Bankruptcy trumps proposals
There are many situations where a bankruptcy can trump a proposal as an option for solving debt problems. This is especially true for first time bankruptcy filers. Rebuilding credit following a bankruptcy used to be challenging, in some cases taking several years, but that is no longer the case.
Banks, notably TD and Scotia have set up divisions to handle higher risk clients, including those who are yet undischarged from bankruptcy, and to facilitate lending to them. Upon discharge many lenders will make credit facilities available to borrowers very quickly some within months.
A first-time bankrupt is typically discharged in nine months – that means that they can put the debt them and start re-establishing credit. But a person under a proposal is typically making payments for five years and will not be released from their former debts until the last proposal payment is made – then they can start rebuilding in the same way the bankrupt could at nine months.
Is that fair? After all the proponent made a greater effort to repay their creditors. While it seems unfair to prefer bankrupts over proponents, the fact remains that the debts are owed until the proposal is paid as agreed.
If your goal is to get out of debt as quickly and cheaply as possible to re-establish your credit (debt) then bankruptcy definitely trumps a proposal most of the time. Even when there is an extension of the bankruptcy for the payment of surplus income it is still cheaper and quicker.
Of course, there are always situational differences but in general that is good information to consider when contemplating the differences between proposals and bankruptcies. To be sure give our office a call to arrange a private, no charge consultation to better understand your options.