is unique, but a consumer proposal often allows you to repay only 70 to 75% of your total unsecured debts.
Therefore, if you owe $50,000 your proposal payments will be slightly less than if you owe $100,000.
Bankruptcies Can Have Added Costs
Whether you or your creditors are wondering about the cost differences for bankruptcies and proposals, we will explain why the cost differences differ and under what situations.
The cost of going bankrupt can increase for many reasons.
First, as discussed above, is the surplus income costs and lost assets.
Secondly, bankrupts who were bankrupt in the past are automatically required to be in bankruptcy for longer.
This means you will be making more payments to your bankruptcy estate, especially if you have surplus income payment requirements.
Finally, some bankrupts will be required to attend bankruptcy court to get their discharge.
In this case, the LIT (Licensed Insolvency Trustee) will charge additional fees, as they have to appear in court on your behalf, and the court can require you to make additional payments as well.
Court is usually required for bankrupts that have been bankrupt more than twice before, bankrupts with lots of tax debt or those with a problem with gambling.
When you file a consumer proposal, you can avoid court hearings if you have been bankrupt before or have filed a proposal in the past.
Debtors with a gambling problem or tax debt can also avoid the need to go to bankruptcy court.
Consumer proposals offer many benefits, but the main one is you won’t lose any of your assets.
This can be very beneficial for home owners with lots of equity (bankruptcy protects some home equity) in their property.
Bankrupts with high levels of home equirt will have to sell their home to provide the creditors with the sale proceeds, or “buy back” their home equity.
If you have $100,000 in equity, for example, and you want to buy back the equity from the trustee, you will have to make payments to your LIT to be distributed to your creditors; your bankruptcy won’t end until you have paid back the agreed value into your bankruptcy estate.
Bankruptcies can often become expensive when there are further complications, such as tax debt or those that took out private student loans for high-level professions.
Future earnings of a doctor or lawyer, for example, can complicate the bankruptcy process.
Again, in these situations a consumer proposal might be more advantageous than a bankruptcy filing.
Missing Your Bankruptcy Duties
If you do not complete your bankruptcy duties, there will be increased costs in your bankruptcy as your bankruptcy discharge will be opposed.
Bankruptcy duties include two mandatory counselling sessions, monthly income reports and providing your LIT with mandatory tax information.
If you miss your bankruptcy payments, or the payment is bounced your bankruptcy can be extended and you will also face a NSF fee.
Your trustee can also oppose your discharge if you don’t work with them as requested.
Keeping communication open with your trustee can help you avoid issues in your bankruptcy, and allow you to receive your discharge as soon as possible.
We are always able to work with you if you are experiencing trouble making your payments or making it to the office for your counselling appointments.
Finally, bankruptcies carry the risk that your debt won’t be discharged if you don’t, or can’t, receive your discharge.
All payments made will be forfeited and your debts will come back, along with any interest charges that were deferred.
A consumer proposal can also fail but if you fail at your consumer proposal, you have bankruptcy as a potential last resort.
If you can afford a consumer proposal, it is usually the better course of action.
Bankruptcy payments might be similar to your consumer proposal payments.
Many times avoiding bankruptcy is worth paying a little more to make aconsumer proposal, as it is flexible and you can pay it off earlier if you come into extra money and there are not as many rules.
Bankruptcy is fixed and you cannot pay it off early, and there are situations where your bankruptcy can be extended.
Bankruptcy Canada Debt Relief Solutions
Whether it is bankruptcies or consumer proposal, we’ve helped over 100,000 people like you to get out of debt.
When you meet with us to compare the costs of bankruptcies and consumer proposals we will outline everything involved with bankruptcies and proposals, not just the costs.
The rules and obligations of a bankrupt and a debtor in a consumer proposal are different.
A bankrupt is obligated to have their LIT file their income tax return for the year rof the bankruptcy.
This means you will lose your refund.
Your income tax refund is not impacted by a consumer proposal.
In fact, you could use your refund money to pay off your consumer proposal earlier.
Consumer proposals are a popular alternative to bankruptcy because there are many advantages over going bankrupt.
Whether you live in Alberta, Ontario, or Nova Scotia – a consumer proposal can work for you.
Bankruptcies also work for some individuals, and in some cases they make the most sense and are the quickest and most affordable way to get out of debt.
Proposals give flexibility and a sense of accomplishment – you can take control of your debt and still repay some of the debt you owe without interest charges which gives people a sense of empowerment many times.
If you wish to explore a consumer proposal or bankruptcies, call us today to learn more.
With our help you can discover how great it feels to become debt free.
Regardless of your personal situation a consumer proposal or bankruptcy could work better for you and your goals.
You deserve to understand each of your options and how the costs and procedures impact you.
We’ll also cover informal debt relief options such debt consolidation loans and credit counselling if we think these could help you with your debt problem.
You owe it to yourself to find out how you can get out of debt today!