Most people don’t know that you can switch from bankruptcy to a consumer proposal.

Let’s look at why you might want to do so and how to switch.

Can I file a consumer proposal if I am bankrupt?

The good news is if you have recently declared bankruptcy and decide that you want to file a consumer proposal instead, you can switch.

People often switch from bankruptcy to a consumer proposal because their income has increased. Perhaps you’ve started a new job or received a promotion, or maybe you’ve received a lump sum of money through a windfall or inheritance.

Regardless, a consumer proposal may now make more sense because changes in income don’t affect the amount you pay in a proposal, even if there is a change in your income.

When your income increases in bankruptcy, you need to make additional payments, called surplus income payments.

Surplus income is based on rules devised by the government regarding how much money you can make each month. The more money you earn, the more you pay during your bankruptcy.

While bankruptcy makes sense if you have no surplus income, this can change if you suddenly start to make more money. If this happens, you make higher payments due to the increase in income, and as a result, your bankruptcy lasts longer.

If you are expecting an increase in income or it’s already happened, you have two options: you can continue with the bankruptcy and pay the extra payments, or you can file a consumer proposal instead.

The Licensed Insolvency Trustee currently managing your bankruptcy will calculate whether you have surplus income and advise whether you should complete your bankruptcy or switch to a consumer proposal.

How to switch from bankruptcy to a consumer proposal

If you want to move from bankruptcy to a consumer proposal, you must meet with your Licensed Insolvency Trustee.

Tell your trustee about the changes to your income so they can establish what offer will be reasonable for your creditors in a consumer proposal.

If your creditors accept your offer, you are no longer bankrupt, and you will enter a consumer proposal. However, if they don’t accept the offer, you remain bankrupt.

Why switch from bankruptcy to a consumer proposal?

A consumer proposal makes more sense than bankruptcy if you have income or assets to protect.

With a consumer proposal, you make a fixed payment that never increases regardless of any increase in income.

And while you must offer more to your creditors than what they would receive in a bankruptcy, the cost can be spread out for longer, meaning it’s affordable.

Plus, you can keep any assets that you inherit.

That said, it may it’s not always beneficial to switch, so always get advice from the Licensed Insolvency Trustee who administers your bankruptcy.

See also: Consumer proposal vs bankruptcy: What are the differences?

Conclusion

It can sometimes make sense to switch from bankruptcy to a consumer proposal if your income has increased and you want to avoid paying surplus income.

But sometimes, completing your bankruptcy is the best option.

If you are interested in making a switch, talk to the Licensed Insolvency Trustee who filed your bankruptcy so they can advise on the best option for your circumstances.

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