When I meet with people in our Vaughan office, I help them evaluate their options. In many cases, they are surprised to find that based on their budget it is more affordable to opt for a consumer proposal rather than a bankruptcy. This is because your monthly payments are often lower in a consumer proposal.
For example, I met with Linda (not her real name) in April. Linda was in her fifties and did not have any dependants. She had recently gone through a divorce and as result she could no longer manage her debt load. Her total unsecured debt was $45,000. Her monthly income was $3,300.
When evaluating Linda’s options, we estimated her monthly surplus in a bankruptcy as follows:
$3,300 (Linda’s net income) – 1,926 (Government threshold) = $1,374
In situations, like Linda’s a bankruptcy would be 21 months rather than 9 months. This is because her monthly surplus would be greater than $200. As a result, if Linda were to go bankrupt she would be required to pay 50 % of her monthly surplus for 21 months. Therefore it was estimated that Linda would have to pay $14,427 in surplus ($1,374 * 0.5 * 21).
If she were to receive her discharge as quick as possible, she would have a monthly surplus payment of $687. I then explained to her the option of filing a consumer proposal. In a consumer proposal you need to offer more to the creditor’s than they would receive in a bankruptcy. Linda did not have any assets that would be realized in a bankruptcy. Linda decided to offer $300 a month for five years (60 months). This was a good deal for the creditors because they would receive $18,000 which would be more than they would receive in a bankruptcy. Although she would have to pay more, it was also a good deal for Linda because she avoided bankruptcy and her monthly payments were lower than if she had filed for bankruptcy.