Home »
Bankruptcy vs. consumer proposal
By Riki Unrau
Let’s face it. Life can be tough sometimes. We all find ourselves in difficult financial situations every now and then. But what does one do when the debt they have accumulated has reached a level where it is no longer feasible to continue to manage it?
Bankruptcy and consumer proposals are a couple of ways to deal with an unmanageable debt load but what exactly do they entail? It is important to make the distinction between the two so that you are aware what each option means for you.
A bankruptcy is where your debts are essentially ‘erased’. Your bankruptcy trustee will compile a list of your debts and assets and, in some cases, seize certain assets to be sold at auction. The proceeds will go towards your creditors. Any pending tax returns will go towards your creditors as well.
You will also have to pay a monthly fee to the trustee for roughly 10 months depending on how much you earn. Once that period has elapsed you will be discharged from bankruptcy. However, the bankruptcy will stay on your credit report for seven years afterwards lowering your score and limiting your ability to obtain new credit. If you declare bankruptcy a second time then the mark stays on your credit report for 14 years.
It is important to note that student loans cannot be included in a bankruptcy unless you have been out of school for seven years.
A consumer proposal is where your trustee negotiates with your creditors to drastically lower your balances. Then you will pay a monthly amount to the trustee for as long as it takes to pay off the remaining debt. During this period your credit report will show that you are currently involved in a consumer proposal and you will be unable to obtain credit. After you have paid your proposal in full then the notation will change to ‘paid’ but remain on your credit report for a further three years.
The advantages of a proposal are that you do not have to surrender any assets and you get to keep any pending tax refunds.
If these both of these options seem too drastic for you then there are other ways to deal with your debt. You could create a personal budget to track what you have coming in vs. what is going out. Often times this is a great way to ‘trim the fat’ and adjust your spending habits.
A financial planner can help you with debt consolidation, which will enable to make one lump sum payment each month towards your debt load. This does negatively impact your credit score but not to the extent that bankruptcy and consumer proposals do.
Whatever way you choose to deal with your debt it is best to meet with a financial planner first and foremost. She/he can help you decide which solution will be best for your situation and, hopefully, help to alleviate the burden. Just know that you are not alone and there is no shame in seeking help.
– Riki Unrau is a Mortgage Broker with Invis Williams and Associates, located at 828C Baker Street, Cranbrook, BC V1C 1A2 – 250-919-6402. For more try: rikiunrau.com
