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Bankruptcy vs Consumer Proposal, Which Is Better?

Consumer proposal and bankruptcy are the top two insolvency solutions in Canada, so it’s natural that you may want to know the difference between them.

A bankruptcy is filed using the Bankruptcy and Insolvency Act. You are eligible to file for bankruptcy if you owe over $1,000 and are unable to repay it.

A Consumer Proposal is also filed under the Bankruptcy and Insolvency Act – however, your debts must be less than $250,000 (excluding your mortgage). An offer is made to your creditors to settle your debt for less than you owe.

One thing they have in common is that both must be filed by a Licensed Insolvency Trustee and that’s a good thing, because you will have had the best debt solution advice available in Canada when you reach that point.

So what are the significant differences between the two?

What are the Costs?

A bankruptcy can cost as little as $200 per month for nine months if you have no assets and a low income but it will increase depending upon what you own or make.

What you pay in a Consumer Proposal depends upon what has been agreed with your creditors. This is based upon your debt and any assets. Administration costs are included in the monthly payment.

How Long Will It Last?

For a first-time bankruptcy, the process will last a minimum of nine months but depending upon your income could be 21 months. The record of your bankruptcy remains on file for between 7 years after completion of your bankruptcy and if it is your second or third bankruptcy credit reporting agencies can report if for 14 years.

The Consumer Proposal process can last up to 5 years, however, there is no penalty for paying off the agreed debt early and the credit reporting agencies will only report it for 3 years after the final payment is made.

Will I Lose My Assets?

In a bankruptcy, your assets vest (pass) to the trustee for the benefit of your creditors. In Ontario, there are certain assets which are considered exempt which will not be lost unless you have pledged the assets as collateral. The exempt assets are:

  • Household Furniture up to a value of $11,300.00
  • Personal Effects up to $5,650
  • Tools of the Trade up to $11,300
  • Automobile up to $6,600
  • Equity in real property if the equity is less than $10,000

In a Consumer Proposal, your assets do not vest in the trustee so you will not have to surrender any assets. Also, during a proposal, you are free to deal with your assets as you choose, unlike in a bankruptcy.

What Happens to My Tax Refund?

In a bankruptcy your tax refund has to be turned over to your creditors.

With a Consumer Proposal you are allowed to keep your tax refund.

What About Reporting?

In a bankruptcy, you must submit to the trustee, each month, a report that details all income and expenses, including pay stubs and certain receipts. The LIT will review those reports to determine if you will be required to pay more from your income.

With a Consumer Proposal, no monthly reporting is required.

Will Collection Calls Stop?

Both bankruptcy and Consumer Proposal provide you protection from your creditors – so all collection calls, letters or court proceedings stop.

So there you have it Bankruptcy vs Consumer Proposal in a nutshell.

Have a listen to this short podcast where John explores the differences between a Consumer Proposal and Bankruptcy.

In order that you get the most professionally qualified advice and guidance it pays to reach out to a Licensed Insolvency Trustee (LIT) as your first point of contact. This will ensure you get the best advice and most comprehensive range of options offered to you.

We are licensed by the Canadian government. Remember LITs are the only debt professionals that can provide these two options for dealing with your debt.

Reach out to-day for a free no obligation consultation – what have you got to lose – except sleepless nights and stress?

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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