Will Filing Bankruptcy or a Consumer Proposal Affect My Children?

The Impact of Bankruptcy and Consumer Proposals on Families

‍Raising a family, especially with children, can sometimes lead to financial stress due to larger and more varied expenses. This stress can escalate to a point where parents might have to consider options like filing for bankruptcy or a consumer proposal. But how do these financial decisions affect the children?

The Financial Strain of Parenthood

When it comes to family expenditure, children are the unpredictable elements. Parents, driven by the instinct to provide the best for their offspring, might find themselves spending more than they can afford. This financial strain, born out of parental love, can ironically lead to a negative impact on the entire family.

The Ripple Effect of Financial Struggles

Financial instability within a family often leads to heightened tension, disagreements, and emotional unrest. Being unable to meet financial obligations while raising a family is a daunting scenario, causing significant stress and anxiety.

The Role of Consumer Proposals

For families struggling with insolvency (inability to pay off debts), a consumer proposal can be a lifesaver. The primary advantage of a Consumer Proposal is that it alleviates financial tensions and simplifies budgeting.

In a consumer proposal, families typically have to make a single monthly payment, replacing the multiple payments they had to make towards their credit card and unsecured loan debts. These payments usually continue for a period of four to five years. Even though in some cases the creditors are paid in full, in most instances, they agree to accept a fraction of the total amount owed.

Over 100,000 Canadian consumers were declared insolvent in 2022, and more than half of them filed Consumer Proposals.

The Downsides of Consumer Proposals

While consumer proposals can provide financial relief, they come with a few drawbacks. All your credit cards and unsecured debts (excluding mortgages) will be included in the proposal, resulting in the closure of those accounts. If your bank is among the affected creditors, you might also need to open a new account in a different bank.

For homeowners, the amount of equity in your property could impact how the proposal is structured. A Licensed Insolvency Trustee can provide guidance in such scenarios.

A consumer proposal will also negatively affect your credit rating for a few years. However, the silver lining is that credit bureaus remove information about your proposal from your credit report three years after its completion.

Lifestyle Changes

Adopting a consumer proposal might necessitate a few lifestyle changes. Luxurious expenses may need to be curtailed. For instance, while swimming lessons for the kids might still be affordable, maintaining a horse at a riding stable might be too extravagant.

The Role of Trustee

If you’re considering a consumer proposal, it’s advisable to consult a Licensed Insolvency Trustee. They can provide you with specific advice based on your situation. The first consultation is usually free of charge and can help you make an informed decision.

Behind on Child Support or Alimony Payments?

If you’re struggling to meet your child support or alimony payments, a consumer proposal could help you create an affordable debt repayment plan. This proposal would typically allow you to repay only a portion of your unsecured debt.

In cases where you’re unable to repay any of your debts, filing for bankruptcy could be a viable alternative. This process eliminates all your unsecured debts, making it easier for you to meet your support payments.

Receiving Support Payments?

If you’re receiving support payments and your former spouse files for bankruptcy, you can submit a claim for the money owed to you. You can become a “preferred creditor” in this scenario. The Licensed Insolvency Trustee (LIT) handling your ex-spouse’s bankruptcy can explain this to you.

Seeking Professional Help

It’s advisable to consult with local debt help professionals about your options for reducing or eliminating your unsecured debt. LITs can review your situation and discuss every available debt relief option to help find the best solution for your case.

Remember, it’s not about feeling embarrassed, but about taking the necessary steps towards financial stability for your family’s future.

Final Thoughts

Parents always strive to provide the best for their children, but it’s crucial to remember that financial stability plays a big role in ensuring a secure future. Before considering drastic measures like bankruptcy or consumer proposals, seek professional advice to understand all your options and their potential impact on your family.

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