Debt doesn’t have to control your life forever. Getting debt relief is like hitting the “reset button” on your personal finances. No matter how you got into debt, there are options open to you for getting out of a debt you can’t pay off.
If you’re insolvent, meaning you don’t have enough income or assets to pay your existing debts, you qualify for either a consumer proposal or a bankruptcy in Ontario. There are a number of differences, including what happens to your assets and extra income.
Your Assets in a Bankruptcy in Ontario
There are a number of protected assets that are wholly or partially exempt from bankruptcy in Ontario. It’s important to consider exemption limits and the implications on your overall finances. These include:
- One car or motor vehicle up to $6,600 (if your car is worth more than that, you would have to pay the difference or face seizure and sale)
- Up to $13,150 in furniture and appliances (again, if you have more than this, you could lose personal belongings)
- Tools of the trade up $11,300 (anything that you use to make a living, from carpenter tools to DJ equipment)
- Types of life insurance
- Any savings you have in an RRSP, RRIF, or Deferred Profit Sharing Plan except those contributions you have made in the 12 months leading up to your bankruptcy
When it comes to your personal house, it depends on how much equity you have in it. Up to $10,000 in equity is exempt from bankruptcy. If you have more equity than that, [then there is no exemption and you will have to pay all the equity or your home could be up for seizure and sale.
Your Assets in a Consumer Proposal in Ontario
A consumer proposal does not affect your assets. Instead, your debt is reduced and you agree to pay a fixed amount every month for up to 5 years. Whereas a bankruptcy is a faster way to settle your debt, it means you can lose a lot of ground if you’ve been building your wealth. Bankruptcy trustees (now called Licensed Insolvency Trustees) like David Sklar& Associates often prefer the consumer proposal because it leaves your assets untouched.
Surplus Income: Consumer Proposal vs. Bankruptcy in Ontario
In a bankruptcy in Ontario, your assets may not be enough. Surplus income over a certain limit will also be taken to settle your debts. Your surplus income limits depend on family size and they can be surprisingly low. For example, a single-family household only has a limit of $2,152 a month. Half of your income beyond that limit must be used to settle your debts. That can be difficult to live on in a city like Toronto. With a consumer proposal, you agree to pay a fixed amount of every month. Even if you get a raise or a windfall, those payments stay the same.
Confused by Bankruptcy versus Consumer Proposal?
If you’re confused comparing a bankruptcy versus consumer proposal, talk to a bankruptcy trustee for help. Their job is to make sure that you understand all of the consequences that come with a bankruptcy in Ontario or alternatives. If you live in the Greater Toronto Area, David Sklar & Associates is one firm with locations across the city, including Mississauga, Brampton, Pickering, and three offices throughout Toronto. There are professionals out there who can guide you through the labyrinth of debt relief. Talk to someone today.