Bankruptcy vs Consumer Proposal – part five of a series

by Joel Sandwith on December 7, 2010

Last week I posted the fourth of a series of blogs that will show the differences between consumer proposals and personal bankruptcies.  If you are experiencing financial difficulty, either of these options may be helpful to you.  These articles are intended to shed a little light on each of them for you – but make sure that you contact us if you’d like a more specific evaluation of your situation.

This week:  what happens if I file bankruptcy, or a consumer proposal, then come into some money?  It’s an interesting question, and one we get fairly often.  Clearly, if you are calling us, things aren’t going well or at least have not been going well.  But, there’s always hope for a better tomorrow.  So what happens if you win the lottery, receive a gift, or otherwise ‘fall’ into money?

I don’t want this to be too technical, so I’ll keep it simple:  if you file a bankruptcy, and come into money while you are not yet discharged, it must be paid or given to the bankruptcy trustee for the benefit of your creditors.  Now,  of course if the amount you receive is substantially more than what you owed, your creditors can’t get more than what they were owed, plus a small amount of interest.  The trustee gets paid as well, according to the amounts in the Bankruptcy Act, and you then get the difference back.  But, let’s say you win $10,000 on a scratch ticket, and owed $20,000 when you filed bankruptcy – in this scenario, you would get nothing.

Now, on the other hand, if you file a consumer proposal and come unexpectedly into some money, those funds belong to you.  I should note that if you KNOW you will be coming into money before you file a proposal you should tell your trustee – it will almost certainly have to be disclosed to the creditors and it may need to be offered to them.  But again, if your windfall is unexpected, the money belongs to you.  If you want, you can pay your proposal off more quickly.  If you’d rather save or spend it, that’s up to you.

The difference here is that for the most part, in a consumer proposal you control the money – if your creditors agree to your offer, and you make all of the payments, you are free to decide how best to manage things.  In a bankruptcy no one will tell you how to spend your money, but control of what happens, in this case with windfalls, is to some extent out of your hands.

If you’ve just won the lottery, congratulations, and thanks for reading… but if you are struggling with debt, please call us toll free at 310-PLAN.  We’d be happy to offer  an no charge consultation to help you build a plan to deal with your debts.

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