Financial Focus: Consumer Proposal vs Bankruptcy

April 5, 2018

If you have too much debt to pay back through budgeting alone, you may be considering other debt consolidation options, such as a Consumer Proposal or Bankruptcy.

In Canada, you’re not alone. Nearly 130,000 Canadians filed a Consumer Proposal or declared Bankruptcy in 2016.

But what’s the difference? If you’re considering a Consumer Proposal vs. Bankruptcy, there are some key distinctions you need to know.

First, we’ll start by defining each. A Consumer Proposal is where a Licensed Insolvency Trustee negotiates a deal with your creditors, on your behalf, for partial repayment. The rest of your debt is eliminated and your assets remain in place. When you file for Bankruptcy, on the other hand, you essentially dispose of all your non-exempt personal assets to eliminate outstanding debts.

A Consumer Proposal is often a preferred alternative to Bankruptcy, but if you’re considering a Consumer Proposal vs Bankruptcy, there’s more to it than just the definitions.

  1. Debt Limitations

Consumer Proposals are for debts less than $250,000 (excluding your mortgage), whereas there is no limit for declaring Bankruptcy.

  1. Eligibility

Consumer Proposals are only available to individuals; Bankruptcies are available to individuals and businesses.

  1. Creditor Repayment

A Consumer Proposal must be more favourable to your creditors than a Bankruptcy. In a Bankruptcy, your creditors are paid based on your personal income and the value of liquidated assets.

  1. Monthly Payment

A Consumer Proposal can be a fixed monthly amount or a fixed lump sum amount that doesn’t vary. A Bankruptcy “Surplus Income” payment must sometimes be made to the Trustee for the benefit of your creditors that is based on your income post-Bankruptcy filing.

  1. Payment Period

A Consumer Proposal repayment can last between one to five years, with the option of repaying the debt earlier if possible. First-time Bankruptcies can last between nine and 21 months. A Consumer Proposal can be paid in full at any time. It comes off your credit three years from when it is paid in full, whereas a Bankruptcy is there for six years from the date of discharge.

If you’re considering a Consumer Proposal vs Bankruptcy, in either case a Licensed Insolvency Trustee can help you explore your options. The knowledgeable and experienced team at Fuller Landau Debt Solutions can help you identify which option is best for you. Contact us today to schedule a free consultation. Call (416) 927-7200.