Filings from the Office of the Superintendent of Bankruptcy (OSB) show a worrisome trend among Canadians. While bankruptcies are declining in Canada, consumers are filing "consumer proposals" in record numbers. The OSB received 5,327 consumer proposals in January 2018, an almost 20 per cent increase from the previous month and a 10 per cent increase from January 2017.
This type of filing lets individuals address their financial difficulties without a full-blown bankruptcy. Unlike a bankruptcy, a consumer proposal is an attempt to negotiate paying some fraction of the total debt owed to your creditors. Creditors will go along with such a proposal where they judge that the return for them is better than in a bankruptcy.
There's no guarantee that a consumer proposal will be approved by the creditors, but for Canadians in debt, it is potentially a way to avoid the bankruptcy route.
There are limits: a consumer's debt cannot exceed $250,000 (excluding a mortgage), and the consumer will need to prove the ability to make the payments set out in the proposal.
While a successful consumer proposal avoids bankruptcy, the record number taking this step shows that financial strains on ordinary Canadians continue.
Where insolvency is an issue, borrowers and their creditors should consult an experienced insolvency lawyer.