Consumer proposals slowly replacing bankruptcies: report
Having lost a bit of its stigma, declaring personal bankruptcy has long been a viable option for people sinking under the weight of unmanageable debt.
So much so that roughly 118,000 Canadians went broke last year, according to the most recent statistics.
It may have a certain 'get out of jail free' appeal, but bankruptcy isn't necessarily an easy — or pleasant — fix for those who fall behind in their payments.
First off, you'll need to a hire a trustee to balance both your and your creditors' rights. Something of a referee, the trustee is there to make certain you understand the rules and that they're applied fairly.
The first thing the trustee will look at is whether a consumer proposal might be a better way to deal with things than actually filing for bankruptcy.
Going this route means you have a chance to repay creditors only a portion of your debt over a specific period of time. Or perhaps you'll be able extend the time allowed to pay off the debt.
It appears that this approach is rapidly becoming the norm, suggests a recent CIBC report. The trajectories of proposals and bankruptcies have led to a situation in which proposals now account for no less than 40% of total insolvencies.
And no wonder.
With a consumer proposal you know exactly how much you have to pay back each month; it never changes. Nor do you necessarily lose your house or investments.
With a bankruptcy, however, you likely will. Moreover, you're required to report your income to your trustee each month, and if you earn more, you pay more -- drawn from what's known as surplus income.
Not sure just what that might mean? Here's a chart showing the various thresholds for both single earners and couples.
Have you been involved with a consumer proposal? Did the process go as you expected it to? Has the decision haunted you financially?
By Gordon Powers, MSN Money