A Better Choice over Bankruptcy: Talk to a Financial Advisor First

There is a different path that a person, in debt, can take in Ottawa other than filing for bankruptcy. As most people are aware of filing for bankruptcy will devastate a person’s credit rating along with erasing most if not all of their debt. The alternative is filing a consumer proposal with the creditors.

What a proposal does is act as a negotiation tool between the debtor and creditor and it is a way to improve a credit rating as opposed to destroying it. Up until this past year, when Canadian bankruptcy law was changed, anyone who was approved for a 1^st time bankruptcy found a complete removal, or discharge of their debt after a period of at least 9 months. Now that the laws have changed, the courts have made the option of bankruptcy less alluring.

What changed?

What changed is the courts now look at the amount of income, considered as “extra or surplus” income after filing. If it is a specific amount, the debt remains intact. This means that, payments to the creditors or a bankruptcy trustee are mandatory for up to 3 months shy of a full year after filing for the bankruptcy this basically negates the whole purpose of taking this action.

In addition, to bashing a person’s credit here in Ottawa and having to report the income to the trustee, the payments equal 50% of the extra income above the settlement payments. Understand that bankruptcy allows a specific dollar amount as reported earnings once it has been finalized and anything over is what gets tagged as eligible for this additional collection going to the trustee. Most who learn this the hard way have wished they took another path, (speaking with an Ottawa financial advisor prior), instead.

The Alternative Route

While this is just one of the many adjustments made to the bankruptcy law, the alternative route, filing a consumer proposal makes it easier, thus far, to begin to manage debt. As stated above, the proposal is a 1^st step negotiating tool, because it sets a proposed amount for paying down a debt to the creditors. The time frame for acceptance, by the creditors, is 40 days.

What generally takes place is when a majority of the liability holders agree to the proposed terms, the consumer proposal is considered as a binding agreement. As for the creditors that do not respond, it becomes understood that their silence is their acceptance of the proposal. The payments for the amount set by the proposal, then go to the Ottawa bankruptcy trustee for a period of 3 to 5 years. This eventually reduces the debt to zero while leveraging the debt as more manageable.

The way the proposed amount is reached is a trustee will analyse the financial status of the Ottawa applicant and determine a fair amount. This decision takes into account the net income and the liabilities as a debt to income ratio. The resulting amount of the proposal, then reflects a manageable amount of debt accordingly.

Deal with a Financial Advisor First

It helps to understand that the total amount of debt may not be reduced that much, it still becomes manageable and the creditors stop calling. This depends on the trustee, as an example of a debt of around $30,000 the payments may reach as high as 2% or $600, (1.6%), of the debt for a period of either 4 or 5 years. This only cuts around $1000 off of the total amount making the proposal $29,000 as such different  Ottawa trustee’s will suggest different payment plans according to their own discretion.

Knowing that a trustee will give little leeway in the way they structure the proposal, and will insist that their decision is final. The person considering either a bankruptcy or a consumer proposal should seek help from a financial advisor before hand. The advisor will help determine different scenarios along with acting as a guide through the process and help with finding the best way to present the person’s financial status to an Ottawa bankruptcy trustee. 

Need help with Bankruptcy? You can count on Ottawa Bankruptcy Trustee for Consumer Proposal and Bankruptcy Solution.