Debt Solutions

What are my options?

Depending on your specific financial situation, there may be several different options. 

These include:

  • Filing a Proposal to your creditors
  • Filing Bankruptcy
  • Refinancing your mortgage
  • Obtaining a consolidation loan
  • Credit counselling
  • Negotiations with major creditors
  • Assistance from family and friends
  • A combination of the above

Often people contact insolvency trustees when it is too late, thereby limiting their options to a Proposal or Bankruptcy under the Bankruptcy and Insolvency Act.

Proposal

A Consumer Proposal is an agreement prepared with your Trustee (also known as your Administrator) to offer a settlement (i.e. less than full payment) to your creditors, when you are unable to afford your regular monthly debt payments.  The filing of a Proposal stops all legal action undertaken or contemplated by your unsecured creditors.  It also creates ‘breathing room’ so that creditors can be approached and the financial situation explained to them by your Trustee.

Bankruptcy

Bankruptcy is a legal process (similar to a Proposal) that provides immediate relief from your unsecured creditors when you can’t pay your debts and a Proposal is not affordable.

Consumer Proposal vs Personal Banruptcy

TOPIC

CONSUMER PROPOSAL

BANKRUPTCY

Who can claim

Your total debt cannot exceed $250,000 (excluding a mortgage) and you must have the ability to repay a percentage of your debts (e.g. 20% to 80%). However, the proposal must be accepted by a majority of your creditors based on dollar value.

If your unsecured debt exceeds $250,000 you can then file a Division 1 Proposal.

Any person, who owes more than $1,000 in debt, is eligible to file a personal bankruptcy in Canada, however, most people have a significantly higher debt level. Bankruptcy is usually the last alternative, and often when a Proposal is not affordable.

Costs

Once you and your creditors agree to a proposal amount, your monthly payment is usually fixed and remains the same until the proposal is completed.

Monthly payments may vary as they are based on your income. The more you earn, the more you will be required to pay based on Guidelines. Also, high income earners may be bankrupt for a longer period.

Assets

Assets are usually not part of a Proposal.

Many assets are either exempt and/or fully secured by creditors (e.g. car loans, house mortgages); however, some assets are realizable in a Bankruptcy.

Credit Rating

When the Proposal is completed, the debts are allocated an R7 credit rating for three more years. This is a better rating than a bankruptcy R9.

After your discharge from Bankruptcy, you will receive an R9 credit rating for 6 years on the debts written off and it remains on your credit report for 14 years if this is your second time filing Bankruptcy.

Monthly Reporting

You have no monthly tasks or reporting.

You are required to complete a monthly budget for all income and expenses, as well as supply copies of your pay stubs to your trustee.

Taxes

You are still entitled to all tax refund(s) and/or credits which you are owed, unless you have made it part of your Proposal.

You will lose all tax refund(s) and/or credits which you are owed for the year of Bankruptcy and any prior years.