Bankruptcy Versus Consumer Proposal- Part One of a Series

by Joel Sandwith on November 11, 2010

This is the first of several blogs I intend to post that explains some of the differences, and similarities, between consumer proposals and personal bankruptcy.  One thing I say to people I speak or meet with everyday is that both of these options can be very helpful, but you have to make sure you are choosing the one that fits your circumstance the best.  Over the next few weeks, I’ll compare these two options in several ways.  For example, we’ll look at comparisons of how your assets are handled, what the difference in costs are, the risks and benefits of both and so on.

Today, I want to explain the differences between a consumer proposal and personal bankruptcy in terms of cost.

In a bankruptcy, the cost is determined by several factors.  The first is the fee that your Trustee charges you.  This fee is generally a set monthly amount, but can be affected by how complex your situation is – most situations are relatively simple, but if there are lots of issues and problems, the Trustee may have to request you pay a higher fee to ensure all the work can be done properly.

Another cost in bankruptcy can be your tax refund – if you would generate a tax refund in the year that you file bankruptcy, your Trustee must seize that refund for benefit of your creditors.

If your income is above certain levels (called ‘surplus’ income), you may also have to pay more money – basically the law may require you to pay money over and above the fee, if your income is higher than certain pre set limits.

Also, your ‘assets’, or the things you own, can make the cost of your bankruptcy rise.  Next week I’ll talk more about assets.  An example of where this can be an issue is if you own two cars – one may be ‘exempt’ under the law, but you may have to pay money into your bankruptcy to keep the other.

As you can see, the cost of a personal bankruptcy can vary quite a bit – for some, the cost is low and easily managed.  For others, the cost can be quite high.

In a consumer proposal, the costs and fees are fixed.  Basically a proposal is a deal that is made between you and your creditors.  A consumer proposal must be administered by a licenced trustee in bankruptcy.  The fees in a consumer proposal are dictated by the Bankruptcy Act, and the amount the trustee is allowed to keep is included in the monthly amount you pay.   If you file a consumer proposal, you keep your tax refund, you do not have to pay for any assets, and if your income rises, that money is yours to do with as you see fit – in fact, you can pay your proposal off early with no penalty if you like.

So, the difference in cost for you will depend on many factors, but the basics are this:  in a personal bankruptcy, those costs will vary, while in a consumer proposal, if the deal you offer is accepted by your creditors, your cost will be fixed and predictable.

To learn more about the costs of a consumer proposal vs a personal bankruptcy, call us at Hoyes Michalos, 310-PLAN (7526) – no area code required, or call us locally here in Sarnia at 519-344-1058.

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