Proposal vs. Bankruptcy

April 4th, 2006 by Questions

I filed a proposal that was approved last year. It seems like those who have filed bankruptcy have it easier: I choose to pay off as much as I could and still my credit rating is the same as if I filed bankruptcy. Also, it seems like their bankruptcy stays on their record for 7 years, while a proposal stays on for up to 8 years! They have their discharge papers and then can start rebuilding their credit while I’m making monthly payments to my creditors! I’m starting to feel a little bitter.


2 Responses to “Proposal vs. Bankruptcy”

, A licensed trustee said:

I don’t think you are being completely fair with yourself – do you remember why last year filing a proposal made more sense than filing bankruptcy?

Some common reasons to file a proposal (instead of bankruptcy) include:

1) to avoid high surplus income penalties (mandatory monthly payments based on your income if you file bankruptcy);

2) to avoid having your bankruptcy extended by up to 12 additional months due to your income (high income earners do not have 9 month bankrupties – most run 21 months);

3) to protect an asset – if you had equity in your home, but didn’t want to sell your home, you may have chosen a proposal as a way to pay that equity over time; and

4) you just didn’t feel right about walking away from all of your debt – you felt that you had the ability to repay a portion of what you owed.

There are other reasons to file a proposal instead of bankruptcy, but these are the ones most commonly expressed by our clients.

Before you beat yourself up for having made the wrong decision, try to recall how you felt a year ago and why the proposal made sense. In most cases, the reasons will still be valid today (which means you made the right decision a year ago).

, Anonymous said:

Thank you, what you said made a lot of sense.

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