The Benefits of Filing a Consumer Proposal with Excess Earnings

In the financial world, being in a position of surplus income might seem contradictory to considering a consumer proposal. However, when debt becomes overwhelming, these two circumstances can indeed intersect. The question then becomes: Is it a good idea to consider filing a consumer proposal if you have surplus income?

To answer this, we’ll delve into the intricacies of consumer proposals, the concept of surplus income, and how these two relate.

Understanding Consumer Proposals

A consumer proposal is a legal process in the realm of insolvency proceedings, regulated and supervised by Licensed Insolvency Trustees.

Key Features of Consumer Proposals

1. It’s a legally binding agreement crafted between you and your creditors.
2. It allows for a re-negotiation of the terms of repayment of your unsecured debt.
3. It often involves paying back a portion of your debt within a maximum period of five years.
4. Once accepted, it prevents further interest accumulation on your debt.

Surplus Income: What is it?

Surplus income, in the context of bankruptcy and consumer proposals, is the amount of income that exceeds what a family needs to maintain a reasonable standard of living. This threshold is set by the Office of the Superintendent of Bankruptcy (OSB).

Calculation of Surplus Income

The calculation of surplus income takes into consideration:

• Your net family income.
• The number of people in your family.
• The OSB threshold.

If your income exceeds the limit set by the OSB for your family size, you have surplus income.

Impact of Surplus Income on Bankruptcy

Surplus income has a significant effect on bankruptcy procedures.

1. Length of Bankruptcy: When you have surplus income, the duration of your bankruptcy process extends. A first-time bankrupt person with surplus income is not eligible for an automatic discharge for 24 months, while a second-time bankrupt person has to wait for 36 months.
2. Monthly Payments: Your monthly bankruptcy payments adjust based on your actual monthly income after filing, which means if your income rises, your monthly payments will too.

The Intersection: Consumer Proposal and Surplus Income

So, how does surplus income relate to a consumer proposal?

Benefits of a Consumer Proposal with Surplus Income

When you file a consumer proposal with surplus income, you’ll enjoy two main advantages:

1. Fixed Monthly Payments: Unlike bankruptcy, your monthly payments remain unaffected by changes in your income. So, even if your income increases after filing, your monthly payments will not.
2. No Income Reporting: After filing a consumer proposal, you are not required to report monthly income changes.

In essence, no matter how much your income may increase after filing a consumer proposal, your creditors cannot request an increase in your proposal payments.

Conclusion: Is it a good idea to consider filing a consumer proposal if you have surplus income?

Considering the advantages of fixed monthly payments and no need for income reporting, it is indeed a viable solution for individuals with surplus income facing financial challenges. It offers a predictable, manageable path to debt relief without being directly influenced by income fluctuations.

However, every financial situation is unique. It’s crucial to consult with a Licensed Insolvency Trustee or financial advisor to understand the best course of action for your specific circumstances.

Remember, financial stability is not unattainable – with the right strategy, you can navigate towards a debt-free future.