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Consumer Proposal vs Bankruptcy Last week a fascinating article appeared in the Financial Post newspaper. It highlighted a new phenomenon: people with perfect credit scores who are suddenly filing for Bankruptcy Protection from their creditors. And those who are not filing for bankruptcy protection, end up offering a settlement offer to creditors (a process otherwise known as a Consumer Proposal).

This phenomenon is all the more intriguing, because it goes against pretty much every known method of measuring the level of debt among consumers in Canada: a gradual process of getting further and further behind in monthly debt repayments (including not paying the minimum balance owing on credit cards and lines of credit), a dramatic drop in their credit worthiness score (as reported to lenders by TransUnion and Equifax), or failing to follow through on requests from their creditors to bring their accounts up to date.

Rather, these bankrupts all had perfect, or close to perfect, credit scores, had kept up to date on all of their monthly payments and there was little, if any, sort of forewarning to their creditors of the financial pressures they had obviously been experiencing.

A Consumer Proposal Not Filed Soon Enough?

Or Bankruptcy Declared Too Soon?Traditionally, someone who goes into bankruptcy, they missed a payment, then two payments, then three payments, and then they go bankrupt,” said Tom Higgins, vice president of analytics at TransUnion, in the Financial Post piece entitled: “Suddenly Bankrupt: People with great credit scores are hurtling into crisis“. “Now what we are seeing is people who make all the minimum payments (on their credit cards) and then all of a sudden they go bankrupt. It’s harder to predict when someone is going to go bankrupt than in the past just by looking at their credit information.” What this phenomenon tells me, as a Debt Solutions Manager, is that many people aren’t exploring all of the options available to them when they start to experience a debt crisis. It also tells me that people are waiting too long to take positive action in the face of a rising debt load, and that by the time they reach a Licensed Insolvency Trustee’s office they’ve exhausted all options available to them, except for bankruptcy protection. If some of these people had explored options such as a Consumer Proposal a year or two before hitting their financial walls, they could have avoided the filing of a bankruptcy altogether, and worked with the Licensed Insolvency Trustee to offer a fair settlement offer to their creditors. This would have allowed them to pay down a portion of their debts (with the balance being discharged once the consumer proposal was successfully completed) and then go on to acquire new credit which they would have been counselled by the Licensed Insolvency Trustee to use carefully. Everyone is entitled to a second chance. And by acting sooner, rather than later, many of these people could have avoided bankruptcy altogether. Do you have trouble paying all your bills in time? To explore all debt relief options that are available to you, schedule a free debt relief consultation with one of our debt relief professionals. They’ll look at your debt situation in particular, and inform you of all the debt relief solutions available to you.

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