More and more people are seeking alternatives to bankruptcy – and finding them!

In case you missed it, Emily Jackson wrote an informative piece on the changing landscape of bankruptcies and consumer proposals in the Globe and Mail on June 14, 2011. Her main point is that since the rules changed so significantly in September 0f 2009, we are seeing more people file consumer proposals, and fewer filing bankruptcies. Here is Emily’s article repeated for your convenience.

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“More Canadians are striking new terms with their creditors rather than turning to personal bankruptcy.

Changes in bankruptcy law appear to be behind the increase in these consumer proposals, according to the Office of the Superintendent of Bankruptcy Canada’s April report.

A higher percentage of consumers have filed proposals every month since the law was changed in September, 2009.

The portion climbed to 33 per cent in the 12-month period ending April 30, 2011, compared with 22 per cent at the end of September, 2009. In the months leading up to the recession, the number hovered around 21 per cent.

“The changes to the Act make a consumer proposal more attractive than what it was before,” said Andy Fisher, a bankruptcy trustee at A. Farber & Partners Inc.

Previously, only consumers with debt up to $75,000 could file a proposal. Now the limit is $250,000. At the same time, bankruptcy procedures became lengthier and even less appealing, Mr. Fisher said.

Even though Canadians have the highest per-capita debt of any Group of Eight country, the rebound in the jobs market has also made it possible for more consumers swamped in debt to pay off their creditors and avoid bankruptcy, Mr. Fisher said.

“People are carrying a lot of debt, but a lot of these people are gainfully employed,” he said. “They’ve got the means, so a proposal is a viable option for them.”

Canada’s unemployment rate dropped to 7.4 per cent in May – the lowest it has been in more than two years. As job security improves, more consumers can now afford proposals.

When a consumer is insolvent and has run out of informal options to control debt, he or she can either declare bankruptcy or file a proposal – essentially, a new plan to pay creditors. Because proposals extend the time over which creditors are paid, consumers have more cash in hand to deal with daily expenses.

“For people that can afford it, proposals are a better option. It allows them to avoid a bankruptcy and to make some payments to their creditors,” Mr. Fisher said.

Proposals leave consumers with control of their assets while they pay their creditors. Creditors like the arrangement because they get more of their money back than if the consumer opted for bankruptcy.

“It’s more than consumers [would] have to pay for bankruptcy, but it’s better for cash flow,” Mr. Fisher said.

Pat White, executive-director of the not-for-profit Credit Counselling Canada, was not surprised to see more people turning to consumer proposals in rough times. “People generally want to pay their debts,” she said. “The consumer proposal gives them an option to do that instead of filing [for] bankruptcy.”

But for people who cannot afford the monthly payments, bankruptcy might be the better choice, she said.

She noted that before consumers turn to formal procedures such as proposals and bankruptcy, there are other options. Debt repayment programs or financial advice can help people pay back the full portion of their debts – if they deal with their problems before things spiral out of control.

Although the total number of insolvencies has decreased by 12 per cent since this time last year, it is still 17-per-cent higher than pre-recession numbers.”

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