A Bankruptcy Lawyer’s Blog

When Does Orderly Payment of Debt Make Sense?

Orderly payment of debt (OPD) is a program offered under the Bankruptcy and Insolvency Act and a viable alternative filing a bankruptcy, or a consumer proposal.

OPD is a repayment program that permits consumer debtors to pay their unsecured debts in full over a period of time. The OPD has many advantages, for instance, it provides protection court from your creditors (i.e. they are prevented from being able to make any attempts to collect on their debts), the payment schedule is set up based on your ability to pay, under OPD a reduced interest rate is charged (5%), you do not have to directly contact your creditors, there is access to a credit counselor who whill help you to resolve some of the issues that have caused these difficulties and they will help you to understand how to rebuild your credit once the program is finished. The one down side to fining under OPD is the impact on your credit rating. As a result of filing under OPD you will have an R7 that will be listed on your credit history for a maximum of 3 years from the completion of the program.

It is this impact on your credit that to me doesn’t make a great deal of sense and the reason for this is that people who pay their debts in full under OPD and people who compromise their debts by filing a consumer proposal both have the same R7. To me there should be greater incentive to pay the debts in full, but as a result as a result there are relatively few situations where OPD makes financial sense. The most common of which are as follows:

1. Your total unsecured debt is less than $5000. In circumstances where you owe less than $5,000 you will find the cost of filing a proposal can make OPD a more viable option.

2. The majority of your debt cannot be cleared through filing a bankruptcy or proposal. If your debts are primarily debts that cannot be released under a bankruptcy or a proposal it may be to your advantage to consider OPD. A good example of this would be student loans. If it has been less than 10 years since you last attended school and your creditors are making payment demands that you cannot meet, then OPD will relieve the pressure, fix a more reasonable payment level and allow you to make payments over an extended period of time.

3. You have assets or high enough income that in bankruptcy would result in your creditors being paid in full. If in a bankruptcy your creditors would end up being paid in full, then this would be required in a proposal. However, the administration fees in a proposal to pay debts in full would likely be more expensive than the 5% required under OPD.

4. You are self employed. At the time of writing this article, if you are self employed then you are not eligible to file under OPD.

In most other circumstances we find that filing a consumer proposal is typically a more cost effective solution. The filing of a proposal has all the same benefits as OPD, results in an identical marking on your credit history report and is often significantly less expensive. For more information on these or any other of the alternatives to bankruptcy feel free to visit us online at our Bankruptcy Edmonton website or call us directly at (780) 435-5110.