How can bankruptcy in Sarnia be expensive, and do I have an alternative?

by Joel Sandwith on June 9, 2011

In September 2009, the Bankruptcy and Insolvency Act was changed in several key ways, one of the most important being related to income.

Basically, the rules around ‘surplus’ income were tightened up and made a bit more difficult.  ‘Surplus’ income is a government term that basically means that if you make a decent income and file bankruptcy, you may have to repay some of the debt.  As an example, if you are single and net $2526 per month after tax, and file a bankruptcy, your ‘surplus income’ payment would be $300 per month.

Trustees also generally require you to make a contribution to the costs of your estate, which can be in the range of $180 to $200 per month.  So, in this example, you could be required to pay $300 in surplus plus $200 in contributions, or $500 per month while you are bankrupt.

Now, the Surplus discussed in the paragraph above hasn’t changed, but the length of time you pay it has.  Prior to Sept 2009, the Trustee would decide whether you paid that surplus for 9 months, or longer.  Now, however, if you have surplus to pay, over $100 per month, you are required to pay it for a full 21 months.  This is the law.

So, here we are about 21 months after the law changed, and the first people who filed bankruptcy with us after the changes, and who have had ‘surplus’ income, are getting close to the end of their bankruptcies.   In a perfect world, they’d make their final payments and move on with their lives.  But, in several cases, they are behind on the payments, and now are having trouble getting out of their bankruptcies.

One of the primary purposes of the Bankruptcy and Insolvency Act is to allow the honest but unfortunate debtor the opportunity at a fresh start, and for most people it is exactly that.  But, in some cases, as above, it can become expensive and perhaps not quite the fresh start they’d have liked.

This brings me to my point – should these people have filed bankruptcy in the first place?  Maybe, but maybe not.  In some cases, it may have been better to file a consumer proposal instead.  If you have enough income to pay ‘surplus’ as judged by the government, then a consumer proposal can be an excellent alternative.

The idea behind a proposal is to make a ‘deal’ with your creditors, to allow a partial repayment of your debt, over a specified time.  In many cases, the payments can actually be less per month than the cost of bankruptcy, and they won’t vary based on your income in the future.  Not only that, but you keep your tax refunds, other assets such as houses and cars are protected by agreement, and if you do happen to have extra money, you can pay the proposal off as quickly as you are able to.

So, the answer to the question in the title – bankruptcy can be more expensive in some cases than you might think, and there is an alternative through a consumer proposal.  If you have a decent, or good income, a consumer proposal should be the option you consider first.

To learn more about how these, and other, options may help you relieve your debts, please feel free to give us a call, toll free at 1-866-747-0660 or locally here in Sarnia at 519-344-1058, we’d be happy to provide you with an evaluation at no charge.  If you’d like to meet, we can provide a free initial consultation.

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