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When to consider filing for bankruptcy

There are many people who are feeling overwhelmed by the burden of their high credit load. This can be seen through the increase in consumer bankruptcies over the past year. If you are feeling like you’ll never be able to pay off the debt you’ve accumulated, you might be wondering if you should file for bankruptcy.

In yesterday’s article about dealing with your debt through a consumer proposal, I mentioned how you can reach an agreement with your creditors to pay back a portion of your debt within 5 years and they will freeze the interest and forgive the remaining debt. But what if you can’t afford to offer and complete a consumer proposal? This could happen, either due to not having enough available money to make the structured payments or even worse, divorce or job loss.

Using an example similar to yesterday’s but with twice the debt load, say the same person is still only able to pay $500 a month but their debts equal $100,000 instead of $50,000. Before they could offer, and be accepted, to pay $500 a month for 50 months, paying off 50% of the original debt. Since a consumer proposal can only last a maximum of 5 years, the new example with the higher debt could only offer $500 a month for 60 months, or $30,000. While not impossible, it’s unlikely that the majority of creditors would accept receiving only 30% of the money owed to them.

This may leave you with no other option but to discuss filing for bankruptcy with a licensed bankruptcy trustee. If you do claim bankruptcy, the trustee will seize your non-essential possessions to pay back as much to your creditors as possible. While it varies by province, the items you are allowed to keep may include your primary residence, a car, food, clothing, furniture, and tools for your job. Also depending on the province, these can all have set dollar limits on what is considered reasonable.

On top of giving up many of your possessions, during your bankruptcy you must report your income and expenses each month and attend credit counseling. Most first-time bankruptcies last for nine months, though it can be longer. Your credit report and credit rating will suffer as well as there will be a bankruptcy note on your file for 6 years after you were discharged.

So why would you want to file for bankruptcy when it involves handing over most of what you own and destroying your credit rating? If you can’t afford any other option, bankruptcy will eliminate all your unsecured debt and can give you a fresh start towards responsibly rebuilding your credit history and keeping your finances under control.


  1. Carol

    After filing and having an accepted consumer proposal I am having doubts if there are any benefits to this other than soothing my own guilt. I will pay for 5 long years, then have another 3 tacked on for “bad behaviour”. Well, is it not the same amount of time for a bankruptcy? Might as well go bankrupt, then at least you have a chance to recover financially sooner, and still only suffer the same amount of time for “bad behaviour”. I see this as a way for trustees to make money, nothing more.

    • Tom Drake


      It depends on your situation. Do you have any assets that would be taken under a bankruptcy? If you have no savings and nothing but food and a reasonable amount of furniture, then you might be better off under bankruptcy. However, if you have a big screen TV, a large CD collection, etc. these would all be repossessed to help pay the debt.

  2. Ira Smith

    Another great blog Tom. Another advantage of a Consumer Proposal over a bankruptcy is, as Tom touched on, you don’t have to report in to the Trustee your income and expenses on a monthly basis as you would while undischarged from a bankruptcy. If you are expecting a raise (I know, stop laughing, I think some places still give them out) that would be factored into the amount you have to pay your Trustee for surplus income, if any, in a bankruptcy. However, in a Consumer Proposal, once the “deal” is set, you don’t have to report in.

    As syndic says, obtain a free consultation from a trustee in bankruptcy to know what all your realistic options are. However, there has been a lot of bad press lately about debt settlement companies. Just do a Google search and then you can see the articles and reach your own conclusion about those types of outfits.

    Continued success.

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