Bankruptcies and Proposals should not be chosen lightly...but sometimes they may be the right choice for your circumstances.

BANKRUPTCIES & PROPOSALS

There are times when filing a bankruptcy or a proposal is your only solution. These can include the following circumstances:

• You are separated with a spouse or partner and have been left with a lot of common debt.
• You are ill and have been off work for an extended period of time.
• You have had an unexpected job loss and have taken a long period of time to find new employment.
• You have a personal business that did not succeed.
• You have taken on too much debt over time and can't realistically meet your obligations.

In each of these cases, you may find that you have no reasonable prospects of being able to (i) catch up on your past arrears; (ii) pay for your minimum financial obligations on an ongoing basis; and/or (iii) pay off the debt over a realistic time period. If so, you should consider speaking with a Trustee or other accredited financial counsellor to explore filing for a bankruptcy or proposal.

A PROPOSAL IS YOUR FIRST CHOICE

A proposal allows you to restructure your payment obligations with your existing creditors. Often a change in the payment terms and a reduction on the full amount owing or rate of interest accruing can be negotiated provided it is then paid as agreed. A proposal can sometimes take several years to complete with 3 to 4 years not being uncommon. A Trustee can advise you on what is likely possible to achieve and compare it to a bankruptcy for you.

A proposal is most effective with unsecured creditors. Secured creditors are often more inclined to take possession and realize on their security before they will accept a discount or alteration to the original payment terms. For this reason, secured creditors are usually excluded from proposals. Unsecured creditors are also not required to accept a proposal but they often look at them as being better to collect payments on the revised terms than possibly none at all (if you stop paying completely) or if you file for bankruptcy. The creditors voting rights are based upon how much each creditor is owed compared to the total amount included in the proposal so that larger creditors have more weight in determining its outcome.

The benefit of a proposal over a bankruptcy is that it will demonstrate to future creditors that you paid off at least a portion of your financial obligations even though you couldn't, for whatever reason, pay for them completely on the original terms. It shows a determination and responsibility to pay off your creditors as best you could. At the same time, a failed proposal is viewed very negatively.

BANKRUPTCIES SOMETIMES THE BEST CHOICE

A bankruptcy will completely discharge you from most financial obligations although some obligations cannot be extinguished by a bankruptcy such as family responsibilities, student loans (for extended periods of time) and judgments if fraud was involved. Sometimes, you just can't afford to pay off a proposal or it will take far too long. A Trustee can advise you on your own particular circumstances.

With a first time bankruptcy, the length of time is generally 9 months but this can vary based upon your circumstances. Factors that influence the length of time and amount that needs to be paid to the Trustee include how much, and type of, debt and assets you have accumulated and the amount of earning capacity you have. Second time bankruptcies (and thereafter) take increasingly long times to complete and require more to be paid to the creditors before a judge may be satisfied that you are ready to be discharged.

The creditors have no choice in a bankruptcy. Their rights are determined and protected by the Trustee selected and the bankruptcy courts who are governed by the Bankruptcy Act (Canada). If, however, a bankrupt does not make the required payments to the Trustee or does not provide required information or do certain things requested by the Trustee (such as filing an income tax return), then a Trustee alone, or upon the request of the creditor(s), can apply to the court to have the bankruptcy annulled. If granted, the creditors rights are all restored as if the bankruptcy had not been filed.

Annulled bankruptcies are viewed very badly. Even bankruptcies that take longer than normal to complete (except for high earnings capacity) are frowned upon by creditors as they question your discipline and determination to satisfy the terms of the bankruptcy.

DOWNSIDE TO PROPOSALS AND BANKRUPTCIES

Proposals and bankruptcies, however, should not be chosen lightly as they will show on your credit bureau for extended periods of time (e.g. a bankruptcy shows for 7 years in Ontario).  Some lenders view your filing a bankruptcy or proposal  as "an easy way out" and conclude that you are not worth considering for any new credit. These lenders will flat out refuse to consider anyone who has filed a bankruptcy or proposal for future credit.

Others automotive lenders will only consider you for an automotive loan or lease following an extended period of time after being discharged and some other type of credit having been re-established first (e.g. credit card). Some bad credit car lenders will consider bankruptcies and/or proposals sooner but most approvals come with stricter guidelines on what vehicles will be permitted, reduced advances, more down payment and higher interest rates.

Credit becomes even more difficult to obtain where a person has filed a bankruptcy or proposal more than once, or has filed one and then not completed it or taken an unusually long time to do so. A lender will wonder if you don't even take your bankruptcy or proposal seriously, how can you be relied upon to take your next loan or lease seriously?

As most lenders retain security rights to vehicles they have financed, lender will often re-take possession of the vehicle in cases of a bankruptcy or proposal being filed. You should plan for alternate transportation before you file if you still owe money on it.  Currently, vehicles with no money owing and which are worth less than $5,000 are exempt from bankruptcy as they are viewed as being important to help the bankrupt continue to find employment.  You should always check with a Trustee regarding your rights and obligations under a bankruptcy before proceeding.

EZEE CREDIT'S PERSPECTIVE

At Ezee Credit, we recognize that there are valid reasons for a bankruptcy or proposal. In fact, our internal scoring actually increases for a bankruptcy or proposal when done for the right reasons. In our view, if you have a lot of debt that is not being paid, most lenders will not consider you for a loan in any event. So a constructive plan such as a proposal or bankruptcy designed to deal with your past debt can be preferable if it opens up capacity to take on future credit obligations.

We will self finance people as soon as they have filed a bankruptcy and while they are still undischarged on very competitive terms. In fact, many of our customers arrange for their new vehicle from us prior to filing and then pick up the vehicle as soon as they have filed. Some customers also decide to trade-in an exempt vehicle so that they can drive a newer, more reliable vehicle with less repairs, and start to re-establish their credit even sooner.

We understand that people have many legitimate reasons why they had to file a bankruptcy or proposal. We are most concerned about someones future ability and willingness to pay than whether they filed one or not.