What is the difference between a Consumer Proposal and personal bankruptcy?

The biggest difference between a consumer proposal and bankruptcy is how much of your assets you’re allowed to keep. Consumer proposals mean you can keep more and your credit score won’t be as affected. A consumer proposal only stays on your record for half the time too. A first-time bankruptcy stays on the record for 6 years, whereas a consumer proposal stays on for just 3 years.

Common solutions for debt relief

Personal bankruptcy and consumer proposals are both common solutions for debt relief in Canada. Personal bankruptcy means you surrender your assets to get rid of your obligations to repay your debt. A consumer proposal is an agreement with creditors on your debt repayment terms.

What are consumer proposals?

Consumer proposals are formal agreements between a person with debts and their creditors. A Licensed Insolvency Trust administers the agreement and helps negotiate debt repayment terms. The agreement declares how much of your debt you will pay over a specific time period. Your debt has to be less than $250,000 (this doesn’t include your mortgage). A consumer proposal is legally binding. It protects you from debt collectors and wage garnishments. Debt interest also stops accumulating from the day that the proposal begins.

What does bankruptcy mean?

Bankruptcy is a legal process to relieve a person from their debts. Licensed Insolvency Trustees manage bankruptcy claims and take control over assets. There are limited exceptions to what you can keep. The trustee will also investigate affairs and monitor progress towards bankruptcy duties. The duties are to attend two counseling sessions for crediting and to file reports on income and expenses every month. Typically, people are discharged from their debt in around 9 months to 21 months.

How to decide between a Consumer Proposal or Bankruptcy

Both consumer proposals and bankruptcy are legally binding agreements, but consumer proposals are not as severe as a bankruptcy. Consumer proposals mean you will pay a fixed amount to your creditors regularly as agreed. Bankruptcy, on the other hand, has monthly payments that vary according to income.

With a consumer proposal, you can also keep more assets and your credit score won’t be as severely affected.

When choosing between the two, it will depend on your own financial situation as to which is the better option. A consumer proposal will have much less effect on credit scores but bankruptcy will be more suitable for some people.

Ultimately, with bankruptcy, you surrender your assets to creditors for your debts to be eliminated whereas a consumer proposal means you get to keep assets. With a bankruptcy, you might pay higher monthly payments than with a consumer proposal.

Seek professional advice to help you make the right choice

If you are considering bankruptcy or a consumer proposal, you’ll need to get professional advice. National Credit Help can give you impartial advice and help you decide which option is best for you and your unique financial situation.