September 5, 2017

The answer depends who you ask and for whose benefit.

Many trustee firms prefer consumer proposals to bankruptcy filings as they tend to be less (cost and) labour intensive.  Proposals have the advantage to trustees of paying more fees over a longer period of time and the fees, unlike with bankruptcies, can be taken at any time.

There are regulatory restrictions on when trustees can access their fees from bankruptcy filings that require they wait until after the file been completed – somtimes over three years – before drawing their fees.  So proposals can be beneficial to trustees in terms of reduced labour and easier access to fees.

Proposals benefit creditors because the most fundamental principal is that they must return a better benefit than a bankruptcy filing.  Proposals offering less than bankruptcies are typically not even filed much less accepted by creditors.

But do proposals necessarily benefit debtors?  The answer is “yes” they can but they do not always.  Sometimes a sense of pride, rather than practical financial considerations is the driver that motivates people to file a proposal.

Proposals typically remain on credit bureau reports longer than bankruptcies and since creditors treat proponents substantially the same as bankrupts after completing their administration there is actually rarely a benefit to future credibility.