Consumer Proposal: The Best Way to Avoid Bankruptcy in Canada

April 19th, 2010 by A Licensed Insolvency Trustee

This is a website devoted to discussing all aspects of bankruptcy in Canada, but today we will discuss the opposite of bankruptcy. Today I present my Top Three Ways to Avoid Bankruptcy in Canada.

Why would I, a bankruptcy trustee, want you to avoid bankruptcy? Because I strongly believe that bankruptcy should be a last resort, a strategy to be used only after all all other options have been evaluated and eliminated. I take every opportunity to encourage all Canadians to explore all financial options before making a decision. This week I was interviewed by the Globe and Mail for a story on How to Avoid Filing for Bankruptcy, and again I made the comment that bankruptcy is a last resort.

Why should you consider all options? Because there are many scams and unscrupulous people that will tell you they can help you avoid bankruptcy, but many times they will simply just take your money. You can read more in our article on Debt Management and Debt Settlement Plans: Scams, or a Good Alternative to Bankruptcy in Canada?

So what are my Top Three Strategies for Avoiding Bankruptcy in Canada?

3 Get help from family or friends. This is perhaps the most over-looked strategy. I have had hundreds of people over the years tell me that they are so embarrassed about their financial situation that they are afraid to discuss it with their family or friends. I’m not suggesting you should tell everyone you know that you are having financial trouble, but reaching out to your family or closest friends is often a good solution. Many times I have encouraged people, particularly younger people, to talk to their parents. While their parents may be disappointed that they are in financial trouble, they will often also try to work with them to solve their problems.

I’m not suggesting that you should borrow money from family or friends. Borrowing money is a good way to lose friends, and an even better way to make Christmas dinner very uncomfortable. What I am suggesting is that you should ask for advice from your family and close friends.

If you don’t ask, you don’t know how people can help. Perhaps a relative can help you find a better job, and with more income you may be able to repay your debts on your own. Perhaps a friend has an extra room at their house; you could rent a room and reduce your living expenses, which will free up cash to help you deal with your debts. Moving back in with your parents may not be fun, but as a temporary measure while you get back on your feet it may not be a bad solution.

Even if they can’t help you directly, getting some advice and empathy from a trusted family member may help you decide on your next steps.

2 My second best strategy for avoiding bankruptcy is to fix it yourself. In fact, this is the strategy used by the vast majority of Canadians who experience money problems. If friends and family can’t help, and if you don’t want to file bankruptcy, you need to take matters into your own hands, and attempt to fix the problems on your own. Here’s how:

Start by making a personal budget. Your budget should list all of your expenses each month. Some will be easy, like your rent and car insurance, because they are the same each month. To ensure that you don’t forget any, review your bank statements and credit card bills for the last few months to see where you spend your money. That should give you an accurate picture of your monthly spending. There are lots of on-line budget tools that can help, like Calendar Budget, an on-line tool where you enter your purchases each day, on a calendar. There are lots of budgeting tips online as well.

Once you have a list of your expenses, review it. What can you cut? Can you reduce or eliminate your cable bill? Car pool to work? Make your own coffee? Once you see your expenses on a list, you can take steps to cut your expenses. That will tell you how much money you can free up to repay your debts faster.

Your debts are the final piece of the puzzle: Make a list of all of your debts, and arrange them from highest interest rate to lowest, so that the top of the list has your most expensive debts. Those are the debts you want to repay first.

Now, fix it yourself by making a plan to take whatever cash you can free up each month and apply that to your highest interest rate debts first. As one debt gets paid off, use that extra money to attack the principal on the next highest debt, and so on until all of your debts are repaid. If you can keep your expenses as low as possible, you may be able to repay all of your debts on your own.

1 But what if, even with drastically reducing your expenses, you still have more debts than you can repay on your own? You need outside help, and that brings me to my top strategy for avoiding bankruptcy in Canada: filing a consumer proposal. A consumer proposal is a legally binding deal that a consumer proposal administrator negotiates with your creditors. If it’s accepted, you make one monthly payment, your debts are dealt with, and you avoid bankruptcy.

A proposal will work best if you have a job, or a stable source of income, so that you can commit to monthly payments. The good news is that, in most cases, a consumer proposal can be negotiated for less that the full amount owing on your debts, and you avoid bankruptcy.

Which option is best for you? Or do you have no choice but to file bankruptcy? Start with some research: Read our articles on consumer proposals, or read questions posted on our anonymous question and answer blog about consumer proposals. You can even join our on-line support group that allows you to discuss consumer proposals and other options. These posts are real, and people just like you post both the pros and cons about proposals, so you can hear both sides of the story to help you make a decision.

My advice: talk to your family and friends, but also talk to an expert. A consumer proposal administrator and bankruptcy trustee will give you a free, no obligation initial consultation to help you make an informed decision, so do your research, contact a trustee today, and make an informed decision.

A Licensed Insolvency Trustee

2 Responses to “Consumer Proposal: The Best Way to Avoid Bankruptcy in Canada”



April 20, 2010 at 10:22 pm, David Annan said:

I read your comments about “doctors wages ” and I could not see the corrolation between the two. I declared a personal bankruptcy after three gruelling years of keeping a small business alive. I recieved a job offer clear across the country and seized the opportunity. After experiencing the many costs of moving my wife and two children, we realized that we had moved to one of the highest cost of living areas in Canada. Her bankruptcy was discharged and mine was sine dein. in short we could not pay the duty each month. Being a commission sales person and turning over a new leaf is hardly an easy task. theoreticly the laws in principle work, however in my real world … they are a disaster and are driving me into financial ruins.



April 25, 2010 at 4:09 pm, A Licensed Trustee said:

Your point is valid. The surplus income thresholds are the same across Canada. A family of four has the same threshold if you live in downtown Toronto, with high living costs, or a small town with much lower living costs. There are cases where the rules seem fair; there are cases where they don’t seem fair. My only advice would be to discuss the situation with your trustee. It is possible, after a period of time, to return to court and ask the bankruptcy judge to alter the terms of your discharge. You can explain your family situation, and the judge may allow you to contribute a lesser amount, if you can convince the judge that your situation merits special consideration.

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