Bankruptcy or debt repayment – what’s better?

Bankruptcy or debt repayment – what’s better?

In the previous articles we spoke about bankruptcy and Consumer Proposal, as the most effective methods of debt cancellation.

They often ask what is better: bankruptcy or debt repayment. Obviously, there are many factors influencing this question. The main is whether you can pay minimal monthly sum approved by the creditors or not. If you can, you should use the Proposal, if not – bankruptcy is the last way out. If you’re somewhere “in the middle”, the following information will help you to decide.

Why is the Proposal better? It’s easier to get the approval of the Creditors and Trustee. You’re ready for minimal repayment, so it’s not necessary to examine your spending history. And in case of bankruptcy the main Trustee’s task is to find out whether creditors’ money was spent reasonably. Of course, you’ll need official confirmation for everything. If Trustee decides that certain sums were used in a wrong way, you may have to pay a part of your debts. Another difficulty is that some of the creditors may not approve your bankruptcy status release. In this case you’ll definitely go to a court. Again the court can make you pay the debts and your status will remain “bankruptcy” until you pay them all till the end. The Proposal procedure takes 1-2 months, the bankruptcy – 9 months. There were changes in the legislation lately.  Now the terms of “excess income” payment (a sum, exceeding the officially adopted minimal monthly income for the bankruptcy status) increased from 9 to 21 months. In this way a person filing for a bankruptcy can’t change his/her status for almost 2 years. It means you can’t invite anyone from abroad or sponsor your relatives. You’ll have restrictions concerning your professional license, not speaking about total control and waste of time for restoring your credit history. From the other side the Consumer Proposal sum increased from $75,000 to $250,000. Obviously, banks suffer losses because of great amount of bankruptcy cases and they want to make this procedure more difficult and claim for debt payment.

The main advantage of bankruptcy is that in 9 months you’ll be released from your bankruptcy status and you won’t have any debts any more. According to Proposal procedure you have a chance to pay the debts during 0.1 – 5 years. It often happens that the sum Trustee or Judge want from bankruptcy is bigger then the Proposal sum. And we’re not speaking about courts, stress, fears etc.

Frequently asked questions: will I lose my house or a car? Will they prolong Mortgage? What will happen with my credit history?

No more rumors! You won’t lose your house, your car or your wife. Actually, creditors and Trustee are interested only in things which can be converted into money. So don’t worry, if there’s no your equity. If there is, Trustee can do the following:

In case of bankruptcy you’ll be asked to sell your property and pay the debts. If you don’t agree, they can put lien (warning) on title of your property. It means you won’t be able to sell a house or a car until you pay out the sum of your equity in this house (the whole sum of equity payment, if it’s not more then the debt itself).

In case of Proposal the equity sum is considered in calculation bankruptcy vs. proposal payments.

Mortgage, Car Lease and other guaranteed assets can be used only while you’re paying monthly sums. Banks will prolong your Mortgage.

And, finally, a few words about the credit history. You can hear absolutely different thoughts and opinions about it. It’s clear that in both cases Trustee will inform the Credit Bureau about your bankruptcy or Proposal procedure and it will be written in your file, so your Credit Score will be lower. It means that in the next 1-2 years you’ll have to count on yourself. In case of bankruptcy this record stays for 6 years since release, basically, 7 years since bankruptcy filing. Speaking about the Proposal, it will take maximum 8 years (5 years of payment + 3), minimum – 3 years. There is a question in credit applications: “Did you file for bankruptcy for the last 7 years?” No one asks about the Proposal. It’s important to know that credit history and creditability restore depends on the person – the job, income, how often he/she uses secure card, how regularly he/she pays the debtsetc.

And now we’re going to give you real examples. It should be noted that because of the crisis the majority of our clients are truck drivers and construction workers.

Igor S. was a truck driver – owner operator. He was paying for his truck and already stopped driving to the USA. He used his car only in Toronto and the suburbs. Everything was going fine, but then his truck was stolen from a parking lot. The police found it, but the engine was damaged. And so, the troubles began: the insurance company  made him take his truck from one garage to another, every time appointing a new appraiser. The truck owner had to pay for the transportation, storage and plus monthly financing payment and insurance. Igor didn’t work for some time, hoping that insurance company would pay for the truck repair. He was going to be the car owner very soon. He had to pay just a little, but no. The insurance company didn’t respond even after Igor hired a lawyer. His debts were growing, so he had to go to the USA again. At that moment he came to us. After a detailed discussion of his situation (about $50,000 credit cards, credit lines, loans) and comparison of Consumer Proposal and bankruptcy, he decided not to file for bankruptcy because of the sponsorship, his equity in the real estate and just because he didn’t want to have this status. He decided to use the Consumer Proposal and pay the rest of his debts for $250 every month during 5 years (acceptable for his budget). In the whole it’s $15,000. But the truck situation still troubled him. Of course, Igor didn’t need a broken truck, so he gave his keys to the owner. We minimized his fine for the early return of the truck and it added $50 more to his monthly payment according to the Consumer Proposal. We’re going to control his truck situation: will the insurance company pay for repair, if yes, then how much will Igor get from the truck selling (he paid $15,000 + monthly payments). Now Igor pays $300 per month and he doesn’t have any debts. He hopes to get his down payment back and pay out the entire Consumer Proposal sum at once.

Viktor V., a truck driver, wasn’t lucky concerning his employers, though he worked hard. At first his employer filed bankruptcy without paying him his 4 months salary. Then he started working at Truck Company, which paid him with NSF cheques. His wife didn’t work; he had a small child, so the expenses were big. Viktor used all his cards till the end. He came to us absolutely hopeless: creditors and collectors wouldn’t leave him alone day and night, threatening him with court. In that situation he had to file for bankruptcy, because he couldn’t pay his debts, so he had nothing to lose. Now his situation is much better. Finally, he found a good stable company. His bankruptcy is ending, with our help he’s restoring the credit history and his life came back to the bright side.

If you have any questions or your debtsituation troubles you, call A Debt Doctor. We’ll solve your problems.

Enjoy your debt free life!!!

Debt Doctor