Consumer Proposal vs. Bankruptcy

5 Reasons why a Consumer Proposal is Better

Typically a personal bankruptcy would be over quicker than a Consumer Proposal, so why would anyone choose a consumer proposal vs. bankruptcy?  Here are 5 reasons why!

1. You just don’t want to file Bankruptcy

The first reason is that many people don’t want to file bankruptcy. 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.

 2. You have a lot of Surplus Income or have been Bankruptcy Before

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.

 3. If Your income increases you don’t have to pay more

Further, there is a difference between a consumer proposal vs. 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.

 4. You won’t lose your Assets (car, house, etc.) in a Consumer Proposal

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.

 5. A Consumer Proposal is better for your Credit Rating

When you file a Consumer Proposal your credit rating will be adjusted to R7.  If you file for Bankruptcy your credit rating will be dropped to R9, the lowest possible score.

One warning, not everyone is eligible to file a Consumer Proposal.  It depends on your specific debts and income. To find out if you are eligible to file a Consumer Proposal you need to contact a Licensed Insolvency Trustee  and arrange for a no-charge initial consultation. They will review your situation for free and help you fully explore your options, as well as advise you whether you should, in your specific situation, choose a consumer proposal vs. bankruptcy.