Consumer Proposal vs. Bankruptcy: Why Choose Consumer Proposal Over Bankruptcy?

This is a great question: a personal bankruptcy would be over quicker, so why would anyone choose a consumer proposal over bankruptcy?

The first reason is that many people don’t want to go bankrupt. They know they owe the money, and just want a plan to repay it. A consumer proposal provides peace of mind, and they avoid bankruptcy.

Another reason is that a bankruptcy is not automatically over in nine months: If you have been bankrupt before, your bankruptcy will not end in nine months. Also, If you have significant surplus income, again, your bankruptcy will not end in nine months. The government each year determines how much you are allowed to earn while bankrupt (depending on the size of your family and some other factors). If you have significant surplus income, it is likely that your bankruptcy will be extended for another year and perhaps even longer.

Further, there is a difference between a consumer proposal and bankruptcy in the way your income increase is treated: each month during the bankruptcy you are required to report your income to your trustee. If your income goes up in that time period (perhaps because you got a new job, a raise, or more overtime at work) the amount you are obliged to pay will also increase. With a proposal though, if your income increases after the deal is done your payments stay the same; so, if you are an optimist, you will probably want to file a proposal.

Finally, in a bankruptcy you may lose certain properties (such as valuable cars, houses, certain RRSPs), whereas in a proposal you can retain your assets. For example, if you own a car (that you would, possibly, lose in a bankruptcy), and need it to get to work, a proposal may be the logical option for you.

For a more detailed comparison of features and aspect of a consumer proposal vs. bankruptcy please contact a licensed personal bankruptcy trustee today and arrange for a no-charge initial consultation. This bankruptcy expert will also help you fully explore your options, as well as advise you whether you should, in your specific situation, choose a consumer proposal over bankruptcy.