Consumer Proposals vs Personal Bankruptcy: Which is better?

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Introduction

Most citizens file for personal bankruptcy or consumer proposals in Canada, making them the best insolvency options for a person facing financial troubles. Consumer Proposals and Personal Bankruptcies are under the Bankruptcy and Insolvency Act. Each of these can be filed only with the help of a Licensed Insolvency Trustee. 

Contact Dana MacRae – Licensed Insolvency Trustee, for expert advice and confidential consultation. 

The objectives of both Personal Bankruptcy and Consumer Proposal are:-

  • Offer relief to the debtors 
  • Help to stop legal actions 
  • Free the debtor from his debt load
  • Deliver training to avoid future debt issues

There are notable differences as both solutions resolve debt problems and provide legal protection from creditors.

What is a Consumer Proposal

Administered by a Licensed Insolvency Trustee, a consumer proposal is a formal contract between you and your creditors. The agreement states that you will pay all of your debt, which must be less than $250,000, except your mortgage at a lower interest rate over a specific period. A consumer proposal is an excellent option for people who can pay something to their creditors but need to modify their payment agreements and have equity in assets they want to keep. Are you planning to file a Consumer Proposal? Get the help of Dana MacRae – Licensed Insolvency Trustee, without any second thoughts. 

What is a Personal Bankruptcy

Bankruptcy is an excellent option for those overwhelmed by their debt and who do not have a steady income, making it challenging to afford the payments they owe to creditors. Assisted by a Licensed Insolvency Trustee, personal bankruptcy is a structured legal process that alleviates your debts from creditors. With personal bankruptcy, the debtor can keep some assets but may be mandated to release significant assets. Are you planning to file for personal bankruptcy? Get the help of Dana MacRae – Licensed Insolvency Trustee, without any second thoughts.

Consumer Proposal vs. Personal Bankruptcy 

  • Who can claim?

Any resident in Canada who owes more than $1,000 in debt and is insolvent can file for personal bankruptcy. Any resident in Canada whose total debt does not exceed $250,000 and is affordable to repay a portion of your debts. 

  • Assets you get to keep

In both the bankruptcy and consumer proposal, you have an option to keep the assets that are important to you. Yet, if you have equity in assets that you want to preserve, you have to pay that equity to your trustee, too, for the benefit of your creditors. In a bankruptcy, you have to repay the equity over your bankruptcy term, which is shorter than a proposal, increasing your payments. With a consumer proposal, you can apply the payments for that equity for up to 5 years. 

  • Additional Income Received 

Suppose, during the Consumer Proposal process, if the debtor receives money or assets over the amount stated in their proposal, the terms of their proposal deal do not change. But, if the same thing happens during a bankruptcy, then the amount needed to pay into their bankruptcy and the length of time to spend in bankruptcy shoots up. 

  • Amount to be paid back

With a consumer proposal, you pay the same amount to your Licensed Insolvency Trustee every month for the term of the proposal as arranged with your creditors upfront. In a bankruptcy, the amount you pay could differ, relying on several factors such as your income and history of bankruptcy. 

  • Impact on Future Employment

Bankruptcy affects your chances of being bonded, impacting whether or not you are hired for a job. A Consumer Proposal is different from a Bankruptcy on job application forms as it does not affect your career. 

  • Time taken

A consumer proposal is filed for the length of time you and your creditors agree, up to 5 years. You could even pay it off earlier than the negotiated term without any penalties. Bankruptcy ranges from 9 to 36 months, depending on your income levels, bankruptcy history, etc. 

  • Impact on Credit Rating

Bankruptcy remains on your credit report for six years after the discharge date or seven years after the date filed with no discharge date. A consumer proposal will be withdrawn from your credit report three years after paying off all the debts as per the proposal or six years from the date it was filed, whichever comes first. 

  • Filing Process

To proceed with a consumer proposal, your creditors need to vote in favor of the proposal you filed through a process led by your Licensed Insolvency Trustee. If you cannot pay the debts owed, you have the privilege to file bankruptcy, and your creditors cannot stop you. 

Consumer Proposals vs. Personal Bankruptcy: Which is better?

A consumer proposal and personal bankruptcy are debt management solutions to resolve debt problems. Even though both the answers are legally binding, a consumer proposal is less severe than bankruptcy. However, every case has to be examined to decide whether bankruptcy or a consumer proposal is the most viable option. The factors like surplus income, assets, and the total amount of debt need to be considered. 

Picking the best option can only be accomplished with the assistance of a Licensed Insolvency Trustee. Contact Dana MacRae – Licensed Insolvency Trustee at 1-800-665-9965 for expert advice and confidential consultation.