Is bankruptcy my only option?

I get asked this question most often when I first meet with people. Many people think the only option for dealing with their debts is to file for bankruptcy. Bankruptcy is a voluntary act and only one of many options available to you if you find yourself in financial trouble. Another option is the consumer proposal, which gives you a way to deal with your debt without going bankrupt.
 

For example, I met with an individual recently and he had about $33,000 in debt. This debt was mostly credit cards and lines of credit. He had been laid off from his job about 6 months back and for a period of time needed to live off his credit cards. This is not unusual. He was now back at work and was making about $2,400 per month in take home pay, or net pay after taxes. He was single and renting his home. He had a pension plan at work, but he could not access it until he retired or until he turned 65. He owned a car, but it was older with a lot of kilometers on it, and not worth very much. He had no other assets.

He also brought a list of expenses with him and after items such as rent, food, and gas for the car, he had about $400 leftover which barely covered his credit card payments. He was juggling his payments, was not getting ahead and felt like he was falling more and more behind. 
 

When I met with him he was convinced he needed to file for bankruptcy. He just wanted his creditors to stop calling him. I reviewed the bankruptcy option, including his duties and what would happen during the 9 months that he would be in bankruptcy.
 

I also reviewed other options with him including a consumer proposal. I told him that he was eligible for this option and it might be an alternative to bankruptcy for him. I explained to him that a consumer proposal is a contract with your creditors to pay back a portion of the debt. The way it works is you propose a deal to your creditors to pay back some of the debt over a period of time. The deal has to meet certain criteria, like your debts being less than $75,000, other than a mortgage on your primary residence. Your creditors then vote on the proposal terms that you offer, which is usually a monthly payment for a period of time no more than 5 years. I told him his creditors have 45 days from the day he signed the paperwork to vote on whether or not they would accept the proposal. To have the proposal pass there needs to be 50% plus $1.00 in favour. In his case, he needed about $16,501 in “yes” votes.
 

He liked the idea of paying back a portion of the debt because he knew he had spent the money on his credit cards and wanted to take responsibility for it. We worked on his budget and came up with payment terms that were manageable.
 

He was nervous, though, about the 45-day voting period, wondering what would happen. I told him that his creditors generally needed to see that the proposal will get them more money than a bankruptcy. In his situation, with no pension available until he was 65 years old, and no sellable assets, he was in a good position for the creditors to accept. For him personally, a consumer proposal would also be easier to afford because the payments are spread over a longer period of time.  I also explained to him that if the creditors vote no, then they usually provide us with different terms that he can look at and decide on. He was happy that if they turned down his proposal, he was not automatically bankrupt.
 

He left my office feeling better about his situation. He took some reading material and other information with him and went home to do some thinking. A week later, he was back to see me in order to proceed with the proposal option. And in the end, the proposal was approved by his creditors upon the terms he had offered and he didn’t need to go bankrupt.
 

If this sounds like a situation you find yourself in then please give us a call at 310-PLAN and let’s see what we can do to make a plan for dealing with your debts.

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